How Private Equity Can Measure Responsible Investing
In recent years, responsible investing has gained significant traction in the financial world as investors increasingly prioritize environmental, social, and governance (ESG) factors in decision-making.
Private equity (PE) firms — known for their long-term investment horizon and active involvement in portfolio companies — are also recognizing the importance of responsible investing. However, measuring the impact of ESG initiatives in private equity can be challenging.
Explore how PE firms can effectively measure responsible investing efforts and drive positive change.
Integrating ESG factors
The first step for PE firms to measure responsible investing is to integrate ESG factors into their investment analysis and decision-making. By considering environmental and social risks, governance practices, and sustainability initiatives, PE firms can identify opportunities to create long-term value while mitigating potential risks.
Impact measurement metrics
PE firms should establish clear and measurable ESG metrics to track the impact of their responsible investing efforts. These metrics can include greenhouse gas emissions reductions, diversity and inclusion initiatives, employee satisfaction scores, community engagement activities, and governance practices. By regularly monitoring and reporting on these metrics, PE firms can demonstrate their commitment to responsible investing.
Stakeholder engagement
Engaging with stakeholders, including investors, portfolio companies, employees, and the broader community, is essential for measuring responsible investing in private equity. By soliciting feedback, conducting surveys, and hosting dialogue sessions, PE firms can gain valuable insights into the effectiveness of their ESG initiatives and identify areas for improvement.
Third-party verification
To enhance credibility and transparency, PE firms can seek third-party verification or certification of their responsible investing practices. Independent organizations such as the Principles for Responsible Investment (PRI), the Sustainability Accounting Standards Board (SASB), and B Lab offer frameworks and tools to assess and benchmark ESG performance.
Continuous improvement
Responsible investing is an ongoing journey, and PE firms should continuously evaluate and enhance their ESG strategies. By setting ambitious goals, establishing a culture of accountability, and fostering innovation, PE firms can drive positive change and create sustainable value for all stakeholders.
How we can help
At CLA, we help organizations measure responsible investing. For private equity, this requires a holistic approach that integrates ESG factors, establishes impact measurement metrics, engages stakeholders, seeks third-party verification, and focuses on continuous improvement. By prioritizing responsible investing practices, PE firms can not only generate attractive financial returns but also contribute to a more sustainable and inclusive future.
Craig Arends is a principal at CLA and is the managing principal of CLA's private equity practice. Craig brings a concentration of experience in providing accounting and transaction structuring advice for leveraged recapitalizations, purchase accounting and SEC reporting, assessing quality of earnings, and GAAP accounting. He has far-reaching experience with critiquing financial models and reviewing target companies' financial performance to identify cost reductions and/or operating efficiencies Craig has more than 30 years of experience in public accounting serving public companies, private equity groups, and companies, including a term as principal in charge of a Big Four Capital Markets Group in Moscow, Russia. He has led financial accounting due diligence projects for private equity investor groups and venture capital funds, primarily in the technology, communications, and manufacturing industries, as well as assisting with Foreign Corrupt Practice Act matters ranging from investigation of payments made, validation of compliance with corporate policies, and review of proposed transactions to ensure compliance. When not working, Craig enjoys watching any sports, but his most favorite are baseball, football and soccer.
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