ESG Strategy Series #3

In the past few months, businesses that have strong Environmental, Social and Governance (ESG) credentials have performed better on stock markets than index averages. Higher ESG scores through benchmarks, frameworks, formalising ESG strategy and ESG ratings have demonstrated better risk management and resilience, increasing investor confidence that you can ‘weather the storm’ now, and in the future.

In this current climate, managing risk and building resilience is becoming increasingly important for all businesses. Environmental, Social and Governance (ESG) performance is an integral part of building risk controlled and value focused funds and portfolios.

Creating a structured approach to ESG can maximise benefits.
Stakeholders— including Limited Partners (LPs), communities, and employees— increasingly expect General Partners (GPs) to demonstrate that they invest responsibly and incorporate ESG factors into their investment decisions. Furthermore, as ESG factors increasingly affect the business value of portfolio companies, a more structured approach to ESG consideration can enhance GPs performance optimisation.

How a formal ESG approach helps:
• Communicates commitment: A clear and consolidated ESG strategy and policy demonstrates confidence and provides detail to respond to key stakeholders expectations and requests.
• Aligns expectations and builds trust: By clarifying and articulating ambitions and commitments, a formalised ESG approach can build trust among stakeholders including LPs, investment professionals, regulators, portfolio company employees and local communities as they are confident their material ESG considerations are being met.
• Establishes consistent implementation: A formal ESG approach encourages consideration and guidance as to how to implement and integrate ESG criteria across teams and portfolios.
• Quantifies and tracks performance: ESG frameworks which identify and monitor key indicators over time can identify efficiencies, cost savings and opportunities and ultimately add value.

GPs scale, scope and objectives should be reflected in an ESG approach – there is no ‘one size fits all. ’ The use of international frameworks can be helpful but are not an absolute requirement. Instead, a considered and practical approach which focuses on long-term resilience and value will be of most benefit to GPs.

The Environmental, Social and Governance (ESG) Strategy Series offers a topical and practical perspective on how ESG can benefit business. Each month, our Sustainable Business team will provide the best of their insight, findings and ESG consulting project experience on how ESG can build value.

Please click here to download ‘Formalising ESG: Building from Best Practice’

Our full ESG Strategy Series :