As is the case with traditional asset classes, ESG investing has fast become a de-facto must have within private assets. Simply put, managers that are not able to offer evidence of ESG investing and reporting to their investors will struggle to remain relevant.
Drivers for the continued growth of ESG in Private Assets typically relate to two key areas:
Continued and growing client expectations and demand
The regulatory agenda
While global client demand has been around for some time and only looks to grow, 2021 will be an interesting year for regulation, particularly in Europe. From March 2021, AIFMs will need to make extensive ESG and sustainability risk disclosures. With technical standards looking to be released by ESMA as early as Dec 2020, AIFMs will only have three months to work out how to comply – a challenging timeframe to interpret requirements and implement change.
With the continued growth in this space, we expect 2021 to be a hotly contested year for leadership in Private Assets ESG capabilities. With the persistent challenge relating to the availability of data when compared to public counterparts, leading managers will be those able to differentiate their products and funds through the sourcing and provision of high-quality data delivered in digestible packages to investors. To do so, managers will need to implement wholesale changes encompassing the entire investment lifecycle with a specific focus on: Product Launch, Deal Due Diligence, Portfolio Management and Client Reporting. Managers should look to invest in capabilities across the lifecycle either internally, externally via innovative third-party propositions and technology solutions, or look to hybrid solutions.
Eventual leaders will be those able to capture extensive and specialised data for each asset class, e.g. building efficiency within Real Estate or board composition within Private Equity portfolio companies, and subsequently tailor reporting to investors as required, e.g. to recognised frameworks such as the UN Sustainable Development Goals or blended across assets classes in a consistent manner.
To learn more about ESG and RI, and what it means for asset managers, please reach out to Alpha.