The pace at which private equity (PE) funds are incorporating sustainability elements into their investment strategies has slowed in the last 12 months despite ever greater demand from investors, suggests recently published research.
The second Asia Funds ESG Report from law firm Morrison Foerster, titled Putting the Sustainability Puzzle Pieces in Place, found that 90% of respondents have made no recent changes to their ESG policies. Nor have they worked on the implementation of those policies.
The survey shows that PE funds are well aware of the importance of ESG. Close to half (43%) of respondents have both an ESG committee and an ESG specialist at their firms, which is an 8% increase on last year’s findings.
Similarly, there is wide recognition of the potential for sustainability to improve performance given that 84% of respondents believe positive ESG metrics will increase a company’s valuation while 91% have invested in a company with negative ESG metrics in the hope that improving those scores will increase valuations.
The vast majority (84%) also conduct ESG-themed due diligence on any prospective investments. However, only 23% have pulled out of a deal upon discovering adverse ESG issues during that diligence process.
The survey also revealed some of the operational obstacles hindering firms’ sustainability efforts. More than half (53%) cited the need to keep pace with rapidly evolving regulatory regimes as their biggest challenge while 43% cited a lack of transparency and reliability with ESG data.
In addition, there are some competing priorities at firms – namely the need for more tech innovation which is putting downward pressure on ESG integration, according to 50% of respondents.
“My clients definitely understand how incorporating sustainability considerations in their investment and asset management processes can increase a company’s valuation and mitigate risk from future regulatory requirements,” said Marcia Ellis, global co-chair of Morrison Foerster’s global Private Equity Group.
“However, as the discourse and debate around sustainability matures globally, it’s also clear that ESG policies and their implementation will look different here in Asia due to various regulatory regimes, geopolitical developments, and macroeconomic factors.”
The survey canvassed 100 Asia-headquartered private equity funds.
©2023 funds global asia 
At times like these, HSBC Asset Management easily pivots towards emerging markets.
The spotlight on growth markets and the need to be nimble and dynamic is ever-sharper, given the difficulty in predicting monetary policy in the world’s major nations.
A comprehensive, cost-effective, and transparent currency overlay hedging solution is crucial to mitigate FX exposure risks in the complex landscapes of Japan and China's FX markets, explains Hans Jacob Feder, PhD, global head of FX services at MUFG Investor Services.
Contradictory market sentiments from commentators have impeded the decision-making powers of the first wave of AI-powered ETFs, says Alvin Chia of Northern Trust Asset Servicing.
The world is transitioning from an era of commodity abundance to one of undersupply. Ben Ross and Tyler Rosenlicht of Cohen & Steers believe this shift may result in significant returns for commodities and resource producers over the next decade.
Ross Dilkes, fixed income portfolio manager at Wellington Management, examines the opportunities and risks for bond investors presented by the region’s decarbonisation agenda.
Shareholders in Japan no longer accept below-par corporate governance standards. Changes are taking place, but there are still areas for improvement, says Tetsuro Takase at SuMi Trust.
