ESG in the Top 100 US Private Equity Firms

Abstract

We look at the ESG practices of the world’s largest private equity firms, representing more than $1.5 trillion of committed capital and directly employing 12 million individuals. We find that the ESG practices, and their corresponding disclosures, significantly lag behind that of publicly traded industrial firms. Roughly 58% of the top private equity firms disclose zero information about their ESG practices, and two-thirds of those that disclose, have sparsely populated and uninformative ESG information. Although 39% of firms have activities related to the S-dimension of ESG, only 19% of firms have at least 10% women on their board or as top executives. We create a comprehensive ESG score, including sub-scores for E, S, and G. Buyout funds, the number of PE employees, and listing status, positively load on our ESG score. IRRs do not predict ESG scores overall, but are related to higher social scores. As evidence of greenwashing, 71% of firms are signatories to ESG initiatives that are easy to implement and are subject to lower accountability, including buyout and publicly held funds. On the other hand, 15% of firms are signatories into high quality ESG frameworks, and their commitment is reflected by an increased workforce.

Keywords: Private Equity, Risk, ESG, Greenwashing, Net-Zero, Frameworks, Environmental, Social, Governance

JEL Classification: G31, G32, G34, M40