The PRI has launched guidance on the incorporation of ESG provisions in private equity fund terms, the result of a year-long consultation with PRI signatories, expert counsel and industry associations.

The guidance identifies current and emerging best practice, as well as potential constraints, and offers practicable options to LPs and GPs that are considering how they might incorporate responsible investment into fund terms.

The main aims of the guidance are to demystify what ESG provisions are, clearly outline what they are trying to achieve, and work towards industry consistency and harmonisation on this aspect of responsible investment.

Fiona Reynolds, Managing Director of the PRI, said: “We have experienced an enormous amount of goodwill from both LP and GP signatories, who use the PRI as a platform to work towards an alignment of expectations and to understand best practice as it evolves. The influence this is having on the private equity industry is transformative.”

Marta Jankovic, Senior Responsible Investment and Governance Specialist, Head of ESG Integration Alternatives at APG Asset Management, Chair of Invest Europe, and Co-Chair of the PRI signatory working group, said: “The PRI guidance aims to highlight the evolving practice in the market on the topic of responsible investment provisions, explaining what drives LPs to have certain requirements and how these are implemented in practice.”

Alison Hampton of HgCapital, Co-Chair of the PRI signatory working group, added: “In providing this guidance, we see potential benefit to both LPs and GPs so that over time their approach to formally articulating ESG commitments can become more harmonised.”

With this guidance, entitled Incorporating responsible investment requirements into private equity fund terms, the PRI private equity programme delivers the second in a trilogy of tools designed to support LPs and GPs throughout manager selection, appointment and monitoring.

In November 2015, the PRI published the LP Responsible Investment Due Diligence Questionnaire as the first tool.

The third and final step will be to deliver guidance on monitoring and reporting on ESG factors during the lifetime of the fund. 

The PRI recently appointed ERM to work in partnership on this guidance, and the research phase of this project has already begun.