ESG is becoming inherent in the way GPs invest, and though the regulatory framework needs further progress towards congruence, engagement and stewardship can drive initiatives to fruition. Mike Bridge (pictured), managing director, data operations, MiddleGround Capital, elaborates…
ESG is becoming inherent in the way GPs invest, and though the regulatory framework needs further progress towards congruence, engagement and stewardship can drive initiatives to fruition. Mike Bridge, managing director, data operations, MiddleGround Capital, elaborates…
How are you and your clients integrating ESG considerations into your firm’s decision-making processes, and what steps are you and your clients taking to ensure ESG factors are effectively managed within portfolio companies?
As a GP, ESG considerations are accounted for throughout the investment lifecycle from industry and asset screening, due diligence, value-creation planning, investment committee memos, active ownership and stewardship, through to exit planning. Material ESG factors have targets applied and executive performance measures consider the achievement of such factors.
What strategies or initiatives do you have in place to promote diversity and inclusion within your firm and the broader ESG private equity industry?
MiddleGround Capital is a signatory to the ILPA Diversity in Action initiative. We believe that diverse and inclusive firms drive better results. MiddleGround Capital is proud to have 50% of our partnership as females and 17% as ethnically diverse individuals. Our senior management team is 57% females and 17% ethnically diverse individuals.
What is your view on the current regulatory environment for ESG in private equity? What challenges do firms face to ensure compliance?
The current regulatory environment is progressing ever-forward towards congruence, but is still a long way off from standard frameworks, especially across international boundaries. The EU is leading the way in the adoption of mandatory disclosure requirements and the proposals from the ISSB should be considered as fundamental when designing and preparing internal firm and portfolio reporting capabilities. One key challenge facing firms to ensure compliance is the availability of data from SMEs who have historically not tracked certain components of the regulations. Systems, and in many cases human capital, must be stood up to support the reporting.
Does the approach to risk management in the context of ESG and private equity investments differ from traditional risk management? In what way?
We believe that complete risk management takes into account all material factors, both financial and non-financial, including externalities from a company’s operations. In many ways, traditional risk management falls short as consideration of the full universe of factors is lacking.
How do managers measure and report the ESG performance of portfolio companies and what role does engagement play to drive continuous improvement in ESG practices?
MiddleGround Capital as a GP utilizes online monthly, quarterly, and annual reporting for key performance indicators for portfolio assets. Engagement is key to not only reporting, but in driving real change. Stewardship takes the form of both ESG committees at every portfolio company that have the responsibility to report at the board level against defined target metrics, as well as frequent communication and shop floor engagement ensuring adequate resources to get initiatives done.
Mike Bridge, managing director, data operations, MiddleGround – Mike is based out of MiddleGround’s Lexington Office. He oversees MiddleGround’s ESG and Data Operations teams. Prior to MiddleGround, Mike worked for 18 years with Toyota Motor Corporation. Mike graduated from the University of Louisville with his MBA in Business Administration and Masters in Engineering.