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Journal of Business Ethics
Published in: Journal of Business Ethics 1/2013

01-08-2013

Think Global, Invest Responsible: Why the Private Equity Industry Goes Green

Authors: Patricia Crifo, Vanina D. Forget

Published in: Journal of Business Ethics | Issue 1/2013

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Abstract

The growth of socially responsible investment (SRI) on public financial markets has drawn considerable academic attention over the last decade. Discarding from the previous literature, this article sets up to analyze the Private Equity channel, which is shown to have the potentiality to foster sustainable practices in unlisted companies. The fast integration of the environmental, social and governance issues by mainstream Private Equity investors is unveiled and appears to have benefited from the maturation of SRI on public financial markets and the impetus of large conventional actors. Hypotheses on the characteristics and drivers of this movement are proposed and tested on a unique database covering the French Private Equity industry in 2011. Empirical findings support that Private Equity socially responsible investing is characterized by investor engagement and strategically driven by a need for new value creation sources, increased risk management and differentiation. In particular, results show that independent funds, which need to attract investors, are more likely than captive funds to develop socially responsible practices. Evolution of the movement and future research paths are proposed.
previous article Exploring the Valuation of Corporate Social Responsibility—A Comparison of Research Methods
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Appendix
Available only for authorised users
Footnotes
1
Such has not always been the case, as illustrated in Renneboog et al.’s (2008) review of the SRI maturation from the seventeenth century Quakers ideology to nowadays.
 
2
Note that while General Partners in Private Equity funds have some discretion in how they value their portfolio, valuation is still subject to the fiduciary duties the general partner owes the fund.
 
3
Recent work suggests that whereas SRI underwent a learning period in which it underperformed standard portfolio, it since caught up with conventional funds performance (Climent and Soriano 2011).
 
4
However, cleantech funds could sometimes differ from responsible investment “per se”. For instance, investing in solar panels might not necessarily imply that a full ESG risk analysis has been conducted. Vogel (2005, p. 3), hence, points out that if socially responsible firms can benefit from green markets, “there is also a large place for their less responsible competitors.” The gap between green funds and socially responsible investing could also be suggested at the industry level by the co-existence in the French Private Equity Association of a “Sustainable Growth Club” and a “Green Techs Club”.
 
5
CSR has already been shown to be a means of differentiation in otherwise competitive environments (Arora and Gangopadhyay 1995; Fisman et al. 2007), and to most strongly affect performance in low-innovation firms and in industries little segmented (Hull and Rothenberg 2008), as is the case of the Private Equity industry.
 
6
We are thus not able to control for style drift (see Cumming et al. 2009) that is the deviation from stated objectives of the funds. Indeed we focus on the Private Equity organization, not the Private Equity fund, and a Private Equity firm may comprise more than one fund and may thereby provide investors investment products across a range of stated investment styles.
 
7
Specialized media used to built the database include the 2010 and 2011 Private Equity Firms Guide (“Le Guide des Sociétés de Capital Investissement”) and the http://​investing.​businessweek.​com website.
 
8
Our research was conducted in full independence and without any biases for the best representativeness to be obtained. In fact, Novethic granted access to their data and did not interfere in our study, nor used our results (they conducted independent descriptive research on this topic, not academic one).
 
9
The original French questionnaire is available upon request.
 
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Metadata
Title
Think Global, Invest Responsible: Why the Private Equity Industry Goes Green
Authors
Patricia Crifo
Vanina D. Forget
Publication date
01-08-2013
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 1/2013
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-012-1443-y

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