ERM and the PRI, the world’s leading proponent of responsible investment, have published guidance on ESG monitoring, reporting and dialogue in private equity.

Launched at the 9th annual Responsible Investment Forum in London, it marks the culmination of a four year project by the PRI to support industry-consistent approaches to incorporating responsible investment considerations across the three stages of fund due diligence, commitment and monitoring with a trilogy of tools for both Limited Partners (LPs) and General Partners (GPs).

This guidance:

  • Builds the business case and provides context for the increasing requests for ESG disclosure in private equity;
  • Gives an overview of how LPs are currently monitoring GPs on ESG integration and how they use the information that they receive;
  • Proposes a flexible ESG monitoring and reporting framework that builds on existing information collected during fundraising and streamlines the information exchange, and is supported by examples of how GPs might respond to the disclosure requests.

Last year, the PRI appointed ERM to conduct research and help develop a framework for ESG disclosure during the lifetime of the private equity fund. Over 70 practitioners contributed to the guidance through interviews, consultation and through a dedicated PRI signatory working group representing 39 LP and GP organizations.

The PRI LP Responsible Investment Due Diligence Questionnaire (published in 2015) and this guidance build on Sections 1 and 2 of the ESG Disclosure Framework for Private Equity (published in 2013), which established LP objectives for ESG disclosure both during fundraising and during the life of a fund. It has always been the intention of the PRI to build on existing efforts to achieve LP-GP alignment and dialogue, including the PRI’s Reporting Framework, and to drive a more systematic and accountable approach towards responsible investment in private equity. With each project, the PRI has consulted its industry association partners (notably the ILPA, Invest Europe and EMPEA) to leverage their pivotal role in raising awareness and promoting standards of best practice in private equity.

Fiona Reynolds, CEO of the PRI, said: “Throughout this project we have experienced an enormous amount of goodwill and collaboration from both LPs and GPs who share a common aim to strengthen and standardize responsible investment practices in private equity.

“As ESG integration continues to gain credence in the private equity industry, disclosure and dialogue remains crucial to understanding when it is being done well and how it is adding value.”

Keryn James, Group Chief Executive of ERM, said: “It has been our pleasure to partner with the PRI and the private equity industry to develop this guidance. The guidance outlines the underlying business case, provides a framework for a more consistent and streamlined approach to dialogue and disclosures between LPs and GPs, and includes examples and case studies to support implementation.

”It is our hope that this guidance will help drive the monitoring and reporting agenda forward and, in doing so, deliver not only improved ESG performance but also protection and enhancement of the value of underlying investments.”

Learn more about ERM and the PRI's guidance on ESG monitoring, reporting and dialogue in private equity