ILPA releases framework to assess ESG best practice

Document helps investors gauge ESG maturity across 21 different areas of activity and provides 'a rubric against which they can assess and benchmark a manager'.

ILPA, the industry association for limited partners, has released an ESG assessment framework designed to help investors understand what “best practice” in responsible investing looks like.

It is a publicly available document that helps investors assess a manager’s level of ESG integration across policies, governance, reporting and investment process, as well as digging into some specific high-priority investor areas: diversity equity and inclusion and climate risk. For 21 different areas, the document describes what practice looks like at four different levels of sophistication: not present, developing, intermediate and advanced.

“LPs are looking for alignment with their managers on ESG integration and GPs are looking for clarity on what LPs expect,” said Steve Nelson, ILPA’s CEO, in a statement released today. “The framework helps solve for both of those issues: for GPs, it sets expectations on what LPs are looking for; and for LPs, it provides a rubric against which they can assess and benchmark a manager during due diligence. And, over time, LPs will be able to use this information to set goals and to track a manager’s progress on ESG.”

Some points to note about the framework document:

It is designed with mid- or large-cap buyout houses in mind. “While the framework may serve as a useful starting point for evaluating managers in other private markets asset classes (venture capital, real estate, infrastructure, private credit, etc), it was not designed with these asset classes in mind,” notes the report.

It says smaller managers should get some leeway. “Smaller managers may not have the resources to land in the ‘intermediate’ or ‘advanced’ buckets but may take actions, which put them at the forefront of their peer group. For this reason, it is important to consider manager size and resources and adjust expectations accordingly,” ILPA says.

It is designed to be usable in conjunction with ILPA’s DDQ. “For ease of use, ILPA has included a worksheet at the end of the PDF document which references where responses to specific DDQ questions would be beneficial in gauging the bucket in which a GP could be placed,” notes ILPA’s FAQ document.

It is a ‘starting point’ but may need adapting. “We recognise that ESG is viewed differently across LP organisations and that there is no “one-size-fits-all” approach to a framework. The ILPA ESG Assessment Framework is meant to providing a starting point, but many LPs will adapt/evolve these materials to align more closely with their organizations policies and programme,” says ILPA.

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