ESG impact on post-COVID value creation planning

Within private equity and venture capital, Environmental, Social and Governance (ESG) has been one of the main emerging factors in value calculation. We wrote recently about ways that Portfolio Managers are starting to embed ESG in their value creation planning and how some, such as Helen Fagraeus Lundstrom, Head of Via Summa, Summa Equity hold a view that “aligning [United Nations] Sustainable Development Goals (SDGs) with corporate objectives when searching for investment opportunities increases returns and reduces risk".

There is no doubt that the Coronavirus pandemic has brought ESG into even sharper focus and there is still much to discover about both the environmental and social, as well as the economic, impacts of COVID-19, some that may not be realised for years.

UNTAP by EXM led a webinar “COVID-19 and the future of value creation” when we were lucky enough to be joined by an excellent group of panellists who offered their engaging insight and viewpoints on the impact of ESG on post-COVID value creation planning.

We heard from Maria Carradice, Portfolio Director, Mayfair Equity Partners who has spoken much about ESG. In her opinion “ESG is here to stay”. Her view is that “overall, what we will see coming out of this crisis is that those companies with strong ESG credentials have been more able to handle the crisis and will hopefully emerge from the crisis in a much more positive way”.

She continues “I think the area where we are going to see a lot more engagement with companies from ESG is on the social side, the treatment of employees during this period” and that “mental health is going to be high up on the list and that diversity too is coming further up the agenda”.

We also heard from Warren Gee, Chief Portfolio Officer of Cairngorm Capital who noted that “at the human level, what we have seen is a real kind of reconnection with people”. “So I think it's [ESG] going to become more important”.

Simon Poole, Helios Investment Partners also noted the impact of ESG. Because of the nature of his fund’s objective – bringing private investment into Africa – he has always focused very clearly on ESG. To his mind “a company cannot manage ESG well, unless it is a well-run company”.

He [Simon] has been involved in a number of businesses which are investing to improve the world environments in Africa in such areas as solar power where there was already a trend towards greater ESG management. His view is that the crisis has accelerated this trend and that the acceleration will increase post-COVID.

 

There are still challenges to overcome such as the difficulty of linking ESG initiatives to financial value. There’s also the initial costs of getting things up and running such as employing staff specifically to look at the ESG risks and factors in potential investments and address the growing demand from investors, as well meeting European regulation that is on the horizon.

Another important factor is the ability of companies to embed ESG into both operations and culture and integrate ESG management and practices into day to day operations at all levels.

Based on the conversations it’s clear that ESG is here to stay. There is no doubt it will impact post-COVID value creation planning in many ways, but the overriding message is it will play a positive role. Therefore, the question PE Partners should now be asking themselves is not ‘can we afford to invest in ESG’, but ‘can we afford not to?’

 

The coronavirus pandemic forced all of us to confront a shock for which no amount of planning prepared us.

Throughout the crisis the UNTAP by EXM team continued to communicate with its customers and partners.  In addition, its CEO, Juan Manrique and COO, Manfredi Bargioni, reached out to the wider PE fund community in conversations to explore their thoughts, not just on the immediate business threats and disruption posed by the outbreak, but also on the changes they expect to see in the near future to the process of value creation.   The discussions addressed areas such as what we learned in lockdown, past lessons that can help us, the importance of building resilience through partnerships and how to adjust to a post-COVID world.

 

The findings are brought together in our White Paper which explores the main trends that are going to accelerate in the next 24 months, how value creation is going to evolve and what role private equity can play to support the economy’s post-COVID recovery.

 

The White Paper would not have been possible without those who kindly shared their experiences, comments, insights and viewpoints and we are grateful to everyone that contributed.

We hope that it will facilitate the recovery discussion and assist with your post-COVID value-creation planning.