Maximising ESG impact in private equity: Part Two – What needs to change within the framework? 

Global ESG Investing

By Sam Gilbert-Ward, Business Analyst, Pollen Street Capital – With governments, businesses and people looking towards the ‘new normal’ post Covid-19 we begin to see the areas where the pandemic has been a catalyst for change. Across the globe businesses are galvanised to consider what ESG really means for them. The refocusing of priorities has given many the opportunity to re-assess their ESG framework and ensure that the strategy put in place creates real impact. 

Prior to Covid-19, organisations predominantly focused on the environmental factor within ESG. However, the pandemic has seen many organisations shifting their focus to the ‘S’ensuring that they are supporting key stakeholders such as employees, customers and communities during these uncertain times. In addition, we’ve seen the introduction of more flexible ways of working leading to significant cultural changes within organisations.  

ESG frameworks need to capture this shift and enable investors to evaluate the performance of businesses based on environment, social and governance factors, however, it can be difficult to find guidelines to create a robust plan. 
 
Create a common language 

It is easy to get caught up in our own worlds and forget that not everyone is familiar with the vocabulary that is commonplace in asset management. Take the time to discuss what “ESG” really means. In our ESG Impact Framework, outlined in our latest ESG report, we break it down into: 

  • Marketplace – Providing the best outcomes. We ensure the products and services we provide benefit individuals, SMEs, suppliers and investors 
  • Workplace – We strive to create a positive working environment for our people at the Group and portfolio level, and drive initiatives to engage our people and promote diversity and inclusion 
  • Community – We are strategic with our Social Investment efforts, to best leverage the skills and resources Pollen Street and the portfolio has available. We focus on efforts that provide real benefits and address relevant issues 
  • Environment – Creating a lasting environmental impact, recognising our responsibility to do better. We are committed to identifying and improving the environmental impact of our operations 
  • Governance and Leadership – We ensure we are appropriately accountable for our decisions, implementing regulatory best practice through all operational processes with the ability to identify and manage all material risk factors, including ESG risks 

Each of these areas of focus is mapped against the UN’s sustainable development goals. 

Once you have developed a common understanding of topics specific to the business, you can build a structure to better articulate their efforts. This is a key step in translating good intentions into real actions and positive impact.

Focus on the Impact 

We are often struck by the enthusiasm for ESG issues when we first meet the teams from new additions to the portfolio. The first gap to span is not in demonstrating the importance of ESG, as this is often already a focus, but in helping the businesses align behind their ‘impact areas’. Every business is positioned to tackle a specific set of issues.  

When we onboard a new business to the portfolio, we work to map out its Impact Areas, aligning ESG strategy to: 

  • the sub-sector the business operates in 
  • their customer base and value proposition  
  • the strategy skills and expertise of the team.

Below is an example of how we visualise a business’ impact focus:
 

Pollen Street Capital chart

This diagram outlines how we help the business map the areas where they can have most impact against their importance to stakeholders and how they influence the business’ overall success. This creates a simple framework to help the business better identify:

  • Where it has the core competencies and experience 
  • Areas that are a high priority for its stakeholders 
  • Actions that align with overall strategy and growth goals

Often SMEs have well-intentioned but disjointed initiatives that spring up organically from the passion of the workforce to make a difference. Having a structure from which to marshal this passion, and organise existing initiatives, allows the business to unify effort and accelerate impact.

Fundamentally. having an ESG scheme in place is a great way to encourage businesses to incorporate ethical practices into their operations. However, it’s crucial that the framework also efficiently measures the true impact of those policies, both on the financial services industry, and wider society.  

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