The financial data and software company, PitchBook, has published a report on their Sustainable Investment Survey 2024. Its main focus is why and how ESG and impact practitioners are implementing their approaches in the face of continuing challenges. The survey has been answered by different types of organisations, including venture capital general partners, fund managers, asset owners, other general partners, private wealth advisories or family offices, investment consultants, fund of funds etc.
The key takeaways from the report include:
- In practice, both ESG practitioners and nonpractitioners decline to make or recommend investments based on environmental, social, or governance concerns. However, 82% of ESG practitioners have declined an investment or recommendation for ESG reasons. This shows a disconnect between what they think ESG is and their own ESG-related practices.
- For around 12% of practitioner respondents, ESG means investing only in companies or assets that face minimal ESG risks and have fully mitigated the risks that they are exposed to. Approximately 7% of practitioner respondents feel the opposite, seeking out companies or assets that are performing poorly with respect to ESG issue areas and then making improvements to their practices as part of the investor’s value-creation strategy. The overwhelming majority, though, is somewhere in between, with the most popular approach erring on the side of selecting “clean” assets with a fairly low degree of risk but the potential to make minor to moderate upgrades.
- In Europe, concerns about ESG appear to center on complying with unclear or onerous regulatory requirements in combination with difficulty collecting and benchmarking data. Those offering funds to the European market must adhere to rules such as the Sustainable Finance Disclosure Regulation (SFDR), which some have felt was poorly implemented and difficult to align to. The top three challenges for ESG in the private markets include (i) understanding of what ESG means varies widely across investors, (ii) difficulty collecting data on ESG factors from portfolio companies, and (iii) difficulty benchmarking whether ESG efforts have been effective due to lack of market data.
- Private equity and venture capital are the strategies in which the most general partners utilize ESG factors and the most limited partners or others award or recommend mandate to investments using ESG factors.
- When impact investors were asked to indicate how they prioritise impact outcomes versus market-rate performance when assessing a potential investment opportunity, more than half said market-rate returns are the priority and only very few respondents chose “we accept concessionary returns”. When asked about how current economic and geopolitical events have impacted their focus on sustainable investing, the most common selection was “stayed the same” rather than “increased” or “decreased”, however European respondents more frequently noted an increase.
- This year, 15% of the respondents have hedge funds utilizing ESG factors as part of their investment portfolio or range of investment recommendations. When a similar question was asked in 2021, only 3% of the respondents incorporated ESG into their hedge fund manager decisions.
- When the respondents were asked whether the assets managers were registering their portfolios in compliance with one or more of the three relevant articles of the EU’s SFDR, only about a quarter said they were.
The full report can be read here.
