Private equity-owned firms facing pressure over ‘poor’ human rights and ESG transparency
Private equity-backed companies are under pressure to improve “poor” reporting on areas like human rights and social impact amid a global pull-back from environmental, social and governance [ESG] standards over the past year.
In a report this morning assessing the impact of private equity ownership on firms, industry bodies the British Venture Capital Association (BVCA) and Private Equity Reporting Group warned the amount of firms reporting on so-called ‘non-financial performance indicators’ had “deteriorated” in 2022.
“There was deterioration in some aspects of reporting this year [around] non financial [indicators] and we continue to see relatively poor performance around areas like social community, human rights and gender diversity information,” Nick Land, chairman of the Private Equity Reporting Group (PERG), told reporters.
“It’s been like that for a while, I can’t really understand why that should be a problem because it’s not a difficult thing to comply with.”
The two bodies are looking to beef up reporting requirements and increase transparency in a sector that has long been plagued by reputational troubles. Land said he would be writing to the BVCA’s more than 700 members to push them to improve reporting on non-financial areas.
Firms in the UK are coming under increased pressure from regulators to provide more detail on areas outside their financial performance. Since 2021, listed companies have been required to disclose details on their climate footprint but there is not yet a similar demand on privately held firms.
The deterioration in non-financial reporting comes amid a downturn in enthusiasm for ESG investment over the past year and a clampdown on so-called greenwashing by regulators.
Regulators on both sides of the Atlantic have been looking to stamp out unfounded green claims by introducing new standards that objectively measure sustainability claims.
In a notice in November, the FCA said all investment firms under its remit would need to make sure sustainability-related claims are “fair, clear and not misleading” and introduce product labels to help investors “understand what their money is being used for”.
In a sign of the souring sentiment towards the sector, just six new funds claiming ESG credentials were launched globally in the second half of last year, compared to 55 in the first six months according to Morningstar data. An average of almost 100 were founded annually between 2020 and 2022.
The BVCA’s report today looked to gauge the impact of private equity-owned businesses on the UK economy and assess their performance compared to companies listed on the stock market. Average revenue and earnings growth climbed seven per cent in 2022 compared to seven per cent in 2021. Earnings rose 4.9 per cent, down from six per cent in the previous year.
Private firms are not required to produce accounts as regularly as their publicly listed counterparts, meaning 2022 was the last full year in which they could be measured.
The BVCA found that PE backed businesses outperformed public company benchmarks at a revenue increase of seven per cent versus 5.4 per cent, partly underpinned by a buoyant year for the consumer sector.