Engaging portfolio companies
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
Proud sponsors of the climate change guide
Astorg
There is unequivocal evidence by the world’s leading scientists that human activity is driving more frequent and more extreme weather events and that climate change will be the defining crisis of our time. At Astorg we recognize that the climate emergency has effects on the economy and on the wider society which create risks and opportunities for businesses and that investors have a crucial role in accelerating the transition towards net-zero emissions. It is for this reason that we have committed to measure and reduce our portfolio’s GHG emissions and to support our companies in this sustainability challenge.
By sponsoring Invest Europe’s Climate Change Guide we want to support all the actors in the financial sector in taking collective action to achieve net zero.
Cinven
Climate change poses a significant challenge to our society today, and in the coming decades. The impacts of climate change are being experienced around the world and require all stakeholders - including financial institutions - to act.
Private equity firms have an important role to play in supporting their portfolio companies to understand the potential impact of climate change on their businesses, and the potential impact of their businesses on climate and the environment. The transition to a net-zero economy also presents opportunities to invest in businesses mitigating and adapting to the effects of climate change.
As outlined in Cinven’s ESG Review 2020, climate change is a high priority area of focus for us. We are committed to continue integrating climate-related risks and opportunities into our investment process and supporting Cinven’s portfolio companies to successfully transition to a low carbon economy. We are delighted to support this Climate Change Guide, which provides an important resource for private equity firms to understand, assess and manage climate change impacts.
Newion
It is obvious that responsible entrepreneurship enhances the positive contribution the company will have on society. Promoting ethical behaviour in relation to customers, treating competitors fairly, being environmentally friendly and caring about the well-being of employees and promoting transparent communications to all are ways to incorporate this.
For some of our portfolio companies, ESG was a definition never heard of before. All our investments are early stage, focused on business software and European headquartered, and quantification of ESG topics remains difficult for them. By implementing ESG in our investment strategy since 2011 Newion is committed to advising and inspiring our investees to guarantee responsible and ethical behaviour in the highest possible way to create sustainable success for all stakeholders.
PAI Partners
As a responsible investor in the ‘real economy’ and early adopter of carbon footprinting and climate risk and opportunity assessment, PAI Partners believes that the private equity industry has a crucial role to play in advancing the fight against climate change. This can be done by creating awareness among investment teams, supporting companies and management teams to gather data and make ambitious commitments, and aligning with our peers on common guidelines and methodologies. PAI Partners publicly advocates responsible investment practices and shares its experience with the wider community. Therefore, as a member of the Invest Europe Core Responsible Investment Roundtable, we are proud to support this Guide – a project we have contributed to since its early days.
Industry standards
Climate change
Read the other parts of our Climate Change Guide
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