Interacting with portfolio companies on ESG issues can sometimes be a challenge, despite the opportunities which can be realised by portfolio companies and GPs alike. The last few years have seen an increase in the demands on GPs, and subsequently their portfolio companies, in the implementation of ESG, as GPs strive to set and meet their own ESG commitments and those of their investors.
If this engagement is not handled well, it can have a negative impact on the relationship with portfolio companies, who may sometimes perceive ESG as an administrative burden and not as a real opportunity to create value. This may damage progress in ESG, to the detriment of both parties.
As explained in the first part of Invest Europe's Climate Change Guide “Introduction to Climate Change”, climate change presents an opportunity for the private equity industry, providing a further avenue for increasing portfolio company value, improving talent retention and lowering the cost of capital, amongst other things. It also presents risks, which could disrupt portfolio companies’ performance and / or business models, in the short, mid and long term, if not mitigated.
For this reason, it is very important for GPs to appropriately address the matter with portfolio companies, to engage with them and obtain results that will create sustainable value.
This part of the Climate Change Guide aims to help GPs engage in dialogue on climate change issues with their portfolio companies, providing the tools to enable positive conversations and facilitate concrete actions.
Acknowledgements
Invest Europe would like to thank the members of the Climate Change Working Group for their invaluable input during the development of this Guide:
- Matt Becksmith, PwC
- Nicky Crawford, PwC
- Madeleine Karn, PwC
- Erwann Le Ligné, Eurazeo
- Robert Sroka, Abris Capital Partners
- Serge Younes, Investindustrial Advisors
