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Over the past half century, private equity has flourished and become a significant financial asset class in its own right. The size of the industry, coupled with its typical active buy-and-hold strategy, means that there is a meaningful opportunity for it to drive change in the world of responsible investment if there is engagement from the industry’s key stakeholders. Historically, however, there has been a perception by some in the sector that responsible investment is an administrative burden, a distraction from the efficient execution of the deal and an impediment to extracting the greatest value from the investment.

Although there are still some who subscribe to this point of view, there is a growing recognition of the benefits of responsible investment and the application of responsible investment principles having material positive effects on the performance of private equity funds. Despite the shift in sentiment, this has not always translated into firm commitments from fund managers on environmental, social and governance (ESG) matters in fund documents.

Various international non-governmental organisations have been working to progress the engagement of the industry in responsible investment, and at the forefront of this is the United Nations supported Principles for Responsible Investment (PRI). In July 2017, the PRI refocused the industry’s attention on this subject when it issued its guidance on incorporating responsible investment requirements into private equity fund terms (PRI guidance) (www.unpri.org/pressreleases/pri-launches-private-equity-fundterms-guide).

The publication examines:

  • The characteristics of the private equity industry and its participants, and how they shape the integration of responsible investment provisions in fund documents.
  • The key fund documents and how they influence the dissemination of responsible investment provisions among investors.
  • How responsible investment requirements are typically reflected in fund documents.
  • The impact of the PRI and the PRI guidance on the responsible investment debate.
  • The likely impetus for change in ESG provisions in fund documents.

The publication first appeared in the November 2017 issue of PLC Magazine.

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