ESG reporting: Asian private-equity firms must pull up socks amid mounting regulatory and investor scrutiny
- Mainstream private-equity funds need to ramp up data gathering to demonstrate how ESG issues are integrated in their investment processes, law firm Morrison Foerster says
- Survey of 100 Asia-headquartered fund general partners with over US$1 billion in assets under management shows only 29 per cent always require the inclusion of clauses in investment documents to enhance or ensure ESG compliance
Mainstream private-equity funds have increased their focus on ESG issues amid growing investor expectations and reporting requirements, but will need to ramp up data gathering to demonstrate how such issues are integrated in their investment processes, according to law firm Morrison Foerster’s (MoFo’s) Global PE Trends 2022 and Outlook for 2023 report released last month.
“We anticipate that asset managers will need to granularly substantiate the economic drivers for ESG investment philosophies, highlighting how ESG considerations are critical to enterprise value and the real risks posed to assets if companies fail to take into account ESG considerations,” MoFo said in the report.
The law firm’s survey of 100 Asia-headquartered fund general partners with over US$1 billion in assets under management, including managers of private-equity firms, showed that less than half of respondents conducted ESG due diligence on every deal.
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The survey, conducted by the Asian Venture Capital Journal in the third quarter of last year, showed that only 29 per cent of funds said they always required the inclusion of clauses in investment documents to enhance or ensure ESG compliance, while only 38 per cent required regular reporting and disclosures of key performance indicators (KPIs) relating to ESG.
“The lack of teeth in deal documentation and lack of transparency, as most respondents do not require ESG KPI reporting, makes the risk of greenwashing a significant problem for many firms,” the law firm said in its survey report.
