What Duty Do U.K. Directors of Portfolio Companies Have to Consider ESG Factors When Making Decisions?

Integrating environmental, social and governance (ESG) factors into the investment process has become increasingly important in recent years to PE investors, particularly global institutional investors. There is also a movement, however, to extend the consideration of ESG factors beyond the investment phase and into the actual management of corporate entities. To that end, the Principles of Responsible Investment (PRI) – an independent organization supported by the United Nations – recently issued guidance on the duty of U.K. directors sitting on PE-backed portfolio company boards to consider the ESG risks and opportunities those companies face when making decisions. PRI’s recommendations were based on a legal memorandum commissioned from Debevoise & Plimpton. This article highlights key points from the guidance and, as appropriate, the memorandum. For more on PRI, see our two-part series “The Past, Present and Future of ESG Investing in the Private Fund Industry” (Nov. 10, 2016); and “How Fund Managers Can Design an ESG Investing Policy” (Nov. 17, 2016).

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