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Title
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LIMITED PARTNER ESG STRATEGIES AND ESG APPROACHES BY PRIVATE EQUITY FUNDS.
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Creator
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Buehler, Robert G., Cumming, Douglas, Florida Atlantic University, Department of Finance, College of Business
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Abstract/Description
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This study utilized environmental, social, and governance (ESG) data to analyze how institutional investors' strategies relate to the approaches of the private equity (PE) funds they invest in. Using limited partner (LP) investor and general partner (GP) PE fund data from Preqin, I created ESG scores for both LP and PE funds. Ordinary least-squares regression showed a significant, positive relationship between LP/GP ESG strategies. However, the relationship became negative and significant...
Show moreThis study utilized environmental, social, and governance (ESG) data to analyze how institutional investors' strategies relate to the approaches of the private equity (PE) funds they invest in. Using limited partner (LP) investor and general partner (GP) PE fund data from Preqin, I created ESG scores for both LP and PE funds. Ordinary least-squares regression showed a significant, positive relationship between LP/GP ESG strategies. However, the relationship became negative and significant when firm-, fund-, and country-level controls were added. This misalignment between statements and action, often called greenwashing, suggests that firms are driven to ESG reporting due to external factors and do not feel accountable for investment decisions that follow strategic disclosures. Investor environmental (E), social (S), and governance (G) strategies had different relationships with GP ESG approaches. Public institutional investors, fund size, and the presence of a civil law system were positive contributing factors to the LP/GP ESG relationship. Fund performance was negatively associated with the relationship. There was also a significant difference in the LP/GP ESG approach between European PE funds versus those in North America. These findings show that E, S, and G factors may be more accurately analyzed separately than as one combined cluster. The findings also show that local conditions influence ESG strategic alignment between LPs and GPs. They suggest policymakers consider unique country-level attributes and differences in fund-level characteristics when attempting to influence ESG disclosure. ESG rating services could consider including factors that measure alignment between investors’ strategic statements and their investment decisions. The results provide valuable information on corporate social responsibility (CSR) in private markets, which has yet to be broadly studied compared to the extensive CSR literature available on public companies.
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Date Issued
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2023
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PURL
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http://purl.flvc.org/fau/fd/FA00014300
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Subject Headings
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Private equity funds, Limited partnership, Social responsibility of business
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Format
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Document (PDF)
