State-of-Play: ESG in Private Equity in Belgium

Since the presentation of the European Green Deal on 11 December 2019, the European Commission has been putting sustainable finance mechanisms in place to support the transition towards a climate neutral and circular European economy by 2050. Both public and private financing streams are necessary as it is estimated that €175 - €290 billion in additional annual investment is required to meet the EU’s 2030 and 2050 sustainability targets.¹

The EU is implementing the EU Action Plan on Sustainable Finance² to steer public and private financing streams towards investments that contribute to these sustainability targets. This includes the adoption of mandatory reporting regulations such as the SFDR, CSRD, and EU Taxonomy.

While the mandatory regulatory body is still in development, private equity firms are choosing to already integrate Environmental, Social, and Governance (ESG) commitments into their strategy. Some are even going beyond compliance and adopting voluntary ESG reporting frameworks such as the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), the United Nations’ six Principles for Responsible Investment (UN PRI), and Invest Europe’s ESG Reporting Guidelines. This adoption of ESG reporting frameworks is stimulated and supported by the Green Deal Industrial Plan, which seeks to accelerate access to financing for the net zero transition in Europe.

KPMG research has identified differences in the level of ESG integration of Belgian private equity firms and we offer insights into how these gaps can be bridged effectively and efficiently.

• The current and upcoming regulatory ESG requirements that Belgian private equity must comply with.
• How private equity institutions can turn compliance into long-term value creation.
• To what extent Belgian private equity firms are integrating ESG into their strategies.

KPMG analyzed the presence of ESG criteria in the investment strategies and communications of 30 Belgian private equity firms – the sample is composed of companies with various levels of employee size and assets under management (AUM). The analysis was conducted through desk research based on publicly available information disclosed by the companies on their websites and other forms of documentation.

The strategy analysis covers the entire investment lifecycle from strategy to exit. For each of the six stages, ESG integration is measured by the presence of specific ESG criteria and expressed as a percentage. The percentage of each stage is then consolidated into a final total percentage score. It was also verified whether the private equity firm is a signatory of the UN PRI to determine its commitment to integrating ESG into the investment process.

53% of private equity firms in Belgium do not disclose on the integration of a single ESG criteria in any of the phases of their investment lifecycle.

When it comes to ESG, 77% of Belgian private equity firms qualify as laggards, 13% are starters, and only 10% are considered best-in-class.

Among other characteristics, best-in-class Belgian private equity firms have an ESG policy and ESG governance framework in place; include at least one ESG criteria in each investment phase; are all UN PRI signatories; and include the carbon footprint of their portfolio companies in their ESG approach.

While ESG reporting frameworks will become a requirement for private equity firms, they are also a strategic opportunity.

Benefits of integrating ESG into the investment life cycle include:

There are many differences in the ESG criteria that Belgian private equity firms choose to disclose, even within the starters and best-in-class categories.³ This indicates opportunities for improvement within all Belgian private equity firms.

It is time for Belgian private equity firms to evaluate their ESG integration and begin developing their ESG strategy - if not for value creation, then for value protection in the face of strengthening ESG reporting requirements.

KPMG has created a simple and quick self-evaluation checklist so you can find out where you rank amongst your private equity peers. Check your ranking to establish your ESG baseline and where to start improving your ESG integration.

For a more tailored support in ESG strategy, KPMG’s sustainable finance and ESG specialists are ready to assist you. Get in touch with our team to discover our end-to-end personalized services.