In partnership with the PRI, the world’s leading proponent of responsible investment, ERM has created guidance on ESG monitoring, reporting and dialogue in private equity.
The aim of this guidance is to support an exchange of information, underpinned by dialogue, that will keep LPs informed about the ESG characteristics of their private equity investments and the responsible investment practices of their investment managers.
The key objectives of this guide are to:
Build the business case for ESG monitoring, reporting and dialogue in private equity
Chapter 1 provides the context for ESG monitoring, reporting and dialogue by LPs and GPs, explaining why a growing number are dedicating resources to understanding, tracking and communicating on ESG integration.
Support LPs by providing guidance on current practices for monitoring a GP’s ESG management and performance
Chapter 2 gives an overview of how LPs are currently monitoring GPs on ESG integration and how LPs are using the information that they receive. The aim is to support LPs in developing their own monitoring practices but also to help facilitate dialogue and improved understanding between GPs and LPs on how ESG disclosure is used by the LPs.
Create a flexible ESG monitoring and reporting framework that can be adopted by a wide range of LPs and GPs, that builds upon information collected during due diligence/fundraising, and which is aligned with the six PRI principles and existing ESG disclosure frameworks
The ESG Monitoring and Reporting Framework, set out in Chapter 3, has a two-tier format, comprising core and additional disclosures. LPs might tailor their disclosure requirements according to the GP’s strategy, size, experience and resources – and to their own reporting needs, monitoring processes and capacity for processing information. LPs may also want to supplement the framework with additional disclosure requests that meet their own requirements. The framework is cross-referenced to existing disclosure frameworks, including the PRI Reporting Framework and the PRI LP Responsible Investment Due Diligence Questionnaire (DDQ) in Appendix B.
Streamline ESG information exchange by encouraging a more consistent approach among LPs and GPs on ESG monitoring and reporting
The ESG Monitoring and Reporting Framework in Chapter 3, seeks fundlevel disclosures across three categories: (1) policy, people and process; (2) portfolio; and (3) material ESG incidents. Specific disclosures are identified for each category to provide a streamlined focus for monitoring, reporting and dialogue.
Support GPs by demonstrating how they can respond to ESG monitoring requests from LPs
Examples of current GP good practices are presented throughout Chapter 3 to demonstrate how GPs might respond to the disclosure requests from LPs.
Chapter 4 then considers emerging elements of ESG management in private equity, looking at data quality and assurance, the evolving role of technology, and changing attitudes to sustainable development metrics.