Multiple sides of the ESG definition

GPs and LPs see the definition and measurement of impact outcomes as well as the benchmarking of non-financial goals as the biggest issues in impact investing.

According to PitchBook’s Sustainable Investment Survey 2022, both groups identified the adoption of an internal ESG strategy at firm level as the most crucial step to developing a sustainable investment program. On the other hand, both sides viewed external experts as well as the appointment of dedicated in-house resources as the least important aspects.

The survey collected 552 responses, of which 37% were GPs, 23% were LPs, 11% were both and 29% were classified as ‘other’.

Making an impact
The results highlighted a widely varied understanding of sustainable investing across investors as the third biggest hurdle. Correspondingly, a third of LPs don’t conduct sustainable investment, 16% use custom and 12% standardised frameworks.

On the other side of the coin, a third of all GPs use custom frameworks to assess impact investing whereas a fifth relies on standardised frameworks. And another 21% don’t do any impact investing work.

And while both parties highlight the importance of measuring the success of sustainability initiatives, close to a third of GPs and 40% of LPs are still uncertain as to what ESG mean concretely for their organisation.

On the importance of being certain
According to PitchBook, the environmental compliance & impact aspects of ESG remain most important to nearly half of GPs and 37% of LPs.

When it comes to impact investing, a fifth of both rate investment returns as the second biggest factor. On committing to or recommending a fund, 23% of LPs say performance is decisive, with close to 60% evaluating investment managers on their ESG risk factor framework.

Subsequently, a quarter of all LPs said that over 75% of their asset managers have a sustainable investment approach incorporating ESG factors, close to 30% state that number to be less than 25%.

However, GPs are increasingly interested in addressing social issues compared to LPs. While the latter highlight a focus on governance issues, which sees only around 13% of GPs in agreement.

This dichotomy is further visible in the parties’ impact investment priorities. While GPs seek a ‘clean’ portfolio, demonstrating the least interest in ‘needs improvement’ companies, the reverse is true for LPs, according to the report.