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Maximising value and growth opportunities through responsible investment

ESG Integration

ESG Integration

Recent years have seen a rapid increase in the number of private equity firms integrating environmental, social and governance (ESG) considerations into their investment decisions. This is driven by factors including growing interest from Limited Partners (LPs), increased regulatory pressures and an appreciation of the material impact of ESG factors on investment performance. This presents opportunities for portfolio companies to improve financial performance and yield reputational gains as well as for General Partners (GPs) to improve the exit multiplier and access to subsequent funding. Integrating ESG factors into management practice also enables GPs to better manage strategic, operational and reputational risks.

In helping to further the responsible investment agenda, Sancroft is proud to be a signatory to the UN Principles for Responsible Investment (PRI).

We well are positioned to help firms engage with the PRI, and to understand the steps towards, and subsequent benefits, of becoming a PRI signatory. As the world’s leading proponent of the advancement of responsible investing, the PRI is at the forefront of ESG issues, and how these impact investors, asset managers, and service providers.

Our Chief Executive, Judy Kuszewski, is a member of the PRI’s Reporting & Assessment Advisory Committee.

Our Services

Sancroft is ideally placed to support private equity firms and others in the financial services sector to integrate ESG factors into their investment practices. We do this through:

Design

We help you to define what ESG means to you, your investors, and the broader industry, then design and operationalise ESG management systems. This includes:

  • Engaging LPs to understand their criteria and expectations for ESG integration
  • Assessing maturity of GPs’ existing policies and tools for managing ESG
  • Benchmarking leading practices, competitors, and industry standards to inform future state
  • Developing value-adding policies that crystallise ESG practices, roles, and responsibilities
  • Embedding ESG in your business, working with team members to ensure effective application
Implement

We use ESG tools to identify and manage investment risks, while supporting innovation, ESG enhancements, and value creation, unlocking hidden value in your portfolio. This includes:

  • Conducting screenings and due diligence: Before investing and upon divestiture, we help you determine material ESG risks and opportunities.
  • Performing ESG scans: We can evaluate your entire portfolio to identify single ESG issues or broader themes affecting your invested companies.
  • Delivering improvement plans: We provide 100-day or longer-term plans to improve ESG performance in portfolio companies via actionable and realistic steps.
Communicate

We craft and manage your ESG engagement and reporting to demonstrate responsibility and returns to investors and external stakeholders. We provide insights on pertinent ESG information, how to monitor it and share it with stakeholders. This includes:

  • Mandatory disclosure statements in response to legislation such as the UK Modern Slavery Act or the EU Non-Financial Reporting Directive
  • Public ESG reports illustrating how you integrate ESG through your investment processes
  • Specialist ESG disclosure for institutional investors or other specific stakeholders, whether related to the UN Principles for Responsible Investment requirements, the Taskforce on Climate-related Financial Disclosure recommendations, the UN Sustainable Development Goals or others specific to your business.
Enhance

We unlock value through sustainability. We continuously evaluate and improve your approach to create real competitive advantage in the ESG arena. We help GPs keep a pulse on global ESG trends and empower them to be forward-thinking managers. We are thought partners that help you stay one step ahead and raise your profile through innovative approaches and ideas.

 

Benefits for your business

Integrating ESG considerations into your investment decisions will:

  • Ensure access to capital: LPs increasingly allocate funds based on responsible investment commitments, requiring LPs and GPs to have robust and credible processes in place to address ESG issues during asset selection and portfolio management.
  • Enhance the value of portfolio companies: Poor ESG performance can discourage or devalue future sale and purchase agreements. Conversely, strong ESG performance across portfolios supports increased asset value at exit.
  • Strengthen your firm and investments’ reputation and brand: ESG integration is a critical part of proactive reputation management – both to mitigate risks, and to benefit from being seen as a responsible business and partner of choice. Companies with strong reputations will attract investors, consumers and top talent.
  • Respond to the evolving and widening concept of fiduciary duty: ESG management is increasingly regarded as a core part of securing long-term financial gains. ESG factors are considered material risks when evaluating prospects and the health of a company, while also determining its ability to generate future returns.
  • Enable your firm and investments to respond to evolving regulation: Over the last decade, there have been growing requirements for increased transparency through mandatory disclosure, for instance through the UK Bribery Act 2010 and the Modern Slavery Act 2015. Businesses must protect themselves against the greater potential for liability and litigation.

 

Case Studies

Sancroft provided a specialist due diligence service for Bowmark, a London-based private equity firm on a potential investment, to support the House in its decision-making process. An aspect of this due diligence was to establish the likely impact of environmental and social factors as they related to the target company.

The work required a deep-dive into planning strategy to assess the feasibility of growth for this business. This included a review of the company’s current community and social strategy, its interaction, operations, and policies to explore how these could be further improved.

To advise on how to best unlock the company’s potential, Sancroft conducted a site visit, engaged with internal and external stakeholders, and reviewed both publicly available and confidential documentation. In line with short timescales at the pre-investment stage, Sancroft completed this project, and presented recommendations within three weeks. Leveraging Sancroft’s deep knowledge and expertise in this area, we were able to provide the highly specialised analysis that the House needed to make an informed decision.

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If you want to realise ESG value in your operations, your portfolio, or your product offerings, get in touch.