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Finding Your 'ESG Mindset' with Invest Europe
- 1. Blaise Duault PAI Partners James Holley KPMG Marta Jankovic APG Asset Management Roundtable: Finding Your ESG Mindset with Invest Europe
- 3. Invest Europe is the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors. Our members take a long-term approach to investing in privately held companies, from start-ups to established firms. They inject not only capital but dynamism, innovation and expertise. This commitment helps deliver strong and sustainable growth, resulting in healthy returns for Europe’s leading pension funds and insurers, to the benefit of the millions of European citizens who depend on them. About Invest Europe
- 4. Putting ‘ESG’ in Context: 0 5 10 15 20 25 30 35 40 North America Europe Asia-Pacific LPs that have refused potential fund commitments largely for ESG reasons 21% 34% 36% Source: Coller Capital Global Private Equity Barometer (Winter 2016-17)
- 5. Putting ‘ESG’ in Context: 70% Percentage ofprivate equitymanagers thathave now made apubliccommitment toinvest responsibly. * 68% Percentage ofPE houses withresponsible investment policies. 96% Percentage ofthePE community that have or willshortly have an responsible investment policy. *PwC,Arewenearlythereyet?Privateequityandtheresponsibleinvestmentjourney
- 6. Invest Europe Publishes ESG DDQ: • Lays out an extensive list of questions concerning environmental impact, social policies (health, safety, etc.) and governance issues (board composition, etc.). • Helps investors gauge how advanced a portfolio company is with its ESG policies and reporting. • Also help identify issues that might need more detailed technical assessment, as well as opportunities to enhance value and mitigate risks following an investment.
- 7. Blaise Duault Head of Compliance and Public Affairs PAI Partners Meet Today’s Speakers: Nicholas Donato Industry Specialist Navatar James Holley Senior Manager KPMG Marta Jankovic Senior Sustainability & Governance Specialist APG Asset Management
- 8. Agenda • Putting the DDQ into practice: a crash course • Panel Discussion: - How to interpret ESG trends - Capture both GP and LP perspective • Audience Q&A
- 9. Due Diligence Questionnaire • Apractical tooltosupport General Partners (GPs) duringtheinvestment process, • Acomprehensive, butnot exhaustive, listofESG questions • Identifyandmanage potential ESG risks. • Helptodevelop aframeworktomonitor the ESG performance of portfoliocompanies.
- 10. Environment • What is the importance of ensuringemissions are monitoredto ensure compliance? • What are the potentialrisks associatedwith failingto manage waste and control pollution incidents? • What are the benefit of managing energy consumption and minimisingusage? ‘Does thecompanymonitor andreportitscarbonand/or othergreenhousegas(GHG) emissions?Areyoulegally required todosoandhow isthisdone?’ ‘Provide detailsofkeywastestreamsgeneratedandhow thesearemanaged/disposed of,including any particular wastemanagement initiatives thathavebeenimplemented tominimise orreuse/recyclewastes…’ ‘Whatarethecompany'sprimary energy andwater sources (river/lake orgroundwater extraction,public mains) andwhat initiatives/plans (ifany)havebeenputinplacetomonitor, reduceconsumption andimprove efficiencies?’ Emissions • Hyundai & Kia • Violationof CleanAirAct • Fined $100m Environmental fines • Thames Water • Repeatedsewage leaks into surface water course • Fined £1m EnergyReduction • Procter & Gamble (P&G) • Reductiontarget met four years early • > $0.5 billionsaving
- 11. Social • What are the potentialconsequences of failingto manage H&S risks? • Why is it important to ensure responsible management of labourstandards? • How can responsible supplychain management benefit a business? ‘Has thecompanyimplemented aformalised H&S management system,which setsoutclearorganisational responsibilities andmanagement arrangements for implementing theH&S policy? ‘Does the company have any involvement in employment practices of sub-contractors? What is done to ensure their fair and ethical treatment; are any minimum standards applied?’ ‘Does the company conduct supply chain risk assessments involving its procurement, supply chain and logistics departments? Health and Safety • Hugo Boss • Lack of health& safety checks • £1.2m fine Workingconditions • Primark • Collapse of illegally constructedsweatshop • Finesof $12m, to date Supply Chain • Nike • Supplychainmonitoring • Positive publicityand Improvedpublicreputation
