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Alternatives managers continue to show improvements in ESG integration

The eighth edition of LGT Capital Partners’ annual ESG Report assesses an expanded universe of 328 managers globally (compared to 304 managers in 2019), grading them on how successfully they have integrated environmental, social and governance (ESG) considerations into their investment activities. Beyond assessing managers, this year’s study also presented key performance indicators (KPIs) on companies in the firm’s co-investment and private debt portfolios.

ESG is high on the agenda of alternative asset managers

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ESG integration: encouraging long-term development

Please learn more about the key findings from our 2020 report in the video.

Private equity managers: Significant long-term progress globally

Private equity managers have progressed significantly in the long-term

  • Proportion of managers rated 1 or 2 is 64%, that represents a 37 percentage point increase since 2014 (when the number stood at 27%)

How the regions compare

All regions show significant ESG integration, with Europe and Asia still out in front

  • 81% of private equity managers in Europe are rated either excellent or good

  • In Asia, 63% of the private equity managers are rated excellent or good, the US trailing with 43% in this category

A look at the Asian private equity managers

Proportion of top-rated Asian managers surpasses 60%

  • The proportion of managers rated 4 dropped to 7% of the total, down from 11% last year

  • 63% of Asian managers now have robust ESG processes in place

Private equity: ESG practices in Europe

Consistent progress in Europe

  • 81% of European managers have achieved ratings of 1 or 2, with only a tiny minority, 4%, who have yet to begin their ESG journeys

  • It shows a nearly three-fold increase in top-performing managers on ESG since 2013 (from 28% to 81%) and a ten-fold decrease (from 41% to 4%) in our lowest-performing (4-rated) managers

Private equity managers: Small managers demonstrate the most progress this year

More small buyout managers improved their ratings

  • This year’s ESG ratings once again bear this out, with top-rated managers (1 or 2) comprising more than 80% of the large and mega buyout cohorts

  • Having said that, managers rated 1 or 2 still account for the majority of small buyout (54%) and middle market buyout (62%) managers in our portfolio

  • More small buyout managers improved their ratings over the last 12 months than any other category of manager

Managers who have these four elements in place are clearly fulfilling their ESG responsibilities

How managers integrate specific ESG practices into their businesses

  • The overwhelming majority of them, 69% to 81% (depending on the element) carry out these core activities

  • We found that 14% to 15% of them (depending on the activity) have started efforts in these areas over the last four years

Private debt portfolio companies: Female headcount

Proportion of female headcount at portfolio companies

  • Currently 47% of employees are female, which is close to parity with the
    population as a whole 

  • This marks a steady improvement from 2015, when women comprised 32% of company workforces in our portfolio

Private debt: Portfolio companies collecting KPIs on ESG factors

Proportion of companies assessing their carbon emissions

  • A steadily growing proportion of our portfolio companies, 47%, currently report on CO2 emissions, which represents a five-fold increase from 2016

ESG Report – scope and methodology

LGT Capital Partners has been publishing its ESG Report annually since 2013. The ESG Report forms part of the firm’s larger ESG due diligence, monitoring and manager engagement process. The assessment serves a two-fold purpose. First, it shows our investors the extent to which managers are considering ESG factors in their investment, ownership and reporting practices. Second, it facilitates our engagement with managers on ESG, highlighting excellence in implementation and flagging areas for improvement. LGT Capital Partners’ analysis is based on assessment of managers across four key criteria: commitment to ESG through the development of specific policies or adherence to broader industry standards (such as UN PRI); the extent to which ESG is formally integrated into investment processes; ownership philosophy and the extent to which managers are active in defining the ESG practices of investee companies; and their reporting on ESG (at both portfolio company and aggregate fund levels). Managers are then assigned an overall rating on a scale of one to four, where one indicates ESG excellence and four indicates little or no institutionalized commitments to ESG practices.

Tycho Sneyers, Managing Partner at LGT Capital Partners and board member at UN PRI

"Continued progress of ESG integration"

“The continued progress of ESG integration by alternatives managers is encouraging to see, and reflects the importance that underlying investors are placing on these issues. The topic of ESG is likely to become even more critical as we come out of the coronavirus pandemic, with the crisis already causing a lot of reflection as to how a wide range of social and environmental issues can be improved. Investors will become even more outcome-oriented as a result, using tools such as the SDGs to ensure their sustainable investment activities have even more impact in a post COVID-19 world.”

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