Maximising ESG impact in private equity – the foundations of ESG
By Sam Gilbert-Ward, Business Analyst, Pollen Street Capital – Environmental, social and governance issues have been rising up the agenda across all industries, not least financial services. Within the sector, we’ve seen businesses eager to embed impact as an integral part of their overarching company strategy. However, while ESG has become a ‘buzzword’, a lot of businesses don’t know how best to maximise their impact.
While ESG has become integrated into the investment mainstream, it shouldn’t just be viewed as a box to be ticked. Rather, if cemented into a company’s foundations, we believe that responsible investing can lower risk and enhance financial returns for funds and portfolio companies, while also directly impacting and benefiting society.
At Pollen Street Capital, we focus on investors and delivering strong, risk-adjusted returns. We are committed to investing responsibly. We embed ESG into our investing, operations, and culture so that we still deliver returns to our investors, but not at the expense of the community, environment, or market integrity.
While the move towards ESG in for financial services and investors has been gaining momentum for years, there is a feeling that the pace has picked up in the last 12 months.
Covid-19 may or may not be a direct driver of this but the increased focus on ESG is clear. For example, US sustainable funds attracted record inflows in the first quarter of 2020, according to data from Morningstar.
Closer to home we saw one of our portfolio companies, Kingswood, launch an ESG bond in February this year, citing an uptick in demand for greener ways to invest.
We believe in the potential for us to have a positive impact through our investments. As asset managers, we are well placed to support businesses of all sizes to increase and accelerate their impact. And, as an alternative to incumbents, we’ve been able to put practical steps in place to drive the positive impact of the businesses we work with, both in their industry and in wider society.
When we consider that small and medium-sized businesses make up 99 percent of firms and account for the majority of private sector revenues, it is clear they have a critical role to play in making a difference. Gone are the days that ESG fell squarely on the shoulders of the largest corporates, we must all be part of the solution – something financial services companies need to keep in mind.
In our industry, we have a prime opportunity to elevate the discussion around ESG. The unparalleled access active managers have to the board and management teams of businesses give us a privileged position where we are able to discuss important topics with key decision makers. A consistent focus on ESG considerations throughout discussions with the board and beyond, backed up by direct support, encourages the business to think about a topic they may not have the time to focus on before. ESG is not a tangential exercise, but it’s part and parcel of how the business operates, in a responsible and sustainable way.
In order to truly make a tangible difference to businesses with ESG principles, it’s crucial that these principles are built into the very core of the day-to-day. At Pollen Street Capital, we use the Pollen Street Hub to share best practice across a wide variety of business issues, particularly ESG. By ensuring a company has a workable ESG impact framework, and a common language that allows ESG to be communicated and understood across all lines of business, organisations can truly harness the power of responsibility and sustainability.
In our next two exclusive articles with Private Equity Wire, we’ll be looking into the potential impact of ESG in the financial services industry and beyond, the importance of a robust framework, and the steps to future ESG success.
Sam Gilbert-Ward, joined Pollen Street in 2018, to drive efficiencies, leverage joint opportunies and share best practise as part of the Pollen Street Hub. Samuel works across the investment strategies, with a focus on portfolio management and realisation of cross-portfolio opportunities through-out the lifecycle. Prior to joining Pollen Street, Samuel worked in debt portfolio sales for financial services consultancy firm Rocket Performance Group. Before transitioning into financial services, Samuel worked for BAE Systems as an Electronic Engineer, designing and testing safety critical flight hardware. From this Samuel brings a deep understanding of technical development and process optimisation. Samuel has a Masters in Electronic Engineering from Durham University.