- 12. Governance • What are the potentialimplicationsof failing to manage illegalbehaviourwithin a business? • Why is it key to ensure a robust cyber securitysystem is in place? • How can poor management of bribery and corruption issuesbe damagingto a business? ‘Whatdoestheorganisation currentlydotosafeguard againstillegal practices? Hastheorganisation hadany issuesinrelation toillegal practices(i.e. corruption /fraud)in thepast?How hasthisbeendetectedandresolved?’ ‘Has the company implemented an IT security management system? Is it certified to the international standard ISO 27001 for information security?’ ‘What does the organisation currently do to safeguard against illegal practices? Has the organisation had any issues in relation to illegal practices (i.e. corruption / fraud) in the past? Fraud • Goldman Sachs • Deceptivemortgage policies • Fined $5.1bn Cyber Security • TalkTalk • Loss of 156,959 customer’spersonaldata • Fined £400k Anti-bribery and corruption • GSK • Paid smallerfirms to delay their production • Fined £37m (Average cost of a data breach = $4 million)
- 13. ESG Reporting Framework ESG Strategy Assess Materiality Implement KPIs Monitor & Report
- 14. Questions? To learn more about Navatar, please contact Nicholas Donato. Email: ndonato@navatargroup.com Phone: 212-863-9655 ext. 3662 To learn more about Invest Europe, please contact Erika Blanckaert. Email: Blanckaert@investeurope.eu Phone: +322-715-0020
Notas del editor
- Private equity has seen pressure from investors to consider ESG factors in the investment cycle. These are the three pillars used for integrating ESG factors into company, project or asset investments, risk and valuation analysis. Integration of ESG can enable you to protect and create value, by identifying risks and opportunities associated with growing public awareness and legislative restrictions. There is increasing legal restriction and we are seeing greater fines for breaches and failing to comply. We understand it can be challenging to integrate ESG, however GPs influence on portfolio companies can help to achieve maximum benefit associated with good ESG management. Our experienced ESG team can help private equity firms, investors, and portfolio company boards implement and manage all aspects of ESG as part of the entire investment cycle.
- Emissions - Hyundai and Kia were fined $100m after they violated the Clean Air Act by selling vehicles that collectively emitted more greenhouse gases than permitted under their certificates of conformance. Environmental fines - Thames Water Utilities Limited (Thames Water) was ordered to pay £1m after causing repeated discharges of pollution from a Sewage Treatment Works to enter the Grand Union Canal in Hertfordshire between July 2012 and April 2013. This is the highest ever fine for a water company in a prosecution brought by the Environment Agency. Energy Reduction – P&G have reached they’re energy reduction targets four years ahead of schedule, as of December 2016. The target was to reduce energy & water usage at its facilities by 20% over four years, however this has already been achieved. P&G have made over $0.5bn of savings in energy reduction since 2010.
- H&S - Hugo Boss faced significant fines after an 18 stones mirror fell in a store. An inquest concluded that the mirror should have been fixed to a reinforced wall to ensure it was secure. Hugo Boss admitted offences under the Health and Safety at Work Act 1974 and the Management of Health and Safety at Work Regulations 1999. Labour Standards – In 2013 an illegally constructed factory, housing the likes of banks, clothes shops, and clothing factories, collapsed after safety warnings were either ignored, or withdrawn for a bribe. Primark was one of the largest companies operating within the building (under one of its suppliers), and subsequently has been ordered to pay $12m – with this figure likely to rise further. Supply Chain - Nike has managed to turn its image around since the significant negative publicity throughout the 1990s. Nike now considers itself an ethical retailer and ensures supply chain transparency by continuing to publish its commitments, standards, and audit data as part of its CSR reports.
- Fraud - Goldman Sachs were found accountable for ‘serious misconduct’ in falsely assuring investors that securities it sold were backed by sound mortgages when it knew that they were full of mortgages that were likely to fail. Cyber Security – Over the course of a week, during October 2015, weaknesses in TalkTalk’s data system were exploited by a cyber-attacker, leading to the theft of over 150,000 customer’s data. It has been said that if TalkTalk were to have taken basic steps towards improving their cyber-security, the breach could have been easily avoided. Subsequently TalkTalk were fined a record amount of £400,000 – the highest figure to have been given following a data-breach. ABC - Pharmaceutical giant GSK faces fines of £37 million from the Competition and Markets Authority (CMA) over illegal behaviour that stifled competition. GSK made deals with two smaller drug makers to stop cheaper, non-branded versions of its products from being introduced to the market. This prevented sales to the NHS of the cheaper products.
- Incorporating and implementing Invest Europe’s ESG DDQ in the post deal stage can help develop a KPI reporting framework to target ESG issues that are considered to pose potential risks or opportunities to the business.