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ESG Report 2023 – Alternative investment managers increase focus on climate change and DEI
The proportion of private equity managers assessing and measuring climate-related risks has risen sharply over the last twelve months, supported primarily by a significant increase among Asian managers. LGT Capital Partners’ annual ESG Report shows that the proportion of managers addressing climate-related risks rose 12 percentage points to 55%. Managers have also made strong improvements in diversity, equity and inclusion (DEI) issues.
LGT Capital Partners’ ESG Report analyzes the activities of 381 managers globally (including 309 private equity managers) to assess the improvements being made in ESG practices. Key findings from the report include:
- Europe continues leading the way in ESG integration, but Asia is catching up quickly. This year, 82% of European private equity managers assessed were ranked "excellent" or "good" for their ESG approaches, compared with 79% for Asian managers. In the US, progress has also remained broadly stable, with 49% of managers earning high marks for ESG integration.
- Private debt managers have made significant progress on climate change: 81% of the portfolio companies analyzed are now assessing their own carbon emissions, up 24 percentage points from last year.
- Hedge fund managers are also moving forward in ESG integration, with the proportion of firms now rated "excellent" or "good" on ESG having risen to 69%, versus 64% last year. This is most likely driven by increasing regulatory requirements and investor demand, although all managers demonstrated some commitment to ESG and recognized sustainability-related risks.
LGT Capital Partners addressing ESG regulation in private equity
Over the last year, LGT Capital Partners has stepped up its focus on the EU’s Sustainable Finance Disclosure Regulation (SFDR) within private equity investments. These efforts have enabled the firm to align all new investment offerings – including primaries, secondaries and directs – with Article 8 requirements under SFDR, which “promote environmental and/or social (E&S) characteristics.” This is in addition to aligning the firm’s impact private equity offering with Article 9 requirements because of the strategy’s explicit sustainable investment objective and impact focus.
Commenting on the survey findings, Tycho Sneyers, a Managing Partner at LGT Capital Partners and PRI board member, said:
“There has been significant progress in how alternative investment managers approach ESG issues in recent years, and this is a trend that has continued over the last 12 months. This shift has been largely supported by regulators demanding greater clarity in how ESG is defined and applied, particularly the implementation of SFDR, which is the most wide-ranging ESG regulatory framework currently implemented.”
The full ESG Report 2023 can be found here.