The ESG Integration Paradox

Cappucci, Michael

doi:10.1111/jacf.12296

Cited by 83 publications

(45 citation statements)

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“…We applied these criteria to the ISI Web of Science, specifically searching for any paper whose title, abstract or keywords included "private equity" and "ESG". The database search returned only four responses [40][41][42][43]. Since only a few studies have been found in this limited area, we decided to explore the field by interviewing ESG and PE experts.…”

Section: Methodsmentioning

confidence: 99%

ESG Factor Integration into Private Equity

Zaccone

Pedrini

2020

Sustainability

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Although more and more private equity (PE) firms are integrating environmental, social, and governance (ESG) factors into their investment strategies, there is no clear understanding of their reasons, the details of their activities, the tools they use or the barriers they face. Our study covers these gaps and provides an overview of current trends. We adopted a mixed-method approach, using both qualitative and quantitative data. We first interviewed ESG and PE experts and then submitted a survey to top PE players. Most PE firms integrate ESG issues because investors and other stakeholders pay increasing attention to them. We found that the tools used to assess ESG factors are checklists and that only a few PE firms used external advice from industry experts. Among the main barriers that PE firms face are difficulties in finding information and the lack of a comprehensive way to measure ESG issues. Our findings reveal that PE firms have two main approaches to ESG integration—risk management and value creation—and that the former is dominant. We contribute to the literature by explaining ESG integration in the PE industry and showing that an opportunity for value creation is being missed.

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Section: Methodsmentioning

confidence: 99%

ESG Factor Integration into Private Equity

Zaccone

Pedrini

2020

Sustainability

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“…While transition preparedness analysis is possible with an active approach, unfortunately only very few do it (Cappucci 2017;Mooij 2017b). Ironically, part of the reason is that the low relevance of ratings has made many analysts overly sceptical of ESG.…”

Section: Achieving a Change In Mindsets And Methodsmentioning

confidence: 99%

Investing for long-term value creation

Schoenmaker

Schramade

2019

Journal of Sustainable Finance & Investment

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In the transition to a sustainable economy, companies are increasingly adopting the goal of long-term value creation, which integrates financial, social and environmental value. However, institutional investors struggle to invest for long-term value creation and perform the social function of finance. Traditional investment approaches, based on the neo-classical paradigm of efficient markets and portfolio theory, only capture financial value in their financial risk and return space. Attempts at ESG integration are typically too shallow to overcome this problem. In this paper, we examine the set of issues that make this problem so stubborn and we outline the contours of an alternative paradigm, based on adaptive markets, that is better able to pursue long-term value creation. This long-term investment approach includes short investment chains, active management that assesses companies' transition preparedness, concentrated portfolios, and deep engagement.

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“…12. Cappucci (2018) has noted that most firms 'pay heed to sustainable investment principles while demonstrating a less than plenary commitment to ESG practices', the cause of which (among others) is a lack of standardized ESG performance evaluation. 13.…”

Section: Notesmentioning

confidence: 99%

Applying ‘Deep ESG’ to Asian private equity

Long¹,

Johnstone

2021

Journal of Sustainable Finance & Investment

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At this stage of Asia's development there is a need, and an opportunity, to establish a validation methodology that better gauges ESG implementation and sustainability aspirations in Asian private equity. Private equity, like major public market and debt investors such as Blackrock, has adopted language that suggests a proactive approach to ESG management. However, processoriented ESG compliance presently far outstrips evidence of tangible contributions to ESG objectives and outcomes. This article describes a taxonomy of common approaches to ESG investment practices in Asian private equity and discusses their shortcomings. It then presents 'Deep ESG' as an alternative approach that operationalizes ESG and sustainability metrics more holistically than existing frameworks. The Deep ESG framework enables a higher level of market-led intentionality that better informs institutional investors, regulators, communities, and employees as they evaluate private equity's 'balance sheet' of ESG outcomes. By investing in tools for goal setting, measurement and evaluation and applying them consistently across all target and portfolio companies, private equity managers can pivot away from a defensive approach by working with stakeholders to shape constructive solutions to urgent sustainability goals.

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The ESG Integration Paradox

Cited by 83 publications

References 0 publications

ESG Factor Integration into Private Equity

ESG Factor Integration into Private Equity

Investing for long-term value creation

Applying ‘Deep ESG’ to Asian private equity

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