There is a growing need for General Partners (GPs) to demonstrate responsible investment behaviour and manage their exposure to environmental, social and governance (‘ESG’) risks in their engagement with Limited Partners (LPs). This trend is also based on the belief that addressing ESG factors will protect value by either improving returns or reducing risk.
PwC’s recent dialogue with LPs reveals that responsible investments will increase in importance over the next two years. Furthermore, a strong majority of LPs would decline to participate in a GP fundraising on ESG grounds.
Responsible investment behaviour is often interpreted by investors as their ‘fiduciary duty’ or in other words the duty to act in another party’s interest. This debate obviously has cost and resource implications which need a practical solution that works for both LPs and GPs.
Many GPs are seeking to differentiate themselves by going the ‘extra mile’ and take this topic seriously. Hence, for Belgian GPs it is important to:
- Clarify your approach to responsible investment
- Explore the value in collaborating with like minded LPs
- Give feedback on how responsible investment adds value
- Translate responsible investment behaviour in measurable KPIs
Related link: PwC’s dialogue with Private Equity