Shoosmiths shares market insight on ESG investment

Earlier this month Pitchbook released their 2023 Sustainable Investment Survey. The survey includes data trends and nuanced industry views on impact investing and ESG frameworks, posing questions about how we can balance investing for profit and investing for purpose.

Partners from Shoosmiths’ banking and finance and private equity teams share their views on the survey’s results and provide insight from their respective markets with regards to ESG. 

Rebecca Mauleverer, partner and head of Shoosmiths national banking and finance team said: “Fascinating insight (as always) from PitchBook in the results of their 2023 Sustainable Investment Survey.

“The results are largely reflective of what we’re seeing in the market; particularly the shrinking middle ground when it comes to ESG focus by investment firms. The results are an ‘indication of the polarization of sustainable investing views’, with many investments firms seemingly either all in or sitting tight. 

“Another key take away for me was that the ‘E’ in ESG continues to be a focus area ahead of the ‘S’ and the ‘G’ (in that order) with energy and climate by far the most common ‘Impact Investing’ focus categories. I suspect these headliners will retain their leading roles until we see some international common standards with a wider reach; the data clearly shows that measuring, reporting and benchmarking ESG data remain a challenge globally across the board. 

“Unsurprisingly, perception that sustainable investing negatively impacts returns was also perceived a big challenge. Ultimately, the numbers still matter; for those already making headway it’s been worth it. Many of those lagging behind seem to be choosing to sit tight for now, and with focus on sustainable investing apparently decreasing for many due to geopolitical and economic events, I can’t see the polarization shrinking any time soon.”

Amit Nayyar, partner and head of Shoosmiths’ national private equity team said: “As ever within PE investment, increased regulation brings challenges and opportunities.

“The burden: European GPs (or those with EU LPs) are subject to a raft of new legislation designed to help the EU meet its obligations under the 2030 Agenda for Sustainable Development. This includes the Taxonomy Regulation (EU) 2020/852 which sets out objective sustainability standards across the EU, with detailed disclosure obligations on investors.

“Different GPs are at very different stages of their ESG integration - but it's a journey every fund manager (large or small) is on. This democratisation of ESG practices is surely a positive trend for the reputation of the sector - and reputation has never been more important than in the current fundraising climate.

“And for the smartest GPs this isn’t just a question of greenwashing or placating LPs by ticking boxes. The prize for meeting the TR’s standards is the label “environmentally sustainable” – allowing access to LP capital focussed on responsible investing (and sensitive to Government pressure); investment opportunities in the most innovative businesses and attracting top talent from a sustainability-conscious younger generation.”

Liz Sweeney, partner and head of Shoosmiths real estate finance team said:

“Similarly to Amit and Rebecca, the themes in the report are consistent with what we’re seeing: ambition is focussed largely on the ‘E’ with net zero and climate change initiatives taking the lead. Our sector has an exciting opportunity to be a big part of the solution but there are major gaps that need plugging in order for that ambition to consistently and meaningfully be turned in to action. Gaps in data and data sharing, benchmark standards, policy and skills – there simply aren’t enough people qualified to do the job. Cost remains contentious on many of our transactions too: there’s no market standard approach on who picks up the bill: Should tenants be picking up the cost of an improved EPC spec? Will regulators eventually support with the cost of compliance?

“From an investment/lending point of view – the saving on sustainability products often doesn’t appear value for money versus the cost of retrofitting assets. It’s difficult for businesses to see past this and until we see incentives, industry standards, and/or rental incomes start to polarize in line with ESG performance, why would this change, particularly when the availability of financing for non-green assets hasn’t dried up?

“The “S” focuses on the societal impact and we are seeing it come in to play more regularly but it is much more difficult to measure and consequently much more complicated!  In REF terms it’s about thinking of the “intentionality” of built environments and their impact on people’s day to day lives. Again the opportunities are exciting - our decisions will impact generations of people - but to be meaningful they need to be bespoke. ‘S’ often benefits from the reporting and goal setting requirements established for “E” and hopefully we’ll see clearer benchmarks for both develop quickly from here.”

Disclaimer

This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.

 


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