Almost 20% of global private capital CFOs have yet to begin integrating ESG into investment processes
New research* from Intertrust N.V., a world leader in providing specialised administration services to clients in over 30 jurisdictions, reveals that CFOs continue to fear cost and resource constraints as client demands grow around ESG, citing those factors as the “biggest obstacles” surrounding ESG integration.
Intertrust Group’s new report, The future private capital CFO: Unleashing potential in the ESG era, finds that while 95% of CFOs realise their limited partners (LPs) view ESG as important, less than a third (28%) have already completed their ESG integration process. It also finds that 84% of CFOs claim to have an ESG, CSR or sustainability policy in place at their firms, highlighting the understanding and demand to make a change.
The report created in partnership with Global Custodian, shows that CFOs at private capital funds find the biggest obstacle of integrating ESG into the investment process is the cost and resource constraints, with more than half (57%) agreeing this was the most challenging aspect to the process. This was closely followed by the complexity of managing multiple sources of ESG data (51%) and quantifying and monitoring the ESG implementation process (48%), demonstrating that there is some way to go to satisfy LPs expectations when it comes to ESG.
Intertrust Group warns that private capital funds must either meet these ESG demands or face significant competitive disadvantages and possibly regulatory pressures in the future. Many CFOs are aware of the need to adapt and almost two thirds are investing in expanding their technology framework to meet ESG data processing demands. More than half have also committed to increasing the size of the in-house finance team. In addition to acquiring talent, almost 50% of CFOs say they plan to complement their teams with outsourced help in technology and operations. Furthering this, more than two fifths of CFOs (43%) would evaluate their portfolio’s ESG performance on a weekly basis and a quarter (25%) of CFOs would take a look daily.
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Chitra Baskar, Chief Operating Officer and Global Head of Funds and Product at Intertrust Group, said, “Traditionally, financial services, particularly private capital fund managers have been slow to embrace changes, including ESG adoption. However, the research has shown there is a great understanding of the need for ESG practices in the sector and the investment horizon is beginning to change. However, there is still plenty of work to be done, and although there is understanding in place, the actions to implement ESG practices are still limited.”
As CFOs evolve and adapt to client demands surrounding ESG, diversity & inclusion (D&I) continues to gain traction as well. In fact, more than three quarters (79%) of survey respondents consider gender equality to be a crucial or important consideration when assessing investment opportunities, while a similar amount (74%) are calling for daily, weekly or live data insights into D&I.
Chitra added, “It is clear that CFOs are experiencing a number of hurdles in order to adopt new best practices alongside changing landscapes when it comes to ESG. However, they continue to find ways to tackle the challenges that they and the wider industry face. By overcoming both operational and commercial obstacles, firms are creating a more socially conscious sector both in theory and in practice.”
*Source: Global Custodian in partnership with Intertrust Group; a global sample of 300+ chief financial officers at private capital funds were surveyed between December 2021 and January 2022.
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