Mumbai: A majority of institutional investors believe in making responsible investments and will decline to take part in a private equity fund-raising or would turn down a co-investment on environmental, social and governance risk grounds (ESG), says a study.
"More than two-thirds or 71 percent of the Limited Partners (LPs) said they would decline to participate in a General Partners?s (GPs) fund-raising, or turn down a co-investment, on ESG grounds," Multinational professional services network PricewaterhouseCoopers (PwC) says in a study.
The findings were based on the interview of 60 LPs in 14 countries, which collectively allocate around USD 500 billion to private equity fund managers, or GPs.
It said 18 percent of LPs interviewed have withdrawn from an investment or withheld capital on ESG grounds.
"Managing exposure to ESG risk issues and risk mitigation is clearly a significant issue for LP's investing in Europe. They see it as much an investment risk, as a reputation risk," Sanjeev Krishan, leader (private equity), PwC India said.
"Interestingly many non-European investors are taking this seriously, and while most realise that emerging markets like India are only warming up to the concept, this awareness will definitely help over a period of time," he said.
He said many sovereign or pension funds already focus on ESG risks in a big way when making direct investments in India.
While there was broad agreement from investors that ESG creates value, both for society and shareholders, respondents say it is difficult to quantifying reputational value or risk reduction and to incorporate it into investment criteria.
The study said 88 percent believe responsible investment adds financial value in private equity.
It also said ninety seven percent of the respondents expect responsible investment to increase in importance over the next two years, with fiduciary duty, reputational risk and corporate values ranked as the top three reasons for responsible investment.
