Preface

The 900 years old legacy of the Liechtenstein Princely Family centers around its ambition to be a positive force in society through a long term oriented engagement in politics,business and philanthropy.Through LGT,its private banking and asset management business,the Princely Family has pushed for a more rigorous assessment of the environmental,social and governance impact of businesses in response to the unprecedented environmental threats to mankind and significant social and political challenges.Frankie Fang's book provides insightful observations how private equity firms can play an important role to improve the ESG footprint of business.

Prince Max of Liechtenstein

LGT Group CEO

Over the last few years,investing according to sound environmental,social and governance（ESG）principles has increasingly become mainstream.Membership and assets under management in global investor bodies dedicated to ESG,such as the Principals for Responsible Investment（PRI）,have grown significantly in this time.The PRI alone now represents more than 3,000 signatories and USD 103 trillion billion in assets. At the same time, investor expectations for how managers carry out their ESG activities have also increased.

Until recently,ESG efforts focused mainly on establishing policies and processes,as well as providing basic reporting,whether qualitatively or through a selection of ESG-related KPIs.Typically,there had been far less focus on how investment decisions impact the broader environment or society as a whole.But increasingly,investors want to see how their capital is being used to affect the bigger picture.Many have turned to the United Nations Sustainable Development Goals（SDGs）as a way of measuring impact on achieving targets that have been globally agreed and quantitatively defined.The collection of 17 global goals was put forward by the United Nations and approved by 193 countries in September 2015.The SDGs address topics like poverty,hunger,health,education,climate change,gender equality,water,sanitation,energy,environment and social justice.

Investors have had the challenge of translating the SDGs into investable opportunities that offer the prospect of a financial return,as well as a positive impact on people and planet.Some investors have already started mapping the SDGs into their own investment frameworks,while others have started making SDG-targeted investments.This has included investors active in private equity,which is arguably the asset class best suited to address ESG issues in companies.The typical buy-for-control investment model means that private equity managers have the greatest scope for mitigating ESG risks and capitalizing on opportunities.

A recent survey of private equity managers found that the overwhelming majority-some 90%-believe the SDGs will help the financial industry to address pressing environmental and social challenges.And while just 28%of them integrate the SDGs into their investment activities at the moment,interest is growing,as 34%of them say they are planning to do so in the next two years.

With momentum building,now is the perfect time to take stock of ESG practices in private equity,as this book aims to do,with a special focus on China.After all,if ESG efforts are to effect significant change in the world,they will have to be widely adopted in the upcoming largest economy in the world.

This guide begins by exploring the origins of ESG in earlier notions of responsible investment,and then it looks at how ESG principles have been applied across the investment industry broadly,and private equity more specifically.It also highlights the special role of funds of funds have playedin raising the bar on ESG.To keep the discussion grounded,case studies of ESG best practice by leading private equity houses and portfolio companies illustrate the scope of innovation in the space.The example of Starquest Capital demonstrates an adoptable and practical ESG approach in the field of RMB fund of funds.The book concludes by considering the perspectives of other actors who have a role in shaping ESG efforts,such as regulators,academia,stock exchanges and non-governmental organizations.

In a word,the present volume provides the big picture of ESG practices in private equity, while also showing the detail needed for a deep understanding of the landscape.

Tycho Sneyers

Managing partner and Chairman of the ESG Committee at LGT Capital Partners