Asian GPs slow implementation of ESG policies - survey

More than 40% of respondents in the survey – conducted in conjunction with AVCJ – have both an ESG committee and a dedicated ESG specialist on staff, compared to 8% in research from 2022. In nearly half of cases, the committee only considers ESG matters – up from 39% a year ago – and one-third of respondents said that at least one person with specialist ESG experience sits on the committee.

This underlines a widespread acceptance of the benefits of ESG. An overwhelming majority of respondents accept that positive ESG metrics make companies more attractive on exit and contribute to smoother sales processes. A similar proportion run non-compliance-related ESG due diligence on most or all targets and include clauses in deal documentation to enhance or ensure ESG compliance.

At the same time, 90% have made no recent changes to ESG policies or put additional work into the implementation of those policies. More than one-third of respondents said they held back because implementation takes time and involves adjustments from multiple stakeholders. For half, though, reluctance to move forward was the result of concerns raised by investment professionals and LPs.

The survey flagged anxiety about the potential conflict between sustainability principles and investment practicality as well as feedback from LPs who, in the words of a Singapore-based managing director, “are concerned about any excessive disruption and changes in the value derived from investments.”

These concerns largely relate to policy design and implementation and GP-LP communication. According to GPs, issues raised most frequently by LPs include reporting on alignment with ESG metrics, approaches to screening portfolio companies operating in industries susceptible to reputational risk, and application of ESG criteria in the management of portfolio companies.

Private equity firms in the region are also making little progress on incentivisation, with only 17% of respondents saying that investment team compensation is linked to sustainability goals and targets. Last year, more than half said they planned to introduce ESG-linked compensation in the future. Now, less than one-third hold this view.

While accepting that it can be difficult to measure sustainability performance in terms that translate effectively into remuneration metrics, the survey noted that links of this type send out a strong signal that an organisation is committed to doing more than simply talking about sustainability.

"The issue is that corporations establish goals around ESG – for example, climate or privacy – and the roles of employees in helping to achieve those goals varies widely. "For example, it is not reasonable to hold the bonus for an accounting executive hostage to the actions of the procurement department,” said Susan Mac Cormac, a partner and co-chair of Morrison Foerster’s ESG group.

“However, there are some companies with whom we have worked, like Nike and HP, that have been doing this well for over a decade and we can help design programs that work for specific companies and asset managers following their examples.”

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• Topics
• GPs
• Advisory
• ESG
• Asia