PwC Luxembourg’s new report found that 76.4% of limited partners intend to stop investing in non-ESG private market products and that 77.3% of general partners intend to stop offering these products, suggesting a shift towards an “ESG or nothing” investment philosophy.
“The global private markets landscape is on the verge of a substantial ESG-led transformation. LPs [limited parters] across the world have been increasingly focusing on ESG considerations across the different PM asset classes, while GPs [general partners] who fail to adapt to changing investor demands risk losing business from the fast-increasing number of ESG-oriented investors,” said , financial services market leader at PwC Luxembourg. “While opportunities and challenges vary greatly from region to region and asset class to asset class, the key message remains the same: rethink the status quo and view your operations and licence to exist through an ESG lens.”
The report surveyed 300 general partners and 300 limited partners across the European Union, the United Kingdom, the United States and the Asia-Pacific region. Here are a few key takeaways from the report.
Over half are satisfied with impact of ESG regulations
The European investment community appears to have “welcomed” ESG-related regulatory developments, such as the Sustainable Finance Disclosure Regulation (SFDR) or the EU Taxonomy, said the PwC report. Most had a “largely favourable view” of the impact that ESG-related regulations have had on Europe’s private markets.
One of the more marked differences between limited partners and general partners centred around greenwashing concerns. While 63.8% of LPs are satisfied or very satisfied with the impact that the EU’s ESG-related regulations have had on addressing greenwashing concerns, only 49.2% of GPs share this view.
“This diverging view is likely attributable to the fact that greenwashing concerns are primarily expressed by investors,” said PwC Luxembourg’s report, “while GPs in the EU may be in the belief that they have already implemented strong internal and external policies to ensure that they do not, wittingly or unwittingly, engage in any form of greenwashing.” They “may see the regulations as an additional compliance burden rather than as a guidance to prevent greenwashing.”
Notable efforts to address increased demand for ESG disclosure
65.1% of EU general partners said that they agree or strongly agree that recent EU regulatory developments had led to their organisation upscaling its ESG reporting efforts. 70% of limited partners said that they agree or strongly agree that the regulatory developments have led to a “notable increase” the quality and transparency of ESG reporting efforts by general partners.
But concerns around compliance remain
Almost half of European LPs--46.3%--cited compliance timelines that are too short as one of their concerns related to sustainability regulation such as the SFDR or EU Taxonomy. This figure was slightly lower for European GPs (41.3%). General partners were more worried about sustainability regulations conflicting with national-level regulations, a concern that was named by 46% of GPs.
The burden surrounding compliance--time, costs, personnel, etc.--was also a common concern amongst both European LPs (43.8%) and GPs (42.9%). For general partners in particular, many mentioned difficulties with gathering and reporting on an increasingly wide range of ESG data requirements, said the PwC report.
Find the full “GPs’ Global ESG Strategies: Disclosure Standards, Data Requirements & Strategic Options” report .