ESG Transparency of Private Equity and Debt Firms

We study private equity and debt (“PE”) firms’ public ESG disclosures, which we find to be very low in the cross-section and to be decreasing monotonically from the PE firm- to the portfolio- and asset-levels of disclosure. We predict and find that PE firms’ ESG disclosures are explained by the composition and characteristics of PE firms’ investor base. The percentages of foundations, public pensions funds, private pension funds, as well as investors’ own ESG transparency and country-level social norms are all significantly positively associated with GPs’ ESG transparency. High transparency PE firms have 4.8% to 7% lower net IRRs when they hold above median ESG risks in their portfolios, when they are UNPRI signatories holding above median ESG portfolio risks, and when PE firms hold low impact potential assets in their portfolios. These findings suggest that underperforming PE firms use ESG disclosures to cater to investors’ preferences.