Operationalizing ESG communications for limited partners of your private equity firm

Northampton, MA –News Direct– 3BL Media

3BL Media breaks down what private equity firms need to know about ESG communications. Explore more resources on our Private Equity Center.

In a recent survey of more than 100 Sponsoring Organizations (LPs), the Institutional Limited Partners Association (ILPA), in partnership with Bain & Company, found that for two-thirds of respondents, environmental, social and governance (ESG) play a key role in their Private Equity (PE) investment policies. Of these LPs, more than half have fully implemented specific ESG policies and a further 33% already partially apply the guidelines. So, with ESG at the top of investors’ minds right now, PE communicators are taking stock of how best to operationalize ESG in their LP marketing and communications.

At the heart of any ESG communication exercise must be a commitment to accountability, transparency, consistency and measurability. Here are some key principles and guidelines to keep in mind when integrating ESG into your plans.

Make sure your company has a clear articulation of its ESG policyIt is important that you work with your firm’s management to ensure that the guiding principles to which the firm is committed are clearly articulated. This will be the foundation that will guide all of your communications, and it will also be the standards against which LPs and other stakeholders will assess your level of engagement.

Many private equity firms around the world have signed up to the United Nations Principles for Responsible Investment. If your company is a signatory, these are the basics to start from. If you are not a signatory, they are a good checklist to start formulating your own set of principles. They include a commitment to:

  1. Integrate ESG issues into investment analysis and decision-making processes.

  2. Be active owners and incorporate ESG issues into ownership policies and practices.

  3. Report on activities and progress made in implementing the principles.

Whatever guidelines you choose to follow, be sure to express your company’s commitment consistently and make it visible and easy to find.

Be ready to offer full transparency and be prepared for scrutinyAs part of their due diligence, LPs come to you with very direct questions about your company’s commitment to ESG. These can be a good guide to fleshing out your ESG communication program and having quality in-depth evidence to support your company’s program. The ILPA ESG Due Diligence Questionnaire for General Partners offers a good checklist of questions to get you started. Some of the questions include:

  1. What are the company’s ESG policies and how do ESG factors influence its investment beliefs?

  2. Does the company have a policy outlining its approach to identifying and managing ESG factors in investment and portfolio management processes?

  3. Does the company make formal commitments regarding ESG integration in fund formation agreements, limited partnership agreements or internal letters at the request of investors?

  4. How does the company identify and manage material ESG-related risks and use ESG factors to create value?

  5. How does the firm contribute to the management of ESG-related risks and opportunities by portfolio companies?

  6. How can LPs monitor and, if necessary, ensure that the Fund operates in accordance with agreed ESG policies and practices, including the disclosure of ESG-related incidents?

  7. What channels does the company use to communicate ESG-related information to LPs?

Communicate regularly and candidly on key indicatorsHaving a solid set of measurable ESG KPIs will go a long way in establishing your company’s credentials as a cause-driven company. Be prepared to define both company-specific and portfolio-wide ESG indicators. When dealing with specific portfolio companies, it can be helpful to have protocols in place for sharing information with their communications teams. It’s not just about collecting metrics, but also gathering the stories and insights that will enrich the image of their and your company’s commitment to ESG.

At the very least, you will communicate via your annual reports about your ESG progress and journey – but it is beneficial to incorporate this into your regular communication programs. Updates on how you are tracking against your set metrics and stories on how the business and your portfolio companies are taking action will build your credibility. Being open about any necessary corrective action shows a real commitment to transparency. Of course, communicating ESG achievements can be a big part of an exit story by highlighting the added value it can bring to an investment or how it mitigates risk.

As more LPs demand more on ESG and more private equity firms commit to the principles, it may not be long before a robust ESG program and well communicated is a requirement before any investment decision. Fortunately, ESG is fertile ground for telling impactful stories that will strengthen your company’s brand position and competitive advantage as a forward-thinking and responsible corporate citizen.

For more resources on ESG communications, visit 3BL Media’s Private Equity Center.

Discover additional media content and more ESG stories from 3BL Media at 3blmedia.com

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