ESG (environmental and social governance) is an important consideration for the alternative asset sector, and becoming more so every day. If you’re not complying with the new EU regulations on ESG reporting, then you’re putting serious restrictions on your investor markets, and you could even be harming your brand.

Evidence shows that all levels of investors are becoming more insistent that investment firms provide ESG-committed policies, information, and investments selected based on ESG considerations. A recent Preqin report showed almost two thirds of institutional investors said ESG will become a bigger part of the industry. Indeed, they quote one investor: “ESG first, investment performance second.”

ESG-Committed Private Capital Assets under Management by Asset Class

Source: Preqin Pro. Data as of October 2020

Being ESG-committed also has a positive effect on fundraising, proving again that investors want to make a difference and they’d like their investments to be factors for positive change.

Preqin reports that, between 2010-2020, $2.99tn was raised in more than 5,400 funds managed by ESG-committed firms. Further, the average size of ESG funds outstrips non-ESG funds by a margin that just can’t be argued.

Average Size of Private Capital Funds Closed: ESG-Committed vs. Non-ESG Committed Funds, 2011 – 2020 YTD

Source: Preqin Pro. Data as of October 2020

But what about performance? Well, evidence shows returns from an ESG-compliant investment strategy match non-ESG returns, and the return range is much more consistent. Which is why 74% of the 10 largest private capital managers (by AUM) have now adopted ESG strategies.

Further, there’s another new and growing branch of Fund open to the sustainably minded investor: Impact Funds. These are funds that state their clear objective as having positive societal or environmental impact through their investments. The market share for Impact Funds is currently small (Preqin reports 160 Impact Funds from 2010 to 2017, compared with ESG-compliant [767] and ‘regular’ funds [873]), but is expected to grow — as the average performance median 2010-2015 was 14.7%, and raising to c18% in 2016/2017.

Risk/Return of Sustainable Private Equity Funds (Vintages 2010-2017) (Net IRRs are since inception.)

Source: Preqin Pro. Most Up-to-Date Data

ESG is not going away. At this point, alternative asset firms that haven’t adopted ESG strategies should be asking themselves if there are specific reasons why.

Investors are showing they’re firm in the belief that it’s possible to be successful while doing good. And they’re right.

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

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Ian kelly
Senior Vice President Real Estate, Private Equity
Country Manager UK

Toda la información está actualizada en el año 2021. Este contenido ha sido preparado como guía general sobre asuntos de interés únicamente, y no constituye asesoramiento profesional. En ningún caso se debe actuar en base a la información contenida en este documento sin obtener asesoramiento profesional específico. Ninguna representación o garantía (expresa o implícita) se da en cuanto a la exactitud o integridad de la información contenida en estas páginas, y, en la medida permitida por la ley, AUXADI no acepta o asume ninguna responsabilidad o deber de cuidado derivado de cualquier consecuencia que usted o cualquier otra persona que actúe, o se abstenga de actuar, en confianza en la información contenida aquí o por cualquier decisión basada en ella.