ESG in Private Equity: How To Write a Responsible Investment Policy

Authors

• Nandini Hampole

  Former Associate Director, BSR

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  David Korngold

  Managing Director of BSR Innovation Group, BSR

  

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  David Korngold

  Managing Director of BSR Innovation Group, BSR

  

  New York

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  David partners with corporate boards, executives, and investors to develop high-impact sustainability strategies. As part of BSR’s Transformation team, he co-leads engagement with boards of directors to promote effective board governance and leadership ambition on sustainability. 

  Having previously led BSR's Financial Services team, David continues to work closely with financial companies on sustainability, ESG integration, and impact investing. David has led engagements in nearly all of BSR’s focus areas and major industry groups. This includes leading climate scenarios workshops with boards, creating net-zero road maps for investment firms, designing and operationalizing a leading impact investing fund, conducting materiality assessments, undertaking human rights impact assessments, and co-authoring research on topics like ESG for emerging public companies and responsible investment policies for private equity firms.

  Before joining BSR, David worked in strategy and management consulting at Bain & Company.

  David holds a BA in History from Amherst College.

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  Full Bio

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Over the past 10 years, the private equity sector has seen responsible investment approaches move from exception to expectation. Formalized integration of environmental, social, and governance (ESG) considerations is becoming the norm.

A diverse group of stakeholders—from investors to portfolio companies to employees—increasingly expect that General Partners (GPs) at private equity firms to demonstrate that they invest responsibly and incorporate ESG factors into their investment decisions. Furthermore, as ESG factors increasingly affect the business value of portfolio companies, GPs are recognizing the benefits of taking a more structured approach to ESG integration.

As a result, GPs that do not yet have formalized approaches to responsible investment are moving quickly to develop the policies, management systems, reporting tools, and follow-up initiatives to meet evolving stakeholder expectations. GPs already pursuing formalized approaches ought to update their efforts on an ongoing basis to match evolving practices. For all firms, a meaningful policy is fundamental to responsible investment and ESG integration.

This paper will outline a straightforward approach, principles, and tips to use in developing a responsible investment policy. We aim to provide firms with general guidance to facilitate the development of strong policies that address common policy considerations while at the same time tailoring the language to suit its unique circumstances and material ESG considerations. In doing so, we hope that we will enable the adoption of more effective responsible investment approaches and ESG management practices at firms and their portfolio companies, and to encourage capital deployment towards a more sustainable future.