With 2021 fundraising in full swing, it is becoming clear now that ESG is at the top of LPs’ agenda when it comes to allocating their investment, and direct lenders are having to address it beyond a check-box exercise. The extra attention to environmental, social and corporate governance metrics is likely to exacerbate the bifurcation of the market as larger managers have the scale to devote resources to the effort, while LPs are continuing to favour established and predictable funds.

When M&A was hit hard in late spring and early summer last year, portfolio work subsumed smaller firms and funds who took bets on trickier credits, while larger established funds were able to quickly work through the kinks and get back to deploying by autumn. Not only were those funds building ESG into new deals, there was a sense that a focus on investing with this criteria could create a more resilient portfolio and more influence in the investment process.

While in the past some have brushed off ESG investing as “greenwashing” as the market has matured, LPs are now demanding managers go the extra mile.

Diversity and inclusion in investment process are two things managers are focusing on, with committees paying special attention to them.

LPs are also now requesting ESG reports, with S&P and the Big Four accountancy firms working on standardising ESG evaluation that can provide a score for due diligence and portfolio companies.

A panel of experts will discuss the latest ESG trends and what’s the impact during an investment process.