Anti-ESG sentiment means GPs must be ‘very, very clear’ about their principles

Anti-ESG sentiment in certain parts of the US is prompting GPs to choose their language very carefully when it comes to sustainability, according to panellists on stage at IPEM, a private equity conference running this week in Paris.

“We have quite a number of LPs from the US,” said Elsa Palanza, global head of ESG and sustainability at ICG, which has over $82 billion in assets under management. “What [the ESG backlash] is forcing us to do is be very, very clear about what our principles actually are, and ensuring we are communicating those in very distinct terms. That’s really critical here.”

ESG has become a political football in the US, with certain Republicans decrying it as “woke capitalism” that places social and environmental goals ahead of investors’ need for financial returns. This sentiment was addressed by some of the large listed US firms in their annual sustainability reports this year.

ICG’s Palanza linked the US backlash to a lack of common understanding of terminology.

“I think the sustainability industry has a language problem. For the longest time, those of us who have been working in this world have had a nice little echo chamber among ourselves,” she said. “That’s important in terms of being able to share best practices, and ensuring we’re integrating this into the investment universe in a way that’s meaningful.” However, what was meant to be an “acronym that summed up a whole lot of factors very simply into a conceptual idea” has since been “a bit hijacked” with broad interpretations of what it means.

“We need to get back to first principles and talk about what we are actually talking about,” Palanza continued, referencing “core factors” in running a business, like supply chain resilience, the employee base, the customer base, integration with the local communities and climate resilience.

Palanza was speaking on a panel alongside Maaike van der Schoot, principal and head of responsible investment at AlpInvest Partners, and William Kadouch-Chassaing, co-CEO of Eurazeo. The discussion encompassed the challenges around proving and quantifying the financial impact of ESG initiatives, as well as the improvement in ESG data availability and the importance of a credible approach to sustainability to attract younger investment talent.