Private Equity meets Sustainability: And this too shall pass?
Here today, gone tomorrow
“Can’t touch this.” As a child of the ’80s, in my mind, I wanted three “parts” (lines), like McHammer on the side of my head. My mother disagreed. That trend died a quick death.
In the land of Development, the coming and going of trends is uncommon.
To name a few, starting from the 1990s, Structural Adjustment Programs (SAPs), Microfinance, the conditional cash transfers, and then randomized control trials.
The increasing importance of sustainability / economic and social governance among ‘mainstream’ Private Equity houses seems to be getting fad-like (?) levels of attention.
Nothing new
This is not a discussion about firms that have a dedicated focus on sustainable and impact investment, but more about firms that have primarily sought to deliver financial returns and are increasingly feeling the need to address social topics.
Social outcomes / metrics have become important aims for an increasingly wider range of private equity houses – 900+ firms have joined the United Nations Principles for Responsible Investment. Of course, some PE firms – like Abraaj – have long sought to achieve social outcomes while delivering financial returns. But a wider range of mainstream financial players giving social outcomes greater primacy is relatively unconventional.
A right step in the right direction
Putting aside convention, in my mind, the three questions that need to be answered are this:
- Will equity / incentives given to General Partners be linked to Social Outcomes?
- Will Limited Partners be less likely to invest in a fund that doesn’t look to achieve sustainability / social outcomes in the funds’ assets?
- Will time horizons for investment change?
These questions matter because, if mainstream private investment focused on delivering financial returns and social outcomes is a good thing (which I firmly believe it can be!), then this need to be a more permanent fixture in the world development, not a fad.
Why? Because the health, education and social mobility of billions of people around the world deserve more. A lot more.
Shane Heywood 