Investing responsibly is no longer just the right thing to do, it’s fast becoming
the only option. Make sure you capture the value with a dedicated ESG resource
When I started my private equity career in investor relations, I was working with Capital Dynamics, one of the first signatories of the United Nations Principles for Responsible Investment (UNPRI). Throughout my 15-year career in private equity, I have been involved with environmental, social and governance (ESG) policies, even completing a Business Sustainability Management course at the University of Cambridge, to further my understanding of the subject.
I moved into recruitment around six years ago and I’ve recently joined PER to focus on investor relations, fundraising, ESG and sustainable and impact investment. It’s a role that’s going to get very busy, very quickly as demand for ESG professionals grows.
A CHANGING LANDSCAPE
For the past few years, we’ve seen endless headlines in the financial news about the rise of ESG investing. Novel and even laudable a decade ago, a commitment to ESG has become an indispensable part of every private equity and venture capital firm’s policy framework. Going forward, it’s going to be the foundation of every fund-raising drive, investment decision and value-creation strategy in private markets.
Whilst the large cap firms often have a dedicated, full time in-house resource focusing on ESG, many smaller firms have responded by adding responsibility for ESG to one of their investment or IR professionals. Whilst this makes sound sense in the first instance, as a working knowledge of the firm’s investments and investors is key to the role, making sure ESG is integral to day-to-day operations is a challenge that should not be underestimated.
ESG IS A FULL TIME JOB
Keeping up with your own ESG commitments and, for the UK’s 567 signatories, complying with the requirements of the UNPRI, is a huge task. On top of this, LPs now regularly demand an ESG-specific Due Diligence Questionnaire (DDQ) to be completed for every investment. ESG is no longer a role that can neatly fit alongside investment or investor relations responsibilities; it’s a full-time job.
Consultancies, financial services firms and big PLCs tend to have teams of 20 to 30 people dealing with the complex regulation that exists around ESG in public investment. While not regulated by the Financial Conduct Authority, it’s becoming increasingly clear that private equity firms must go above and beyond this basic compliance.
It’s important to stress the value that comprehensive ESG policies add during the fundraising process and at exit. Because of regulation in public markets, the bare minimum is no longer good enough and any attempts at greenwashing will be laughed off the deal table. As the industry discovered a decade ago when it started building out investor relations teams in earnest, an in-house ESG resource should never be regarded as a cost; it will pay dividends.
ENSURING SENIOR BUY-IN
For a firm to get the most from an ESG function, it must have the credibility and standing to weigh in and effect change at every stage of the fundraising, investment and management cycle. For example, a potentially lucrative investment should be carefully assessed for sustainable as well as financial returns. If it fails to meet the standard, or if improving the environmental and social credentials of the business hasn’t been factored into the value-creation strategy, the ESG function needs the authority to call time on the deal.
As an industry that favours long-term investment, we should recognise that there’s very little chance of the tide turning on ESG; at the end of the next holding period, buyers looking at a business will only consider an environmentally sound, ethically run and socially responsible concern that will appeal to the ever-more conscious consumer.
A BESPOKE SOLUTION FOR EVERY FIRM
Every firm is at a different stage of the ESG journey and will have varying resource needs. The team at PER have an unrivalled network in this area and our in-depth understanding of ESG means we are uniquely positioned to map, screen and identify individuals with the skills and passion to make a real difference. Whether you’re in need of an ESG consultant, starting out with a part-time professional, looking to hire someone full time to lead on ESG or building out an existing team, we probably already know the people you’re looking for. Get in touch to discuss your needs today.