In order to easily benchmark and otherwise assess the ESG policies in place at private equity firms and their investors, the Full IMPACT team at MJ Hudson has developed a simple analysis tool that can be used to classify ESG policies into a 6-level framework.

To build the rating system, we reviewed ESG policies on fund manager websites as well as those in PPMs, LPAs and side letters reviewed as part of our LP Unit mandates. The information reviewed covers the full spectrum of investors and a broad range of private equity fund strategies. As simple as the framework is, we have found it to be a very useful tool to gain insight into the current state of ESG implementation at both GPs and LPs. We hope you find it just as useful.

The higher the policy level, the more robust (and binding) the relevant ESG policy is. Of course, investors will want to carry out due diligence checks to ensure that the relevant ESG policy is being adhered to.



Level 0


No visible ESG policy and/or investor does not require an ESG policy to be in place.

Level 1


The fund manager is a signatory to UNPRI.

Level 2


The fund manager has an ESG policy which includes a policy to be discussed with or enforced on portfolio companies and the manager agrees to use commercially reasonable efforts to operate the partnership in accordance with UNPRI or similar.

Level 3


The fund manager has an ESG policy that includes a policy to be imposed on portfolio companies, actively monitors such portfolio companies and reports back to its investors. The fund manager warrants that ESG impacts investment selection.

Level 4


The fund manager has an ESG point person who is responsible for the enforcement and/or review of ESG policies on portfolio companies and reports details of the same to investors.

Level 5


ESG is ingrained into the business. The fund manager warrants and discloses active examples of how ESG has influenced investment process and decisions, and/or has raised an impact fund. All key decisions are influenced by ESG.

Fund manager ESG policy levels – what is on offer to investors?

The following data was gathered by analysing the existence of ESG clauses in PPMs and LPAs:

AUM is the best predictor for ESG policy level, with larger fund managers much more likely to register a high (4 or 5) level Small fund managers seldom have an ESG policy at all (with the exception of impact funds, of course) Where MJ Hudson ESG Policy Level is low (1 or 2), it tends not to be included in PPMs and LPAs Even those managers with a MJ Hudson Policy Level of 3 tend not to include the ESG policy in fund documentation There is a stark difference in how ESG is presented in PPMs and LPAs; across the board, ESG has a significantly larger presence in PPMs Even where fund managers are committed to ESG there remains a reticence to including binding obligations in the LPA Some explanations as to why the majority of LPAs remain silent on ESG include: References to ESG were not included in previous fund LPAs, from which current LPA was adapted Including references to ESG in LPAs is cumbersome and increases the length of the document Each investor is likely to have its own ESG considerations and so side letters are a more appropriate forum for ESG provisions Nevertheless, it appears clear that the practice of "window dressing" remains prevalent for ESG

MJ Hudson's Book of ESG can be downloaded at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.