The integration of Environmental, Social and Governance (ESG) considerations have emerged as a pivotal force within Private Equity, reshaping investment strategies. Our team of experts are seeing an acceleration of pace that goes beyond the traditional metrics of financial success, with private equity firms seeking to get ahead of the curve, recognising the profound impact that responsible investing has on long term value creation and risk management.
With the importance becoming more and more prevalent within the industry, we’re diving into one framework that addresses these concerns: United Nations Principles for Responsible Investment (UNPRI).
In this blog, we will uncover how the requirements are uniquely complemented by the B Corp framework, positioning companies in a strong starting point to embark on a B Corp journey, enabling an extension of ESG understanding for private equity firms and their portfolio.
Understanding UNPRI
The UNPRI, launched in 2006, aims to incorporate ESG factors into investment decision-making processes. With over 5,000 signatory organisations worldwide, the UNPRI sets out six principles:
- Incorporate ESG issues into investment analysis and decision-making processes.
- Be active owners and incorporate ESG issues into ownership policies and practices.
- Seek appropriate disclosure on ESG issues by investee entities.
- Promote acceptance and implementation of the principles within the investment industry.
- Work to enhance the effectiveness of the principles’ implementation.
- Report on activities and progress towards implementing the principles.
Minimum requirements of UNPRI
Since 2018, the UNPRI has established 3 minimum requirements for signatories:
- Written policies articulating the approach to responsible investment, covering a minimum of 50% of assets under management.
- Formal senior-level oversight and accountability for responsible investment.
- Assignment of responsibility for executing the responsible investment approach to internal or external roles.
How the B Impact Assessment (BIA) aligns with UNPRI
The BIA is a bespoke tool to evaluate a business’s holistic ESG performance and create lasting value. It provides a deep, holistic understanding of an organisation’s impact and identifies concrete and actionable avenues for improvement. To become a certified B Corp, companies need to score a minimum of 80 points within the BIA.
Analysis reveals a direct correlation between the UNPRI criteria and specific areas of the BIA, tailored to measure the unique positive impacts for companies operating within the investment industry.
These areas within the BIA, known as “addenda” are also available for building, real estate and education industries. The purpose of the addenda allows for the BIA to provide more catered insights, aspirational best practices, and accurate benchmarking that would otherwise not be included with such a level of specificity and detail. These areas have a multiplying effect on the points available to eligible companies.
Within the investment industry addenda, numerous BIA questions closely align with the UNPRI minimum requirements. For example, the UNPRI’s minimum requirement 1 is reflected in questions concerning policies for maintaining social and environmental missions, adherence to international ESG standards, and the percentage of assets under management subjected to ESG screening. In addressing Minimum Requirement 2, the BIA examines how companies integrate social and environmental performance into their decision-making processes. Meanwhile, Minimum Requirement 3 is covered in the BIA questions about capacity building and the allocation of staff dedicated to ESG, among other related questions.
How can Private Equity utilise both UNPRI and the BIA?
The alignment between the UNPRI minimum requirements and the finance addenda of the BIA underscores a fundamental convergence in the goals of responsible investing and sustainable business practices. By bridging these frameworks, private equity firms can not only meet the standards of UNPRI but also strive towards comprehensive ESG integration and impact measurement.
With this overlap in content, it is clear that the UNPRI and the BIA do not contradict or compete with one another. In fact, signatories of the UNPRI would actually have a head start in the BIA, specifically within the finance addenda questions. While the UNPRI is focused on responsible investing practices, the BIA is a more holistic assessment of a Private Equity firm’s operational ESG performance. The BIA is also uniquely positioned to not only support PE firms to better understand their own impact, but provides a standardised way to measure and compare the ESG performance across their portfolio.
Partner with Seismic to drive lasting value
As your strategic partner, Seismic supports you throughout the fund and investment cycle, helping you to mitigate risk, capitalise on opportunities and meet regulatory and limited partner expectations with ease and confidence.
Learn more in our guide for driving value creation through the B Corp framework, and discover how we partner with private equity firms to drive lasting value.
