Impact Investing Conference

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ESG Makes Inroads Into Private Markets  Institutional InvestorESG Makes Inroads Into Private Markets  Institutional InvestorESG Makes Inroads Into Private Markets  Institutional Investor

Impact Investing Forum 2024

London. April 24-25, 2023.

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Private markets are rapidly embracing investing with ESG goals. According to a Preqin report, Wednesday’s release by Preqin, asset managers who are committed to ESG investing oversee $3.1 trillion or 36 percent of global private market assets. Notably, 49 per cent of private debt strategies are dedicated ESG, which is the highest percentage of any other asset class. This is a striking figure considering that managers of public fixed income strategies have been slower to adopt ESG goals than managers who manage listed stocks. However, ESG-committed managers only brought in 43% of the $950 billion in 2021. Research firm also found that managers and investors still struggle to incorporate ESG metrics and goals into their investments. Private capital must address challenges such as greenwashing in order to be successful in the ESG space. Preqin defined greenwashing as exaggerating the sustainability a fund or investment. The report stated that “a lack of unified standards on ESG helps facilitate greenwashing, making assessing the quality and integrity ESG commitments that managers are making harder.” Investors may find it difficult to verify the claims made by private capital firms if there are no uniform standards for ESG. Managers who are trying to verify the sustainability of portfolio holdings and ESG claims can also be hindered by a lack of data. The report documents a demand that more data and transparency is provided.
The report stated that the focus is on improving industry reporting standards, ensuring climate-related financial risk can be measured, managing them, and identifying commercial opportunities in transition to net zero. The size of an asset manager can affect the disclosure level. The report found that asset managers with greater assets are more likely to disclose more information about ESG. Additionally, the average ESG transparency metric gets stronger as funds’ assets increase. Although low disclosure does not necessarily indicate poor ESG practices at a company, it does indicate a lack of resources, time and data among asset managers. The report predicts that market progress will be accompanied by regulatory and investor demands to “mandate ESG Disclosures and standardize taxonomies surrounding ESG opportunities.” Yury Yakubchyk is the CEO and cofounder of Elemy, which connects users with pediatric healthcare providers in their homes. Elemy, a socially driven business, attracted high-profile investors like Pershing Square’s Bill Ackman. Yakubchyk stated that investors are more inclined to invest in mission-oriented businesses over the past few decades. “Now, the financial community and investment community are playing catch-up. I’ve heard investors tell me point-blank that if a company has a mission that makes sense for their LPs, they won’t invest.” The Preqin report comes at an era when institutional investors and managers are being pressured to commit to a net zero target, another element in ESG. According to a Reuters report, Al Gore, former U.S. Vice president, and David Blood, a new asset manager was announced Tuesday. It will work towards net-zero solutions and contribute toward limiting global temperatures rises. According to the Preqin report, “The hope is for private sector investment to help fund the move towards net zero as well as the technologies that will accelerate the process.”

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ESG Investing Conference