ESG is a hot topic in the PE world with many investors requiring transparency into the ESG performance of the funds PortCo’s.
Per the WSJ on Nov. 25, 2021:
“How thoroughly do investment managers screen the companies in their environmental, social and governance funds? Not very, if the example of videogame company Activision Blizzard is typical.”
While Activision was saying all the right things with regards to their ESG compliance, the company’s board was not informed of sexual misconduct complaints and other material issues; and didn’t know to ask. Despite releasing a comprehensive 38-page ESG report on Aug 2021, Activision failed to disclose relevant workplace issues or outstanding harassment claims.
The revelations have had a material impact on the value of Activision’s stock price, declining roughly 40% since the announcements came out.
How to prevent ESG “misses” at your PortCo’s
We have found that many funds have taken the first step: enumerating questions in a spreadsheet that gets sent out to their portfolio companies to complete. When responses come back, firms are left juggling a slew of excel files and emails, burdened with the task of compiling the information into a story that they can share with their LP’s. The more companies in a portfolio, the more cumbersome this job becomes.
5 actions PE firms can take:
1) Ask the right questions to unearth PortCo ESG risks.
2) Exercise cross sectional answering (i.e. capture responses from multiple people) to avoid a single point-of-contact who might not have visibility as to what is happening across the company.
3) Utilize graphs and dashboards to visually present key ESG metrics.
4) Perform ESG reporting quarterly rather than annually to reinforce PortCo expectations and address discovered red flags in a more timely manner.
5) Implement solutions to track the ESG performance at PortCo’s and present reports to stakeholders and LP’s.
How can we help?
In conjunction with several PE firms, we have created a purpose-built SAAS tool to help PE firms track the ESG position of their PortCo’s, and make it easy to tell their ESG story to their LP’s. To learn more about the tool click here to visit our website or click the button below to speak with our team.