LGT Capital Partners, a Swiss headquartered specialist in alternative investing, this week published the 12th edition of its annual ESG report. 

A new global 2024 report by LGT Capital Partners reveals that a lot of progress has been made in the ESG and diversity, equity and inclusion (DEI) efforts of alternative investment managers.

While ESG tended initially to affect listed equity markets – about which there is more public information available for analysts to scrutinise – the private markets space has been more opaque. However, as more corporate activity goes private or fails to list on stock markets, there is a need for ESG practitioners to get better data on what privately owned firms are doing.

In 2014, just over a quarter of private equity managers had robust ESG management processes in place – indicated by LGT Capital Partners’ ratings of excellent or good. In 2024, 73 per cent of the assessed private equity managers have robust ESG management processes, with 37 per cent scoring excellent and 36 per cent good on the same methodology, the firm said in a statement.

In the ESG Report 2024, LGT Capital Partners assessed the ESG practices of 380 alternative investment managers, of which more than 300 are private equity managers.

Over the past twelve months, a total of 33 private equity managers have improved their ESG efforts, resulting in a higher rating for their firm. However, this year, LGT Capital Partners has noted a stagnation in percentage changes as compared to recent years. It can likely be attributed to the demands of making further improvements to already advanced baselines and the increasing complexity of ESG. That said, the firm has seen managers taking measures to move from pledges to actions – the theme of this year’s report – focusing on delivering measurable results.

The report finds that Europe is maintaining its lead, with Asia and the US progressing more slowly. In Europe, half of the private equity managers assessed are now rated excellent (up from 42 per cent in 2023), and 87 per cent are rated either excellent or good, up from 82 per cent last year, based on LGT Capital Partners’ scores. The percentage of Asian private equity managers rated excellent on their ESG practices has increased from 29 per cent to 34 per cent since 2023. However, the number of managers rated either excellent or good slightly declined to 76 per cent, down from 79 per cent in 2023, the report reveals.

Meanwhile, the result from US-based private equity managers is developing from a lower basis, the report shows. This year, 53 per cent of the assessed general partners (GPs) are positioned in the top two rating levels, compared with 49 per cent in 2023. The excellent rating was achieved by 16 per cent, up from 13 per cent last year.

Greenhouse gas (GHG) emission monitoring has also increased globally, with 56 per cent of private equity managers tracking emissions in 2024, compared with 48 per cent in 2023, though there is still room for improvement, the firm added.

Diversity, equity and inclusion
Diversity, equity and inclusion awareness continues to grow, the firm continued and initiatives across asset classes have progressed. Private equity managers, for example, have become mindful of the importance of formalised DEI practices. In 2024, 74 per cent of the assessed private equity managers have their own DEI policy in place, while 69 per cent make use of such information in their investment decisions. This is significant when looking at a two-year comparison, when those numbers stood at 60 per cent and 51 per cent, respectively, the firm continued. Hedge fund managers show a similar trend, with most managers having a DEI policy in place and some best-in-class examples on how to foster DEI emerging.

Climate also remains top priority, the firm said. LGT Capital Partners expanded its climate-action investment framework for listed companies to include forward-looking information, distinguishing between companies with set targets or transition plans and those without. For example, according to LGT Capital Partners’ assessment, on a global basis, 42 per cent of companies are taking actions to decarbonise, while another 35 per cent are even further ahead and already aligning with net zero. Unsurprisingly, there are no companies at net zero yet, the firm added.

“ESG practices significantly enhance commercial value by aligning portfolio companies with industry transitions towards net zero, securing advantages through proactive regulatory compliance, and improving operational efficiency, talent acquisition and customer engagement, thereby increasing market share and competitive positioning,” Tycho Sneyers, managing partner at LGT Capital Partners and member of the board of the Principles for Responsible Investment (PRI), said.

“At LGT Capital Partners, we recognise that driving ESG through actions in the real world requires intensive engagement and that creating truly sustainable investment portfolios is a long-term project with no decisive endpoint. We are convinced that incremental improvement, year-on-year, delivers real outcomes over time,” he added.

LGT Capital Partners has over $100 billion in assets under management, with offices in San Francisco, New York, Dublin, London, Paris, The Hague, Luxembourg, Frankfurt, Vaduz, Dubai, Beijing, Hong Kong, Tokyo and Sydney.