In a positive step for the private equity industry and for investors, the US Securities and Exchange Commission (SEC) has released proposed rules that would require public companies to provide information on climate-related risks, including greenhouse gas emissions, on financial statements and in annual reports.
Winna Brown, EY Americas
Investors have acknowledged environmental, social and governance (ESG) matters as a competitive differentiator — from monitoring portfolio performance to investing in funds that focus on ESG principles. Indeed, the latter continued to soar in 2021. According to Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of projected total assets under management, including funds managed by private equity firms as well as others.
ESG issues have been increasingly top of mind for many private equity (PE) firms, particularly with regard to environmental sustainability, and a number of firms are already using ESG to guide their investment decisions. The EY 2022 Global Private Equity Survey found that 39% of all private equity investors said they had invested in ESG-related products, up from 33% in 2021. The increase was even more pronounced among investors in smaller firms, those with assets of less than $2.5 billion, which rose from 7% in 2020 to 31% in 2021.
The survey also found that 42% of the largest PE fund managers say they consider ESG issues either seriously or very seriously when making investment decisions. In addition, 39% say they consider these issues seriously in certain risk areas. Yet in that same global survey, nearly half of the fund managers who responded said they were hesitant to launch ESG funds due to the concern that they may not provide the risk or return profiles that they believe investors are demanding.
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