Managing General Partner Relationships
Engage and collaborate with GPs to improve internal monitoring and reporting processes
Not all GPs will have fully defined and developed ESG programs. LPs can have a meaningful impact by engaging their GPs and pushing them towards industry leading best practices.
- Go to Sustainable Investing at HMCSustainable Investing at HMCHarvard Management Company provides an overview of their sustainable investment expectations for external managers.
- Go to Case study: The LP-GP relationship in private debt: Engaging the GP on responsible investmentCase study: The LP-GP relationship in private debt: Engaging the GP on responsible investmentUnited Nations-supported Principles for Responsible Investment (PRI) maintains a sample case study on GP-LP engagement on ESG in private debt.
Codify ESG expectations within side letter agreements
Many LPs use side letters to commit GPs to meeting institutional requirements bespoke to the LP organization. PE funds can establish ESG expectations by inserting guardrails around ESG into side letter provisions, a structure that allows for the flexibility that is required over the life of a fund.
- Go to Incorporating Responsible Investment Requirements into Private Equity Fund TermsIncorporating Responsible Investment Requirements into Private Equity Fund TermsUnited Nations-supported Principles for Responsible Investment (PRI) offers guidance on the placement of ESG provisions in LPAs and side letters on pages 13-14 of their Incorporating Responsible Investment Requirements into Private Equity Fund Terms report.
- Go to Pension Fund Coalition for Inclusive Capitalism Model Agreement LanguagePension Fund Coalition for Inclusive Capitalism Model Agreement LanguageModel ESG language and guidance, customizable for portfolio and legal teams in determining their ESG objectives with side letters and investment agreements, including model mandates, reporting requirements and sample criteria.
- Go to Private Fund Side Letters: Common Terms, Themes, and Practical ConsiderationsPrivate Fund Side Letters: Common Terms, Themes, and Practical ConsiderationsJD Supra explains common language and themes present in side letter agreements within the Private Fund Side Letters: Common Terms, Themes and Practical Considerations section of the web site.
- Go to LPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited PartnersLPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited PartnersILPA Principles 3.0 contains guidance on policy disclosures and notifications, including those pertaining to ESG investing, which LPs should expect to see as part of the LPA on page 39 (or at minimum, included in their side letter agreement).
Leverage seat on an LPAC (when applicable) to influence ESG matters
LPs can leverage governance rights (when applicable) to review material ESG incidents and/or risks to their fund’s portfolio.
ILPA is currently looking for anecdotes and case studies where LPs have discussed or provided guidance to their GPs vis-à-vis participation in an LPAC. Please e-mail Matt Schey (mschey@ilpa.org) if you have a story you would be willing to share or contribute.
