In March 2021 we held a Carbon roundtable with representatives from 23 of our portfolio companies with the aim of demonstrating the broader commercial benefits of measuring a carbon footprint and taking steps to reduce it, including better employee engagement or customer sentiment, as well as cost savings. The event, facilitated by specialist consultancy Anthesis, also delivered practical advice on how to measure a carbon footprint and improve the quality of carbon reporting.
Many of our portfolio companies have put in place realistic and achievable, and in some cases ambitious, emission reduction targets, some targeting specific aspects of their business, other more comprehensive. For example:
We have made significant strides in the assessment of the environmental impact of our portfolio and collect data on a number of environmental indicators. Over the last two years, we have focused specifically on improving our collection of GHG emissions data, to satisfy both regulatory and commercial demands. We currently collect GHG emissions data from over 70% of our Private Equity portfolio companies and over 80% of our economic Infrastructure investments. Most of the companies that do not already supply us with this data are new investments, which will be expected to measure and report their emissions to us within the first year of investment. Once Scope 1 and 2 data is in place, we will also begin collecting Scope 3 data
systematically. This portfolio baseline will allow us to:
We are also improving the data we collect on waste produced and materials consumed by portfolio companies, which will allow us to enhance our engagement with the portfolio on resource efficiency over time.
We encourage our portfolio companies to treat their waste sensitively, minimise packaging, maximise recycling and optimise their processes to reduce waste. The topic of circularity and resource efficiency also provides significant commercial opportunities for our portfolio companies. We are very pleased with the progress made in this area. For example:
We are intensifying our focus on supply chain management and transparency in our portfolio as we believe that there are high rewards from building trust with consumers and other stakeholders on these issues.
We ensure that, where relevant, our portfolio companies have policies and procedures in place to monitor their supply chains, and make adequate disclosures on this topic to satisfy their stakeholders. For example:
Academic research shows that diverse and inclusive companies are likely to outperform less diverse peers. Where appropriate, we have been making this case with our portfolio companies through our board-level engagement.
We monitor diversity and inclusion in our portfolio closely through our semi-annual portfolio company review process and have improved the quality of our data collection and engagement on this topic over the last few years. A number of our portfolio companies are sponsoring initiatives to improve diversity and inclusion across their organisations. For example:
This topic can also provide commercial opportunities for our portfolio companies. For example, WilsonHCG, which works with companies to help them plan and execute talent acquisition programmes globally, has also developed a Diversity, Equity, Inclusion and Belonging service for its clients. With this service, the business helps companies to diversify their talent pools by accessing candidates from diverse communities, leveraging its relationships with hundreds of diversity-focused organisations. Through this service the business also creates guidelines and standard operating procedures for diversity hiring that can be tracked and measured to ensure clients comply with internal guidelines and government regulation. In addition, its talent consultants host training sessions with hiring managers to reduce bias.
We engage with our portfolio company management teams so that they assess and mitigate the relevant ESG risks for their business and embed long-term sustainability considerations in their strategy. A significant proportion of our portfolio companies have put in place and published comprehensive sustainability strategies and in many cases set targets to measure their performance across a number of relevant indicators. We are working with the remainder of our portfolio to ensure that they have a suitable strategy in place.
Cyber security remains an important area of attention. As significant shareholders in our portfolio companies we have supported material investment in IT and security infrastructure to ensure this risk is mitigated appropriately. We raise cyber risk awareness with our investment teams and our portfolio through regular training and forums and periodically conduct cyber audits of our portfolio through an external network security consultancy.
In November 2021, we facilitated a CIO Virtual Forum, hosted by a specialist consultancy, which brought together 30 of our portfolio companies. The purpose of the event was to highlight the current cyber security threats and best practice to address them, discuss portfolio companies’ cyber security maturity and share the experiences of cyber security strategy implementation.
Most of our portfolio companies have bank funding in place. As these facilities are gradually refinanced, we have been considering linking them to ESG targets. This has both financial and commercial benefits. ESG-linked banking facilities tend to have lower costs and attract a broader range of lenders. The commercial benefits are less immediate, but as public demand for progressing sustainability agendas becomes clearer, being able to show a commitment to deliver on a number of quantifiable EGS KPIs can have benefits in terms of perception with customers, governmental actors or regulators, among others.
To date, 3iN, ESVAGT and Royal Sanders have put in place specific ESG-linked bank facilities. As more of our portfolio companies’ bank debt is refinanced, we are considering implementing ESG linkages at other companies.