OVER RECENT YEARS, Equistone has been working quietly but diligently to embed ESG into our processes. What follows is an overview of some of our key activities, including a tangible examples that shows how sometimes abstract concepts can result in real, positive action.
Industry-wide data convergence
Over the past two years, we have been working alongside a group of 200 LPs and GPs from across the world, to develop and adopt a standardised format for ESG reporting by portfolio companies, in a way that will provide consistency of ESG metrics and definitions, and eventually an international benchmark for measuring performance and risk.
When we came across the ‘ESG Data Convergence Initiative’ we were already on our own journey of figuring out how to monitor these issues within our portfolio and report them to LPs – so we immediately recognised the value of joining this wider effort.
We successfully submitted data for the 2021 reporting period and will do so again for 2022 in the spring of 2023. In this process, we were relatively early adopters, particularly given our focus on the mid- and lower mid-market.
We have more than 45 unrealised investments in our portfolio, and while the larger ones find such reporting relatively straightforward, smaller companies often do not have the processes in place yet. We have, therefore, been working with Boston Consulting Group (which is also mandated to develop the industry-wide benchmarks) to identify which companies need more support and provide them with the tools they need.
We now ask all our companies to report across nine broad areas: greenhouse gas emissions and energy consumption, waste and water, workforce composition, diversity and inclusion, health and safety, employee engagement and skill development, business conduct, ESG management and supply chain. This framework goes beyond ESG Data Convergence initiative indicators to include regulatory indicators (e.g. SFDR Principal Adverse Impacts) as well.
Some of these are easier than others, and we are all very much on a journey – but now, at least, we have a broad and standardised framework, and one that is not so daunting that smaller companies will be put off. It is our belief that, as they become larger businesses, having these processes in place will prove an advantage.
Another very exciting recent development on the ESG front is our simultaneous hiring of three ESG managers at the end of 2022 – one manager for each of our jurisdictions (see below). This represents a significant addition for a team of Equistone’s size and a major commitment to the management, optimisation and integration of ESG.
ESG is a very broad topic, so rather than try and cover everything in one go, we want to focus on a particular investment journey as starting point for a broader commentary. The company we have chosen – BOAL Group – is offered as an exemplar, and as such, I hope it will be both informative and inspiring.
Enter the specialists
“When I learned that [Equistone] was hiring three people simultaneously across their different regions, I thought ‘they really get it.’ ESG needs to be adapted to local contexts, not least because policy divergence in the area of sustainable finance and ESG will accelerate over time,” says Jessica Clavette, who joins the London office.
Joining at the same time will also be conducive to pan-European co-operation and shared experience.
“When working on overall ESG targets we must define those that are relevant to all companies, and develop a ‘common sense’”, says Sophia Nicol, who joins in Munich. “But then to look at each company individually, and their context. So, in an ideal world, we would have some overall and some individual metrics and targets for our companies in place.”
Such tailoring matters all the more in a mid-market environment. “SMEs can be very much concerned by ESG issues, but they don’t always have the time or resource to tackle them,” says Diane Vignalou, who joins in Paris. “This is a real opportunity to help them and to drive change.”
Diane is looking forward to collaborating with her European peers. “We will be able to challenge each other, and offer different perspectives on ESG, because it can be very much linked to cultural background, as well as the regulatory environment.”
Just keeping on top of the ever-shifting ESG related regulation is becoming a full-time job.
All three new joiners come from specialist sustainability consulting backgrounds and are excited about the ability to affect real change and follow through on it, working hand-in-glove with deal teams and portfolio companies as much as the reporting and finance functions across Equistone.
“ESG shouldn’t be siloed,” says Jessica. “Integrating it across the investment lifecycle, through to your investment philosophy, really requires building it in across all functions. Ultimately, I view the role as requiring engagement with the whole of Equistone.”
ESG itself is a broad church and everything will be under consideration, but the new managers mention, in particular, growing ESG litigation and class action funding, supply chain risk and human rights, biodiversity and carbon emissions.
“There are many benefits associated with good ESG practice,” says Sophia, “so while there is a risk management aspect, I hope to be involved at least as much in value creation.” ☐
A full version of this article appeared in PLATFORM 08, Winter 2022/23