What is ESG (Environmental, Social, Governance)?
ESG stands for Environmental, Social, and Governance — three criteria used to evaluate the sustainability and societal impact of investments. Many institutional LPs now require funds to report on ESG metrics or integrate ESG into investment decisions.
ESG integration in private markets means evaluating potential investments and portfolio companies against environmental factors (carbon footprint, resource use), social factors (labor practices, diversity, community impact), and governance factors (board structure, management incentives, transparency). It ranges from negative screening (excluding harmful sectors) to positive selection and active ESG improvement programs.
Regulatory pressure — particularly in Europe — and LP demand have made ESG reporting and integration increasingly standard. Many large pension funds and sovereign wealth funds have explicit ESG investment policies that GPs must address in their fundraising materials.
Also known as: ESG, sustainability, responsible investing