July 20, 2009
PRI Issues Guidance for Responsible Investment in Private Equity
by Robert Kropp
Responsible Investment in Private Equity: A Guide for Limited Partners seeks to apply the
Principles for Responsible Investment to the unique characteristics of private equity investing.
With the goal of providing guidance to its signatories for Responsible Investment (RI) in the
private equity asset class, the Principles for
Responsible Investment (PRI) has issued Responsible Investment in Private
Equity: A Guide for Limited Partners.
The Guide, which was developed by the PRI's
Steering Committee on Private Equity, notes that "There is presently not enough widespread
experience with the application of the PRI Principles in private equity investments to define 'best
Despite the fact that both public and private equity investors invest in
companies, private equity investing has a number of unique characteristics. Referred to as Limited
Partners, private equity investors cannot easily sell their long-term interest in a private company
without the permission of the General Partner that manages it. The General Partner has almost all
discretion over investment decision-making and ownership activities.
On the other hand,
according to the Guide, "The ownership and governance model allows for a much closer alignment of
interests between asset owners, the investment manager, and corporate management." Therefore, there
is the potential for the exercise of influence on the part of Limited Partners over how managers
address environmental, social, and governance (ESG) issues. The ownership and governance model also
encourages significant levels of disclosure and ongoing engagement with Limited Partners.
Because Limited Partners are passive partners in the management of private equity funds, the
Guide recommends that ESG issues be formally addressed before an investment agreement is signed.
Limited Partners can accomplish this by providing General Partners with copies of their RI
policies, and by explaining to General Partners their commitment to the PRI.
their investments in private equity funds, Limited Partners should concentrate on monitoring how
ESG issues are integrated into investment decisions and other activities. In addition, the Guide
recommends that Limited Partners engage with General Partners in order to foster ongoing dialogue
on RI and ESG issues. Limited Partners can also ask General Partners to develop RI policies that
build upon such initiatives as the PRI, the UN Global Compact, and the Private Equity Council.
accompaniment to the Guide, the PRI has also published Responsible Investment in Private
Equity: Case Studies, which provides specific examples of RI in private equity.
SRI World Group, Inc. All Rights Reserved.