Applying ‘Deep ESG’ to Asian private equity

Frederick J. Long & Syren Johnstone (2021): Applying ‘DeepESG’ to Asian private equity, Journal of Sustainable Finance & Investment, DOI:10.1080/20430795.2021.1879562

At this stage of Asia’s development there is a need, and an opportunity, to establish a validation methodology that better gauges ESG implementation and sustainability aspirations in Asian private equity. Private equity, like major public market and debt investors such as Blackrock, has adopted language that suggests a proactive approach to ESG management. However, process-oriented ESG compliance presently far outstrips evidence of tangible contributions to ESG objectives and outcomes.

This article describes a taxonomy of common approaches to ESG investment practices in Asian private equity and discusses their shortcomings. It then presents ‘Deep ESG’ as an alternative approach that operationalizes ESG and sustainability metrics more holistically than existing frameworks. The Deep ESG framework enables a higher level of market-led intentionality that better informs institutional investors, regulators, communities, and employees as they evaluate private equity’s ‘balance sheet’ of ESG outcomes. By investing in tools for goal setting, measurement and evaluation and applying them consistently across all target and portfolio companies, private equity managers can pivot away from a defensive approach by working with stakeholders to shape constructive solutions to urgent sustainability goals.

Syren Johnstone is a fellow at the Asian Institute of International Financial Law and executive director of the University of Hong Kong Faculty of Law’s Master of Laws in Compliance and Regulation programme.