ESG Integration
There is a rapid increase in the number of private equity and asset management firms integrating environmental, social and governance (ESG) considerations into their investment decisions. What is driving ESG integration? There is no doubt that growing interest from investors, coupled with the increasing – and increasingly complex – regulatory pressures are motivating action. There is also agrowing appreciation of the material impact that ESG factors have on investment performance.
Done well, ESG integration presents opportunities for portfolio companies to improve financial performance and yield reputational gains, and for firms to improve the exit multiplier and access to subsequent funding. Integrating ESG factors into management practice also helps firms 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 Principles for Responsible Investment (PRI), the world’s leading proponent of responsible investment.
Our latest PRI Transparency Report 2020 can be found here -> Transparency_Report_Sancroft International Ltd_2020.
The PRI is at the forefront of ESG issues, and how these impact investors, asset managers, and service providers. We are well positioned to help firms engage with the PRI, and to understand the steps towards, and subsequent benefits, of becoming a PRI signatory.
Our Chief Executive, Judy Kuszewski, is a member of the PRI’s Reporting & Assessment Advisory Committee and our Director, Felix Gummer, is a member of the UN Principles for Responsible Investment (PRI)’s Investor Working Group on Plastics. The Group aims to raise investor awareness and understanding of the impacts, risks and opportunities related to plastic, to explore the materiality of plastics to companies across the plastic value chain, and to provide input on resources that PRI develops to support signatory understanding of the issue.
Our ESG Integration Services
Sancroft provides independent and bespoke support to private equity and asset management firms as well as others in the financial services sector. We help firms integrate ESG factors into their investment practices through four key processes:
1. Design
We help you to define what ESG means to you, your investors, and the broader industry, then design and operationalise ESG management systems. For example:
- Engaging investors to understand their criteria and expectations for ESG integration
- Assessing maturity of firms’ 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
2. 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. For example:
- 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.
3. 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. For example:
- 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 firm.
4. Enhance
At Sancroft, we help you unlock value through sustainability. We continuously evaluate and improve your approach to create real competitive advantage in the ESG arena. We help firms keep a pulse on global ESG trends and empower them to be forward-thinking managers. As your thought partners, we 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 help:
- Ensure access to capital: Investors increasingly allocate funds based on responsible investment commitments. Consequently, this requires them and their asset managers 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. This is essential 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. ESG factors also determine a company’s ability to generate future returns.
- Enable your firm and investments to respond to evolving regulation: There are growing requirements for increased transparency through mandatory disclosure. This includes 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
TCFD advisory
A UK-based investment trust wanted to make sure that they had a clear understanding of the Task Force on Climate-Related Disclosures (TCFD)’s recommendations and the impact on their business.
After examining the firm’s ambitions, Sancroft developed a TCFD implementation roadmap tailored to their investment strategy.
The result? A client with confidence that they can effectively manage their financial exposure to different types of climate risk, and ready to proactively address investors’ concerns.
Contact us to discuss how Sancroft can help you reap the benefits of ESG integration.
Due diligence on investment
London-based private equity firm Bowmark, sought Sancroft’s ESG due diligence expertise to support its decision-making process on a potential investment. This included the likely impact of the environmental and social factors in relation to the target company.
Sancroft undertook a deep dive to explore and assess the target’s feasibility of growth; looking at community and social strategy, operations and policies, and internal and external stakeholder engagement. The evaluation identified the scope and opportunities for further improvements to best unlock the company’s potential.
Ultimately, Sancroft provided the highly specialised ESG analysis that our client needed to make an informed decision.
To arrange a time to discuss how ESG can help your business, simply send us a quick note.
