LGT: Bad ESG should not necessarily rule out investment

Secondaries buyers should look for a chance to engage with GPs on ESG before deciding not to invest, says LGT Capital Partners' ESG committee chairman.

Investors, including secondaries buyers, should look to engage with general partners around environmental, social and governance policy, according to the chairman of LGT Capital Partners‘ ESG committee.

Rather than try to remove problematic assets and managers from a portfolio or pull out of a deal, buyers can exert a positive influence in some cases, managing partner Tycho Sneyers told Secondaries Investor.

“A manager doesn’t have to be excellent at ESG in order to receive capital from us, as long as we have a very clear indication that they are willing to join us on the ESG journey,” he said.

A bad ESG rating does not necessarily show that a firm doesn’t care, he added. Newer managers or recent spin-outs may not have had the time or resources to develop their ESG policies, which secondaries buyers can help with.

“The key is to get people to move; firms that make it to a three [‘fair’ on LGT’s ESG scale] very rarely stay there.”

In July LGT published its eighth ESG survey, based on responses from 251 managers in its private equity and credit portfolio. Two-thirds of private equity managers ranked  “excellent” or “good” on ESG implementation, flat on last year and a 37-percentage point increase on the firm’s first survey in 2014.

There is still a marked geographic disparity. LGT rated 81 percent of European managers “good” or “excellent” for ESG, higher than 63 percent of Asian managers and 33 percent of US managers.

Only 5 percent of managers with a fund of more than $5 billion rated “fair” and none “poor”. GPs looking for capital from investors around the world will do well to focus on their ESG credentials, Sneyers said.

“If you want to do a global asset raising, you need to have your ESG pitch in order.”