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ESG is on the radar for PE firms

Anna Lyudvig
April 11, 2017, midnight
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Word count: 345

As Environmental Social and Governance (ESG) factors gain prominence in the international investment community, sustainable investing has also improved in Africa, according to a new research.

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As Environmental Social and Governance (ESG) factors gain prominence in the international investment community, sustainable investing has also improved in Africa, according to a new research.

A growth engine: Trends and outcomes of private equity in Africa, commissioned by global law firm Baker McKenzie with The Economist Corporate Network (ECN) shows that GPs, and the limited partners investing in their funds, prioritise meeting acceptable ESG standards. 

These standards include financial and non-financial indicators geared to measure how well a company is performing and give an indication of its long-term prospects. 

Energy efficiency, staff training and qualifications, green house gas emissions and litigation risks, as examples, form part of a host of ESG factors. 

Private equity firms play a key role in creating an enabling environment for local business development, and supports their growth objectives by implementing best practice ESG policies in portfolio companies. 

“GPs that are successful in the region have a competence for helping investees, particularly family-owned and closely-held businesses, to up-scale and corporatise,” said Herman Warren, ECN’s Africa Director.

Various indicators point to the value of GP’s involvement with their portfolio companies. 

According to the African Private Equity and Venture Capital Association (AVCA), between 2009 and 2016, Africa-based PE invest companies grew their employment numbers by 17%. 

Runa Alam, Chair, AVCA Sustainability Committee, said: “We are now seeing over two thirds of African companies factor ESG into their investment process, and the integration of such factors into due diligence, discussion and doing business in Africa serves only to make the continent stand out from other regions.”

Often a GPs involvement in an investee results in a dramatic improvement in ESG performance.

Dabney Tonelli, Investor relations Partner at Helios Investment Partners, said: “All of our portfolio companies in some way are making life better for people and businesses in Africa.”

“Through our investment activity we’re developing the next generation of business leadership potential, enhancing lives through access to information and technology, creating financial security, increasing financial inclusion, improving environmental care and quality and improving governance standards,” she said.

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