“Significant progress” has been made on ESG and diversity, equity and inclusion (DEI) efforts at alternative investment managers, while climate remains “a top priority”, according to the 12th edition of LGT Capital Partners’ ESG Report.
In 2014, just over a quarter (27%) of private equity managers had robust ESG management processes in place – indicated by LGT Capital Partners’ ratings of ‘excellent’ or ‘good’. The latest report, however, shows almost three-quarters (73%) of the assessed private equity managers have robust ESG management processes, with 37% scoring ‘excellent’ and 36% ‘good’ on the same methodology.
Over the past 12 months alone, a total of 33 private equity managers have significantly improved their ESG efforts, resulting in a higher rating for their firm. However, LGT also noted a stagnation in percentage changes compared to recent years, which they attributed to the challenges of improving further on already advanced baselines and the increasing complexity of ESG investing.
LGT Capital Partners assessed the ESG practices of 380 alternative investment managers, of which more than 300 are private equity managers.
Tycho Sneyers, managing partner at LGT and board member of the Principles for Responsible Investment (PRI), commented: “ESG practices significantly enhance commercial value by aligning portfolio companies with industry transitions toward net-zero, securing advantages through proactive regulatory compliance and improving operational efficiency, talent acquisition and customer engagement, thereby increasing market share and competitive positioning.
“At LGT Capital Partners, we recognise that driving ESG through actions in the real world requires intensive engagement and that creating truly sustainable investment portfolios is a long-term project with no decisive endpoint. We are convinced that incremental improvement, year-on-year, delivers real outcomes over time.”
Europe maintains lead, DEI awareness continues to grow
Among the key findings in the report, LGT found Europe has maintained its lead in terms of ESG score, with Asia and the US progressing more slowly.
In Europe, half of the private equity managers assessed (51%) are now rated ‘excellent’ (up from 42% in 2023), and 87% are rated either ‘excellent’ or ‘good’ (up from 82% last year), based on LGT Capital Partners’ scores.
The percentage of Asian private equity managers rated ‘excellent’ on their ESG practices has increased from 29% to 34% since 2023. However, the number of managers rated either ‘excellent’ or ‘good’ slightly declined to 76% (down from 79% in 2023).
Meanwhile, the result from US-based private equity managers is developing from a lower basis: This year, 53% of the assessed GPs are positioned in the top two rating levels, compared to 49% in 2023. The ‘excellent’ rating was achieved by 16% (up from 13% last year).
Elsewhere, the awareness for DEI is still growing and initiatives across asset classes have progressed. Private equity managers, for example, have become increasingly mindful of the importance of formalised DEI practices. In 2024, three-quarters (74%) of the assessed private equity managers had their own DEI policy in place, while 69% made use of such information in their investment decisions. According to LGT, this is especially remarkable when looking at a two-year comparison, when those numbers stood at 60% and 51%, respectively.
Hedge fund managers show a similar trend, with most managers having a DEI policy and some best-in-class examples on how to foster DEI emerging.
