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4 Ways to Drive ESG Success in Private Markets

Environmental, social, and governance (ESG) considerations have become more important as asset managers recognize that incorporating ESG factors into investment decisions can help mitigate risk, enhance returns, and promote positive social and environmental outcomes.

This is why ESG has become a top priority across all asset classes, and private markets are no exception. In fact, private market investors have a unique opportunity to find success through ESG because they exert more direct influence over the companies they invest in. Here are four ways private market funds can drive ESG success:

  1. Incorporate ESG factors in the investment process
    Incorporating ESG factors means evaluating potential investments based on their ESG performance and potential impact. This can be accomplished by conducting ESG due diligence on potential investments and integrating this information into the investment decision-making process. ESG due diligence typically involves assessing a company’s environmental impact, labor practices, human rights policies, and governance structure. By investigating these factors, private market investors can identify potential risks and opportunities that may not be apparent through traditional due diligence.
  2. Engage with portfolio companies on ESG issues
    Once an investment has been made, private market funds can engage with portfolio companies on ESG issues. This involves working with management to identify areas where they can improve ESG performance and develop a plan to address these issues. Engagement takes many forms, including meetings with management, site visits, and shareholder votes. By engaging with portfolio companies on these issues, private market funds can influence company policies and practices, potentially improving ESG performance and sustainability.
  3. Use ESG metrics to measure performance
    Using ESG metrics to evaluate performance involves setting ESG goals and tracking progress towards these goals over time. ESG metrics can be used to evaluate a company’s performance in terms of carbon emissions, diversity and inclusion, corporate governance, and other factors. By tracking ESG performance, private market funds can hold portfolio companies accountable for ESG performance and identify areas for improvement. This can lead to positive change in portfolio companies and help investors evaluate their own ESG investment strategies more precisely.
  4. Collaborate with other stakeholders on ESG issues.
    Collaboration on ESG issues can take many forms, including participation in industry initiatives and working groups, engagement with policymakers and regulators, and partnering with NGOs to address specific ESG challenges. By collaborating with other investors and stakeholders, private market funds can use their collective influence to promote both positive change and sustainable investment practices. Integrating ESG factors into private market investments is no longer optional, but rather a necessity for growth. By taking a proactive approach to ESG integration, private market investors can generate better risk-adjusted returns, attract more capital, and build stronger relationships with stakeholders.

How IVP can help

The IVP ESG Management platform can help private markets funds source, manage, and use ESG data effectively for investing and reporting. IVP also offers an ESG Center of Excellence to help funds establish a reliable framework for ESG investing that enables more efficient portfolio construction, asset allocation, risk management and compliance, and regulatory reporting.

Learn more about the IVP ESG Management platform right now or contact

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