ESG in Action - Stewardship
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The value of good stewardship

Jessica Clavette, UK ESG Manager, tells PLATFORM about how the success of Equistone’s responsible investment approach will be defined by how effectively it engages companies to produce positive sustainability outcomes.

Jessica Clavette, UK ESG Manager

SINCE OUR APPOINTMENTS as Equistone’s first in-house ESG Managers in late 2022, my colleagues, Diane Vignalou (France) and Sophia Nicol (DACH/NL), and I have been focused on strengthening the firm’s ESG programme.

Over the last several months, we have updated our Responsible Investment policy, strengthened our ESG due diligence processes and have committed to setting science-based targets. Meanwhile, behind the scenes we have been working on an element central to the long-term success of our approach to responsible investment: stewardship.

What is stewardship?

Stewardship is the use of investor influence to maximise overall long-term value.* It ultimately encompasses interactions that seek improvements in ESG and sustainable business practices as well as in public disclosures. It requires ongoing engagement with companies to ensure that ESG integration is carried out well beyond the initial due diligence – not simply as a means of ensuring compliance but also in realising tangible value creation.

What does it mean to Equistone?

Stewardship is a complement to the way Equistone does business: active support so that the companies we invest in remain attractive for the future. As primarily majority investors with a long-term perspective we can help portfolio companies realise sustainability milestones and advance in their ESG Strategy maturity. Our aim is to promote adoption of better ESG practices throughout the holding period, ensuring that post-investment, we work closely with our businesses to progress on their ESG journeys and build credentials and capabilities over time.

Simultaneously, this engagement deepens our understanding of our companies’ ESG profiles. We believe that, through stewardship, we are ensuring our investments’ will continue to perform well in the context of the global sustainability transition.

This is where our work begins. When the three of us joined Equistone, it was clear that the firm’s approach to stewardship would have to be consistent with its investment beliefs; building close partnerships that facilitate meaningful, two-way conversations with our management teams. The way we supported companies on their ESG efforts needed to be consistent with building close partnerships that drive meaningful dialogue with our boards, CEOs, and wider management teams was key. In this way, the structure we have shaped thus far has been collaborative at the very heart – we focus on generating buy-in, bringing individuals along the journey, and therefore starting companies on ESG journeys that will continue long after Equistone’s investment.

Equally as important has been wider team engagement. Deal team members have been deeply involved, as they are best placed to support stewardship initiatives.

80% of asset managers agree that their firm considers investment stewardship as an opportunity to generate value and performance for shareholders.

Source: Accenture Capital Markets Blog / The role-stewardship in ESG and beyond.

ESG data collection as the foundation to stewardship

Equistone has expanded the ESG data we collect to cover nine broad areas of reporting: greenhouse gas emissions and energy consumption, waste and water, workforce composition, diversity and inclusion, health and safety, employee engagement and skills development, business conduct, ESG management and supply chain.

Towards the end of March, we finished collecting ESG data for 2022 across all three regions – with a 100% response rate. Since then, we have been working through Equistone’s first large ESG data pool, performing analyses and generating insights . The data, thus far, has provided us with a much better understanding of our companies’ overall environmental and social footprints, and has enabled us to evaluate policies, practices and assess companies’ overall governance structures. In turn, this provides us with evidence to make more informed decisions regarding their longer-term risks and opportunities.

The information collected from our 2022 reporting cycle has informed the development of a structured stewardship approach. Next, we will be convening ESG Data Debrief sessions with portfolio companies to discuss the findings from our ESG data analyses, portfolio and region-specific benchmarks and a series of minimum ESG expectations that the Equistone Funds will be looking to phase in across the portfolio over the next 12 months. To enable consistency at firm and fund level, we have assembled a series of milestones for companies to achieve over the coming year, including setting initial GHG emissions targets, developing D&I policies, and strengthening processes to safeguard human rights along the value chain.

What’s next?

With this momentum we are now looking forward to formalising our approach to stewardship and sharing this with our investors and wider industry stakeholders.

Once we have completed all ESG data debriefs across the portfolio, we will maintain regular dialogue with companies to help drive continuous improvement in their sustainability goals and disclosure as well as continue working with company management on metrics, standards and performance. Our goal is to develop a toolbox of guidance, advisor relationships, tools, and templates to ensure we have a robust foundation for our stewardship efforts.

This time next year, we will perform another analysis and use ESG data debrief sessions to continue setting ambitious ESG milestones for our companies and identifying appropriate support plans.

All the while, and in alignment with our belief that by fostering an open, two-way dialogue with our companies, we can protect and enhance value for our clients, we will feed insights from our interactions and ongoing engagement into the investment lifecycle.” 

* The Principles for Responsible Investment (PRI) defines stewardship as: “the use of influence by institutional investors to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend.”

A full version of this article appeared in PLATFORM 09, Summer 2023