Carbon emissions top ESG concern for LPs and GPs

Survey finds DEI ranks second but majority are not allocating funds to address it

Carbon emissions are the most important ESG metric for limited partners (LPs) and general partners (GPs), a Dynamo Software survey has found.

A survey of 100 global LPs and GPs, An Inside Look at ESG and DEI Trends for 2024 from Leading Limited & General Partners, by the alternative investments fintech found environmental factors carry the most weight in decisions around ESG followed by energy efficiency improvements and water usage.

Additionally, when asked about their own firm’s ESG performance, environmental factors still topped the list. Respondents ranked climate change and carbon emissions as number one, followed by energy efficiency improvements and established business ethics.

DEI divergence

However, the survey found divergence in opinions surrounding ESG and DEI strategies, with human-centred values not as widely leveraged for performance measurement.

In examining perceptions and practices related to DEI, the report identified a disconnect between strategic focus and budget. Though survey participants ranked DEI the second highest ESG-related issue they were currently prioritising, the majority (68%) indicated they are not allocating funds to address it. One in three (29%) said they saw value in doing so but have put off action until further into 2024 or when budget for DEI initiatives becomes available.

“The investment community is still learning what constitutes meaningful DEI policies and practices, and our survey findings are likely a reflection of the still-nebulous nature of DEI strategy and how it ties to ROI,” said Danielle Pepin, head of product, portfolio monitoring and valuation, ESG and mobile, at Dynamo.

“Many of these firms may very well be pursuing the acceleration of DEI principles, albeit without an earmarked line item in the budget. The same may be true among portfolio companies, making it difficult for LPs and GPs to evaluate the true effectiveness of DEI on performance.”

According to the report, one of the reasons that carbon emissions ranked as a top priority throughout the survey could be that four in 10 respondents selected ‘real estate’ as an investment area, a sector that accounts for more than one-third of global energy consumption and emission.

However, the report also shows that 82% of respondents invest in private equity and venture capital, along with 31% in debt, concluding that while it may be hard to pinpoint the root of the answers they received, it is fair to assume that respondents’ investment vehicle preferences may influence their priorities.

There were also clear differences between LPs and GPs in DEI reporting practices. GPs indicated that less than 10% of their clients are asking for DEI information, while 40% of LPs indicated that they are requesting DEI stats from their GPs. As a result, the report suggests that LPs are in a position of influence when it comes to DEI reporting and must be clear in their desires when it comes to performance disclosure.