From the 7th July 2020 until the 7th August 2020 PitchBook Data ran a survey about the state of sustainable investing in 2020. The survey featured 26 questions with 650 individuals starting the survey and 368 individuals completing the survey across 8 global geographic regions. This is a significant increase from 48 individuals who completed a similar survey conducted by PitchBook Data in 2016. The survey questioned a range of general partners (GPs), limited partners (LPs), a mix of both and a group labelled others consisting of angel investors, consultants, advisors, credit agencies and more. For the purpose of this survey, sustainable investing is defined as an umbrella term that embodies impacting investing and the incorporation of ESG risk factors into the investment process.

The report focuses on the current sentiment around sustainable investing amongst the surveyed respondents. In general, both GPs and LPs tend to be in consensus that they could improve their financial returns by looking beyond the risks of a financial statement. Since 2016, both brand image and risk management have fallen outside the top three most important factors driving sustainable investment programs with environmental concerns, long-term investment results and diversity and inclusion ranking the top three in 2020. Only 20% of respondents ranked regulatory changes as a driver of sustainable investing programs despite the ongoing noise around regulation.

A key theme amongst respondents was the willingness to measure and quantify their sustainable investing progress. 75% of all respondents said it was extremely or very important to measure the success of their initiative. Yet approximately 30% of respondents said they are unclear on how to define and measure impact outcomes. Further, most respondents suggested they prefer to set in house strategies and goals rather than engage with outside experts or adopt industry guidelines. Only 13% of LPs thought it was extremely important to use common industry guidelines to measure and report their progress. This highlights that the respondents struggle to measure the impact of sustainable investing programs but are unwilling to adopt a unified approach.

The stigma of potential negative returns still remains a key barrier. Although over 50% of GPs and LPs said improved long term investment results was a key driver to sustainable investing programs, 30% felt that perceptions of potentially negative impact on returns were the biggest barrier to sustainable investing. This highlights a common theme of contrasting views exhibited throughout the report. Although the vast majority said they are incorporating ESG risk into their framework, 75% of GPs said they do not require their portfolio companies to consider these risks.

Although the surveys data will undoubtedly be biased due to the self section bias of those taking the survey, there was a mix of supporters and critics of sustainable finance. 55% of the asset managers had integrated sustainable investing measures into their process whilst 28% had no initiative to engage with sustainable investing indicating a mixed field.

1. The industry wants to measure its sustainable finance approach and progress but lacks data, products and a clear method to do so. Using common industry guidelines is less prominent due to respondents preferring to utilise their in-house strategy and frameworks. 'Unclear on how to define and measure impact outcomes' was ranked as the biggest sustainable investment challenge by all survey participants.
2. The perception of potential negative returns from sustainable investments is ever-present despite the ongoing evidence revealing otherwise. Respondents contradicted themselves by stating that potential increased returns from sustainable investment products are driving engagement whilst the potential of negative returns is a key barrier to entry.
3. Setting in house goals and strategies ranked as one of the highest practices for developing a sustainable investment program, particularly from GPs. The industry prefers to operate with in house frameworks as opposed to industry-defined or outsourced professionals. Engaging outside experts received the least extremely important votes. This was consistent across all groups, even those classified as ‘others’ who house several in-house experts.
4. A big misconception is that it is too early for young companies to integrate ESG policies. Regardless of the company stage, they can still develop a mission centred on ESG practices. The challenge to embed ESG practices increases as the company grows. Today’s ESG principles are increasingly becoming tomorrow’s laws. This is evident in the data privacy space with laws such as the European Union GDPR which do not discriminate against company size as all companies are exposed to the regulatory change. Only 20% of respondents only ranked regulatory changes as a key driver to sustainable investing programs.
5. There exists a small sample who are still prone to questioning the science and legitimacy of climate change. Albeit small, this signals there is still a discourse barrier that needs to be addressed to advance the practical implication of sustainable investing.
6. This survey reflects inherent bias due to self-selection bias in partaking with the survey. Therefore, this survey is not to be expected to represent the broader investment community.
7. Most asset owners said they are focusing on the portfolio company level as opposed to their own organisations. Asset managers lead the way with 55% indicating they had integrated sustainable investing practices into their work. A further 11% outlining they have a dedicated sustainable investment team.
8. LPs focused primarily on the private equity asset class. When ranking their choice for investment between either sustainability reasons or financial performance reasons on a scale of 1 to 10, the average was 4.37, leaning slightly towards financial performance. Only 3% of responses said they strictly invested for sustainability purposes only.
9. Interest in the space is growing with 69% of GPs stating interest has been growing at a consistently high level. Whilst 40% of asset managers said over half of their clients and prospects were bringing up the conversation around sustainable investing.
10. In regards to staying informed, respondents stated that webinars and conferences were the most prominent channels followed by white papers and sustainable investing organisations. The majority did not belong to or endorse a sustainability-related group.