Private Equity Groups Fail to Put Value on ESG Efforts, PwC Says

Private equity firms still mainly gear their environmental, social and governance management towards risk, rather than opportunity with less than 15 percent calculating the value they create through ESG activity, according to a report by PricewaterhouseCoopers (PwC).

The report, Putting a Price on Value, is based on a survey of more than 100 private equity groups in 18 countries, managing more than $860 billion in assets. While 71 percent of respondents include ESG management in their due diligence at acquisition, most firms are missing an opportunity to put a value on improvements they’re making within their portfolio companies, PwC says.

Instead, ESG management within private equity firms primarily is driven by risk management and investor pressure. Opportunity, corporate values, regulation and senior partner pressure also are pushing forward ESG management, respondents said in the survey.

The survey found that 88 percent of portfolio companies formally report ESG results to their private equity sponsors. The majority of private equity groups (79 percent) believe investor interest in ESG issues will increase in the next two years.

US-based private equity groups are ahead of their global counterparts when it comes to putting a dollar value on ESG efforts. Some 60 percent of US private equity firms estimate the value of environmental initiatives, far higher than the 14 percent global average, according to the report.

ESG Analytics last month launched a software platform designed to measure and monitor ESG factors and help private equity firms make investment decisions. While the PwC survey and other studies have shown increased awareness around ESG issues, investors continue to face barriers when it comes to implementing such strategies.

The most common barrier for investors is the lack of effective and meaningful ESG metrics, particularly those that can be applied across disparate portfolio companies, according to PitchBook’s 2012 Private Equity ESG Survey and Malk Sustainability Partners’ ESG In Private Equity – 2013 Study.