'Deep ESG': A Holistic Validation Methodology for Asian Private Equity

Abstract

At this stage of Asia’s development there is a need, and an opportunity, to establish a validation methodology that better gauges levels of ESG implementation and sustainability aspirations in Asian private equity. International investors wanting radical improvement, and local private equity investors and stakeholders typically not holding similar expectations, have broadly led to the adoption of stopgap solutions that are a nod to ESG and sustainability concerns. A taxonomy of common approaches to ESG investment practices in Asian private equity is presented and their shortcomings described.

This article proposes “Deep ESG” as a holistic methodological framework that better operationalizes ESG and sustainability metrics in the context of Asian private equity investment practices in toto. The framework requires the private equity firm to establish the pre-deal and post-execution parameters on which it seeks an ESG investment to be assessed. The rigor of the framework so established will inform and guide the confidence level a stakeholder is willing to assign to the ESG and sustainability merit of an investment. Deep ESG has the potential to drive capital allocation in a more ambitious and commercially compelling direction to solve urgent sustainability goals.