With diversity, equity and inclusion at both GP and portfolio level rapidly becoming a key ESG metric by which credit funds are measured, LPs are asking more questions, expecting better answers and seeking more evidence of managers taking action.

Paul Woods, director of sustainability and ESG at Arrow Global, says: “We see an increasing desire from investors for information on DE&I, both in the form of metrics but also strategic updates, details on what the programme looks like, what we are trying to achieve and how we are measuring our progress. So ongoing reporting and follow-up is a big theme.”

Sasha Jensen, founder and CEO of Jensen DiversityMetrics, which tracks DE&I in alternative investment firms, says that accountability is a growing theme: “We have seen a growing number of heads of DE&I springing up all over the US, establishing ownership over DE&I goals and real measurement accountability, in order to demonstrate to LPs that goals have been set and achieved.

“LPs are becoming more sophisticated in terms of asking deeper-dive questions and employing more scrutiny of the numbers. Some of the things coming up now include the retention rates across the range of front office departments, and looking for promotion and advancement statistics. LPs are now really pushing for this data and then they are looking to third parties to confirm the data, rather than just taking the GPs’ word for it.”

Granular detail

Hugo Thomas, head of credit research at Sienna Private Credit, which is based in France, says investors want much more detail: “LPs are very demanding of data they can rely on, and therefore dig deeper into the way durability is assessed by GPs, and ask for external third-party opinions to corroborate GPs’ statements. Providers like S&P, Sustainalytics and EthiFinance are developing very fast, consequently. This movement is unstoppable.”

There are clear signs of managers stepping up in response. Kartesia’s head of CSR & ESG Coralie De Maesschalck says an effective DE&I strategy requires involvement from the top: “I believe we are seeing more and more managers taking action to lead by example, improving their DE&I positions in order to inspire and encourage their portfolio companies to launch equivalent initiatives. I am also seeing managers, Kartesia included, investing significant resource to meet the SFDR reporting requirements that include some KPIs linked to DE&I.”