PE in Asia has not long ago come to be viewed as a truly successful and well-established asset class in which investors supply early-stage growth capital and buyout funding to serve the growth of Asia’s economies (Yang, Akhtar, and Dessard 2019). Up until the early 2000s, most of the investment records in Asian Plugged in other parts of the world, mainly due to the inexperience of PE firms and their incapacity to take control of and add value to portfolio companies.
While there is keep up for a positive correlation between ESG practices and financial performance or the cost of honesty for firms (Gregory, Stead, and Stead 2020), other research condemns the notion that socially responsible investing regularly produces advantaged financial results (Porter, Serafeim, and Kramer 2019) or identifies problems in the accuracy, quality and consistency of ESG ratings (Doyle 2018). The notable polarization of views remains developed in the context of PE where studies’ access to data is limited and informal (for example, see Zeisberger 2014).
Asian PE investors may experience three main hurdles in totally addressing ESG issues, relative to their international counterparts. First, many Asian PE deals call for minority ownership,6 under which operational switch can be limited. Once again vintages of Asian PE funds have begun to prioritize ‘control transactions’ (Yang, Akhtar, and Dessard 2019). Second, the execution of environmental and workplace regulations in Asia remains underdeveloped relative to mature markets. Third, a key marketing property for ESG investments –that they give shareholders a major valuation upon public listing or exit – appears to hold less weight within Asian markets where investors prioritize ‘hyper-growth. The potential for explosive growth over a five-year horizon an important time frame for PE firms – may commercially outweigh the difficulty of assessing Footprint and Utility consequences that only become visible over longer periods. The coming 10-year cycle of Asian PE investment represents an opportunity to proactively undertake ESG-positive investments that impose an enduring shape on Asia’s regulatory infrastructure. Companies investing ahead of the design and implementation of ESG regulations have an opportunity to shape regulations toward commercially efficient solutions and areas of competitive differentiation (Porter and van der Linde 1995). However, the current state of Asian PE firms’ ESG practices falls well short of this aspiration.
