Responsible Investment Profile: LGT’s Tycho Sneyers
The election of Tycho Sneyers to the board of the UN-backed Principles for Responsible Investment (PRI) in 2017 comes off the back of increased scrutiny of the scheme’s accountability. The Drawdown speaks to the LGT managing partner about the state-of-play for ESG in private equity and his plans to listen to the ideas and concerns coming from the asset class.
The Drawdown (TD): As the PRI’s first ever board member to come from the private equity industry, will you use your position to make sure that GPs embrace ESG and responsible investment further than they currently do?
Tycho Sneyers: (TS) I think the first thing I can do is share my private equity knowledge with the board as the PRI plans new initiatives going forward. In their call for board candidates last year, they specifically asked for people with private assets experience to come forward, so we at LGT Capital Partners are happy to be able to add our experience to the board.
We think we can help to shape future initiatives in ways that make them more relevant to PE managers. This can include activities like PRI in Person, the PRI’s annual investor event, where we are eager to provide input on how the PRI can add more content in the conference that is relevant to both private equity asset allocators and managers. For its part, the PRI has already shown an interest in getting our views on this subject.
We believe we can use such events to raise the profile of PE in the ESG space, showcasing the industry’s ability to drive change in companies in ways that few other asset classes can. With PE’s significant control over companies and its long-term ownership approach, the industry is ideally suited to delivering on investors’ ESG expectations and the sustainable development agenda.
My board responsibilities will also include serving as a responsible investment ambassador and reaching out to private equity managers. Listening to their ideas and concerns is going to be part of those activities.
TS: Both are indeed important private equity topics, especially in the textile and consumer goods space, where supply chains often reach deep into emerging markets with less established ESG standards. The PRI’s newly published guidance document is designed to help PE managers to engage with companies on this very issue.
However, many other issues out there are also important to private equity investors, depending on the kind of company they are invested in. For example, climate change – and specifically carbon footprint – are fundamental for an industrial company, while maintaining biodiversity will be a greater concern for a food producer. At the same time, gender diversity will be a significant topic in sectors where people are the most important assets of companies, such as financial services and IT.
In short, there are not just a few hot-button issues for PE managers. They invest globally across most industry sectors, and the ESG issues they have to manage will depend on the respective geographies, companies and industries.
TDD: Accountability was a key issue for the PRI last year and is set to remain so in 2018, given the plans to set minimum criteria and potentially delist signatories who fail to make progress on those. Are you worried that private equity firms might end up among the worst offenders?
TS: Being a member of an organisation comes with obligations, and this is particularly true for an aspirational initiative like the PRI, so I fully support the accountability push. The requirements are very reasonable and firms have two years to get their act together if need be. No doubt there will be some PE firms among the 200 signatories who currently do not meet the minimum requirements, but I have not yet had a chance to see the detailed data on this topic.
However, I doubt many private equity firms would be among the worst offenders. At LGT Capital Partners, we have been conducting an annual survey and assessment of our private equity managers’ ESG practices over a number of years, and it shows steady improvement globally. For example, in our 2017 survey, we found that 55% of our managers globally have ESG practices that we describe as “excellent” or “good,” versus just 27% of managers falling into these categories four years ago.
Undoubtedly, there are geographies or parts of the industry that are slower to adopt ESG standards, such as the US, but the lack of traction there is not unique to the private equity industry. It simply reflects the slower pace of ESG uptake in the market, but even that is changing, as we are seeing increasing interest in the topic among US asset allocators and asset managers.
TD: Some of the private equity houses approached by The Drawdown have shared unease over the burden the PRI can represent for signatories in terms of reporting requirements. Do you believe the scheme remains a relevant, effective tool for GPs?
TS: With respect to the PRI’s reporting requirements, I can speak from LGT Capital Partners’ own experience. Completing the first-ever reporting exercise can seem to be an effort – especially in private equity, where some data might be more difficult to get than for, say, investors in public companies. On the other hand, private equity reporting practices have improved over the years, so we have not found the PRI’s annual survey difficult to complete. The PRI has taken on board a lot of signatory feedback over the years to make it easier. I think that part of my responsibilities as a new board member will be to engage in further discussions to better understand the concerns of private equity managers.
With respect to relevance, I do think the PRI has made and will continue to make solid contributions to the ESG challenges of private equity managers. For example, in 2015 it launched the Limited Partners’ Responsible Investment Due Diligence Questionnaire to encourage the use of a standardised ESG due diligence questionnaire in private equity.
More recently, in 2017, the PRI launched a Working Group on PE Monitoring and Reporting, which is looking at how private equity managers can more effectively and efficiently monitor and report on ESG practices in their portfolio companies. Such guidance will help in the important task of establishing standards in ESG practice. Part of my mission as a board member is to help raise awareness of such activities and to encourage private equity managers to engage on the topic.