To shed light on ESG disclosures in the PE industry in general, and to examine whether PE firms take actions consistent with their ESG “talk”, we set out to create a novel database on voluntary ESG disclosures for a global sample of PE firms. Using this novel database, we examine what factors lead PE firms to disclose more ESG information and whether these disclosures are reflected in PE firms' investment activities.
Measurement of PE firms’ ESG disclosures using historical website data
To measure PE firms’ ESG disclosures, we use information from PE firms’ historical websites which are available through the Wayback Machine over the 2000-2021 time period. We create an algorithm that scrapes PE firms’ websites’ snapshots in each year, and then construct an annual measure of PE firms’ ESG disclosures by scaling the number of ESG-related keywords mentioned on a PE firms’ historical website by the total website word count. The ESG-related keywords come from established ESG dictionaries, such as the from United Nations Principles of Responsible Investment. Our empirical measure thus proxies for a PE firms’ focus on ESG, as it measures the information disclosed around ESG activities, relative to the overall information disclosed on the websites.
Increased disclosures, especially of ESG-related information
In general, the information content of PE firm websites, as indicated by the total word count, has increased over the last 20 years. This trend is even stronger for ESG disclosures, which have become relatively more important, especially since 2012. Interestingly, social issues are growing particularly fast compared to governance issues, which the PE industry has traditionally focused on, and the historically more important and salient environmental topics.
The analysis of the evolution of ESG disclosures on PE firms’ websites shown in the figure above confirms the general change that has taken place in the PE industry in recent years: PE firms increasingly focus on sustainable investments rather than just financial returns.