We are pleased to announce the launch of SIEM 2019 - the Sustainable Investment in Emerging Markets Summit for 2019. During the course of the SIEM Summit, the issues of SDG's, impact measurement, the future of ESG, the growing importance of risk assessments, and the approach to higher risk investments will be addressed in the pleasant atmosphere of the Sheraton in Mayfair.
Most meetings, including those for the ESG Committee, took place over this past weekend and yesterday. While there were some new faces, the majority of participants were regulars, who were happy to connect again, to discuss the situation of private equity in emerging markets.
In addition to SIEM, the ESG Reporting & Transparency Committee was delighted to dip its toes into the water with the publication of the results of a survey launched a fortnight ago among GP's.
But what does this survey tell us?
ESG System and Management
In general, attitudes towards ESG are rapidly changing. The integration of an ESG management system has almost become the norm, with 70% of respondents saying they have fully integrated it.
We firmly believe that this percentage is specific to GPs with operations in emerging markets, where requirements are much higher. Further investigation will be undertaken, but we think respondents are primarily GP's invested by DFI's, which would account for their degree of progress in terms of Management system.
“Risk assessment is a priority, rather than disclosure, however figures also make it evident that respondents are aware of, and understand the tools available on the market”
This percentage explodes when we talk about risk assessment, with 90% of GP’s integrating risk management frameworks, whose 89% the IFC Performance Standards, which clearly stand out as a reference. The figures seem less overwhelming when looking at disclosure, with only 33% using an ESG reporting / disclosure framework. It is clear that risk assessment is a priority, rather than disclosure.
However, the figures make it evident that respondents are aware of and understand the tools available on the market.
“Industry has a long way to go to get their ESG reporting process standardized”
Another interesting figure reveals that 95% of GP's have at least one person whose role is fully or partially dedicated to ESG. While we currently have no benchmarks, this undoubtedly demonstrates the growing importance placed on ESG specialists. It will be interesting to see what the profile of this pool of growing talents is.
“There is a growing importance placed on ESG specialists. It will be interesting to see what profile of this pool of growing talent is."
While impact and impact measurement are an increasingly important concern for both GP's and their LP's, we have barely scratched the surface of this issue. Indeed, 76% of responders assert that they report on their development impact initiatives and seek to understand and integrate the UN sustainable Development Goals.
ESG Data Collection from investees
Considering that more than 70% of ESG data is still stored in emails and Excel tables, figures in terms of data collection from investees are less positive, and certainly highlight market weaknesses in terms of benchmarking. However, these figures should delight companies such as Label R, since 16% of respondents use external software rather than targeted software, designed to automate due diligence, score non-financial risks or benchmark their portfolio.
“Figures highlight market weaknesses in terms of benchmarking, and real opportunities for growth and companies like Label R”
Only 14% describe their ESG reporting process as fully standardized, with 46% stating their ESG reporting process is mostly standardized. It’s a good start, but clearly the industry has a long way to go.
On a more positive note, it is important to highlight that 84% of GP's conduct due diligence prior to investment, requiring all reasonable data needed for their ESG reporting process. About 75% require investees to strive for international standards and implement action plans if gaps exist, while monitoring their ESG work.
The results for external reporting are encouraging, with 84% confirming they prepare annual ESG reports. Despite this figure, the large number of reports (average of 3, but often up to 6), points to the need to improve harmonization in terms of disclosure, while posing great challenges to align LP’s on the same page.
“We definitely need to improve harmonization in terms of disclosure”
This where we touch on in the survey the challenges faced by GP's - the lack of relevant data from investees and unreasonable requests from LP's. In the coming months, we will continue to work within the ESG Reporting & Transparency Committee of the EMPEA, digging deeper into these challenges.
See you in May at the Global Private Equity Conference in Washington, where we will present our next findings.
About this survey
We received answers from 37 global, well-represented respondents.
The vast majority of respondents have between 10 and 24 companies (43%) in their portfolio, with a large majority of minority shareholding between 20% and 50% (56%).
54% of GPs have 2 to 3 funds under management, with sizes ranging from less than 100 million to more than 1 billion.
These funds are mainly active in Africa (54%) and the Mena region, with 54% domiciled in the US (24%), Western Europe (30%).
The industry targets of the respondents are financial services and consumer goods (70% for both).
Download the survey here below: https://static.wixstatic.com/ugd/789baf_b6716713ead142f8bac8d5ce051f1c2a.pdf