Industry GuidanceEnvironmental, Social & GovernanceEnvironmental, Social & Governance RoadmapESG: Due Diligence and Investment Decision-Making

Due Diligence and Investment Decision-Making

Organizational Policy and Infrastructure
Due Diligence and Investment Decision-Making
Managing General Partner Relationships
Reporting and Benchmarking
Internal and External Communications

Incorporate ESG topics into your due diligence questionnaire

LPs can incorporate ESG questions into their pre-investment due diligence process. Asking GPs to share their ESG policies and considerations as part of the due diligence process signals the importance of ESG investing to the organization and allows LPs to invest with managers who share their values.

  • Go to ILPA's Due Diligence Questionnaire
    ILPA's Due Diligence Questionnaire
    ILPA’s Due Diligence Questionnaire standardizes the most frequent and important due diligence questions posed by investors, including a section devoted to ESG sourced from UNPRI (source link below).
  • Go to LP Responsible Investment DDQ: And How To Use It
    LP Responsible Investment DDQ: And How To Use It
    The United Nations-supported Principles for Responsible Investment (PRI) published a responsible investment due diligence questionnaire for investors in funds.

Request and review GP ESG policies and reporting materials

An actionable ESG investing program requires a commitment from both LPs and GPs. Ensuring your GPs have adequate policies (or at minimum, a willingness to further explore ESG considerations) is a critical part of an ESG integration framework. In the absence of policies and reporting frameworks, some LPs choose to work with GPs who express a willingness to develop an ESG framework in conjunction with LP guidance.

Incorporate ESG considerations as part of operational due diligence (ODD) processes

Integrating ESG questions into the operational due diligence process frames ESG as an ongoing effort worthy of both monitoring and measurement. Doing so provides a framework for LPs to work together with fund managers to set objectives and chart progress over time.

Add specific ESG considerations to investment committee criteria

Ensuring ESG factors are considered alongside other investment decision making criteria at investment committee meetings ensures organizational alignment, GP/fund alignment, and signals the importance of ESG to an organization’s core investment philosophy.

  • Go to LACERA's Investment Policy Statement
    LACERA's Investment Policy Statement
    Los Angeles County Employees Retirement Association (LACERA) incorporates ESG considerations within their investment policy statement (page 5, section V. “Risk”) and as part of their attached corporate governance policy, which is provided packaged with their investment policy document.
  • Go to CTPF's Investment Policy Statement
    CTPF's Investment Policy Statement
    Chicago Teachers’ Pension Fund (CTPF) outlines their sustainability goals on pages 15-16 of their investment policy statement

Encourage GP compliance with Principles for Responsible Investment (PRI)

Encouraging GPs to become PRI signatories as part of contract negotiations (or only investing with GPs who are existing signatories) ensures an additional level of GP commitment to ESG, as well as additional oversight of ESG activities.