Researchers Find PE Firms Lag in ESG

More than half of top PE firms based in the U.S. don’t disclose any information about their ESG practices, according to a new study.


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Private equity firms have a long way to go in demonstrating their commitment to ESG, according to new research.

About 58 percent of top PE firms based in the U.S. don’t disclose any information about their environmental, social, and governance practices, according to new research led by Garen Markarian, an accounting professor at HEC — University of Lausanne in Switzerland, who specializes in corporate finance and governance.

To come to their conclusions, researchers reviewed public information on the top 100 U.S.-based PE firms based on funds raised over the past five years. They analyzed the firms’ own financial reports, media interviews and news, management letters, and ESG content on the companies’ websites.

The authors of the study wanted to address the gap between public and private companies. “While the literature on ESG and publicly traded companies is extensive, there is little research investigating the ESG practices of PE firms,” according to the paper.

The researchers created a separate score for environmental, social and governance practices on each firm. The scores are based on available public information such as environmental case studies, documents outlining environmental initiatives, diversity policies, the percentage of women and minorities in leadership roles, and case studies on social and governance issues.


According to the paper, 11 percent of PE firms had a positive environmental score — meaning they disclosed information on their environmental practices. On social and governance practices, only 39 percent and 9 percent, respectively, of PE firms had positive scores. Although PE firms scored higher on social issues, only 22 percent had an official policy on diversity, equity, and inclusion, according to the research.

Private equity firms may be overstating their ESG commitments. More than 70 percent of the firms only signed ESG initiatives that are dubbed “low commitment,” meaning they are easy to adopt and subject to little scrutiny by third parties, according to the researchers. Only 15 percent of PE firms signed so-called “high commitment” initiatives that would open the firms up to being closely monitored.

“We choose this high-low framework distinction because there is evidence that some frameworks…are often used for greenwashing purposes,” the researchers wrote. They cited the United Nations Principles for Responsible Investments initiative as an example. Previous research suggests that hedge funds signing the UNPRI may underperform their peers, but they attract more investors, amass more assets, and collect more fees, according to the paper.

“In conclusion, our findings underscore the need for greater transparency and accountability in the private equity sector’s approach to ESG practices,” according to the paper. “While some progress is made, there is still a significant gap, especially in terms of disclosure and commitment to high-quality ESG frameworks.”