Asian GPs improving on ESG awareness - AVCJ Forum

"Europe does best on our scoring system, but Asia does well compared to the US," Doug Coulter, a partner at LGT Capital Partners, told the AVCJ ESG Forum. LGT awards its managers a grade of one through four - with one being the highest - based on the quality of its ESG reporting. Just over half the US GPs are ranked four compared to 25% in Asia.

"To get a four you have to say, ‘We have no policy and we don't care,'" Coulter explained. "It is reasonably easy to get a three - you have to be moving in the right direction - and then going from three to two and from two is one is very hard." LGT has four GPs in Asia that are ranked one, and three of them are large-scale global firms.

The role of development finance institutions (DFIs) is also important in raising ESG standards. GPs raising their first funds in less developed markets often rely on the likes of the International Finance Corporation (IFC) or CDC Group to come in as anchor LPs, but these commitments come with strict compliance requirements.

"A lot of firms in Asia have started with DFI capital or had it at some stage," said Brian Lim, a partner at Pantheon who previously worked at CDC. "This has made GPs in general better prepared to take ESG on board."

Southeast Asia-based Navis Capital Partners, which now has $5 billion in assets under management, having closed its seventh vehicle at $1.5 billion last year, is a case in point. Managing Partner Nick Bloy said the firm started paying more attention to ESG in part at CDC's instigation. "It's gone from being a check-box to being a philosophy that effects every decision we make," he added.

Wendy Zhu, managing director at AlpInvest Partners, added that there has been a huge change in the last seven years in terms of ESG efforts. However, the GPs that are most effective maintain a clear dialogue with LPs, and receive strategic input in return.

She cited the example of a Germany-based private equity portfolio company that had to deal with the fallout of revelations that Chinese manufacturers in its supply chain were using prison labor. The company immediately cancelled the contract with the supplier and worked with the GP as well as LPs in the fund on improving processes.

"We worked with the GP and the company to make sure that at board level there is ESG reporting on a quarterly basis," Zhu said. "This is an example of how we can work with GPs and influence how issues are pushed down to portfolio level."

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• Topics
• Regulation
• GPs
• LPs
• Performance
• ESG
• Asia
• Performance
• GPs
• LPs
• AlpInvest Partners N.V.
• LGT Capital Partners
• Pantheon