ESG reporting pressures pile on GPs, LPs – AVCJ Forum

David Russell, head of responsible investment at USS Investment Management, observed that LPs have been requesting more ESG information from GPs because LPs themselves have taken on more reporting requirements set down by governments and international groups. This is in addition to growing uniformity in government and corporate adherence to the UN sustainable development goals.

In the case of USS, which runs a pension fund for university employees in the UK, more information is now requested by the likes of EU and UK regulators - for example, scrutiny under the UK stewardship code has intensified in recent years - the UN Principles for Responsible Investment (PRI), and the Task Force on Climate-related Financial Disclosures (TCFD).

“Reporting is very much now moving away from ‘what are your policies and process’ to ‘what difference has it made, how have you reduced energy, how is your staff performing better and therefore making companies perform better,’” Russell said. “It’s those outcomes and case studies that demonstrate what you’re doing is having an impact.”

Suzanne Tavill, global head of responsible investing at Stepstone Group, said that GPs facing difficulties around how to present these data points should consult with organizations such as TCFD and Initiative Climat International. The latter is a group of GPs and LPs, including Stepstone, affiliated with the PRI that aims to share best practice in ESG reporting.

“They’re going to have to decide, do you carbon footprint your entire portfolio? How do you think about applying materiality? How do you deal with supply chains? It’s a complex area, and it’s going to require real costs,” Tavill said. “Standardization has got to be a priority for the industry in this regard.” 

Climate and carbon reporting have been the main focus of recent increases in reporting requirements, but attention is expected to shift toward social issues as a result of COVID-19.

As a result, HR teams will need to be more proactive in tracking employee health and wellbeing, with more reporting at the portfolio company level on issues such as the number of infections, plant closures, office closures, working arrangements, and stress. GPs must help companies tap government financial relief programs not only to maintain business continuity but also as employment support.

“COVID-19 has widened social inequality, which can be seen in different degrees of access to healthcare and education during the pandemic,” said Kim Chong, head of risk management and compliance for the Hong Kong Monetary Authority. “The work from home arrangement means an increasing adoption of media conferencing, which raises concerns over cybersecurity and data protection.”

Ana Lei Ortiz, a managing director at Hamilton Lane, noted that while many investors expected their attention to shift toward operational performance during the COVID-19 downturn, ESG has become a relatively higher priority. 

“In fact, I think we’re now at the point of no return with ESG,” she said. “It’s been so embedded into LPs’ investment processes that there’s no going back to the point where people cared only about pure returns.”

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• Topics
• LPs
• GPs
• Regulation
• ESG
• USS Investment Management
• Hamilton Lane
• Hong Kong Monetary Authority (HKMA)
• Stepstone
• AVCJ Events