integrating esg in pe

8122019 Integrating ESG in PE

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STEP 983089 INTEGRATING ESG FACTORSWITHIN A GP ORGANISATION

It is important for a GP to have an appropriate organisationalstructure and culture in place as this enables it to takeinto account the full spectrum of ESG issues in its businessanalysis This could include

Commitment to ESG integration ndash a formalcommitment from the top of the organisation toguarantee sustained institutional dedication andresources a person or team responsible for ESGconsiderations with the relevant expertise employees

educated on the rationale strategy and practices forintegrating ESG linking ESG objectives to employeeevaluation

Setting ESG objectives ndash set and communicateobjectives for ESG integration establish an operationsgroup or use consultants to monitor portfoliocompanies

Engage with stakeholders ndash engage with collaborativeinitiatives engage with LPs

STEP 983090 INTEGRATING ESG FACTORS

INTO THE INVESTMENT PROCESSGPs could use the following general tips in developing anddeploying their framework

Align your framework for ESG integration withexisting tools and standards to ensure it is based oninternational standards and good industry practices

Ensure the investment team has access to ESGexpertise

Be sensitive to regional differences which may influencethe due diligence process and the level of engagementwith portfolio companies during ownership

Perform a ldquopilot runrdquo of the framework for ESGintegration ndash trial it with the current portfolio anduse the results to ldquodemystifyrdquo ESG factors for yourinvestment team

The guide suggests more specific practices5 which a GPcould utilise to integrate ESG considerations into thedue diligence investment decision and agreement andownership phases of the investment process

DUE DILIGENCE

Screening

compile a checklist to screen for high-level ESG risks

establish an exclusion list for high-level checks

Company deep dive

consider resource allocation for ESG due diligence

use due diligence questions in industry toolkits

INVESTMENT DECISION

include ESG considerations as standard practice ininvestment committee discussions

include ESG findings from due diligence in theinvestment memorandum

INVESTMENT AGREEMENT

share ESG objectives policies and practices withportfolio company

use templates from existing industry toolkits tointegrate ESG clauses into investment agreement

seek formal commitment from portfolio company byincorporating ESG issues into the deal documents and or the 100 day plan

collaborate with portfolio company to draft 100 dayplan

formulate a roadmap with a 3-5 year horizon with clearprocess benchmarks

5 Please note that this is a non-exhaustive list of suggested practices



INTEGRATING ESG IN PRIVATE EQUITY | 983090983088983089983092

3

OWNERSHIP

Engagement

collaborate with portfolio company to set up an ESGprogramme

leverage portfolio company board to implement ESGinitiatives

leverage ESG expertise and experience across theportfolio

conduct periodic site visits

Monitoring

define company specific or portfolio wide ESGindicators

prioritise ESG issues and focus on the most importantissues in the shortmedium term

ensure ESG considerations are consistently on theportfolio companyrsquos board agenda

provide portfolio company with tools to monitor andmeasure ESG practices

collect information on ESG developments from portfoliocompany and include in annual review

monitor ESG developments in internal review meetings

Reporting to LPs

agree upon the form and frequency of reporting

PREPARATION OF THE GUIDE

Over 50 GPs and LPs across the globe were interviewedduring the development of the guide and the guidancepoints presented are reflective of current practice It alsopoints to industry resources and case studies that cover arange of geographies investment strategies and GP sizesand highlights practices from GPs which are at differentstages of ESG integration

The PRI engaged Spring Associates to conduct the researchand develop the content for this Guide The document wasco-written by Spring Associates and the PRI Secretariatwith input from the PRI GP Guide Working Group The PRISecretariat would like to thank all contributors for theirsignificant input into this document including

PRI GP GUIDE WORKING GROUP Chair Haran Narulla Blue Wolf Capital Partners

Sara Robinson Adams Street Partners

Marta Jankovic APG Asset Management

Candice Brenet Ardian

Michelle Kathryn Essomeacute and Dara Owoyemi AVCA

Lauren Caplan Commonfund

Chloeuml Sanders CVC Capital Partners

Jennifer Choi EMPEA Thereacutese Lennehag EQT

Yannick Grandjean Eurazeo

Caitlyn MacDonald and Kimberlie Saint Louis First Reserve

Peter Tynan Global Environment Fund

Ana Lei Ortiz Hamilton Lane

Joanne Saleeba HESTA Super Fund

Andrew Malk and Topaz Simply Malk Sustainability Partners

Darren Massara NewQuest Capital Partners

Blaise Duault PAI Partners

Dushy Sivanithy Pantheon

Tim van der Weide PGGM Silva Deželan Rabobank

AUTHORSMaarten Biermans Ebel Kemeling and Willem van LanschotSpring AssociatesFong Yee Chan and Natasha Buckley PRIEdited by Akif Chaudhry and Brett Phillips PRIDesigned by Alessandro Boaretto PRI

CONTACT PRIimplementationsupportunpriorg wwwunpriorg

CONTACT SPRING ASSOCIATESebelkemelingspring-associatescommaartenbiermansspring-associatescomwwwspring-associatescom



The PRI is an investor initiative in partnership with

UNEP Finance Initiative and the UN Global Compact

UN Global Compact

Launched in 2000 the United Nations Global Compact is a both a policy platformand a practical framework for companies that are committed to sustainability andresponsible business practices As a multi-stakeholder leadership initiative it seeksto align business operations and strategies with 10 universally accepted principles inthe areas of human rights labour environment and anti-corruption and to catalyseactions in support of broader UN goals With 7000 corporate signatories in 135

countries it is the worldrsquos largest voluntary corporate sustainability initiative

More information wwwunglobalcompactorg

United Nations Environment Programme Finance Initiative (UNEP FI)

UNEP FI is a unique partnership between the United Nations Environment Programme(UNEP) and the global financial sector UNEP FI works closely with over 200financial institutions that are signatories to the UNEP FI Statement on SustainableDevelopment and a range of partner organisations to develop and promote linkagesbetween sustainability and financial performance Through peer-to-peer networksresearch and training UNEP FI carries out its mission to identify promote and realisethe adoption of best environmental and sustainability practice at all levels of financialinstitution operations

More information wwwunepfiorg



STEP 983089 INTEGRATING ESG FACTORSWITHIN A GP ORGANISATION

It is important for a GP to have an appropriate organisationalstructure and culture in place as this enables it to takeinto account the full spectrum of ESG issues in its businessanalysis This could include

Commitment to ESG integration ndash a formalcommitment from the top of the organisation toguarantee sustained institutional dedication andresources a person or team responsible for ESGconsiderations with the relevant expertise employees

educated on the rationale strategy and practices forintegrating ESG linking ESG objectives to employeeevaluation

Setting ESG objectives ndash set and communicateobjectives for ESG integration establish an operationsgroup or use consultants to monitor portfoliocompanies

Engage with stakeholders ndash engage with collaborativeinitiatives engage with LPs

STEP 983090 INTEGRATING ESG FACTORS

INTO THE INVESTMENT PROCESSGPs could use the following general tips in developing anddeploying their framework

Align your framework for ESG integration withexisting tools and standards to ensure it is based oninternational standards and good industry practices

Ensure the investment team has access to ESGexpertise

Be sensitive to regional differences which may influencethe due diligence process and the level of engagementwith portfolio companies during ownership

Perform a ldquopilot runrdquo of the framework for ESGintegration ndash trial it with the current portfolio anduse the results to ldquodemystifyrdquo ESG factors for yourinvestment team

The guide suggests more specific practices5 which a GPcould utilise to integrate ESG considerations into thedue diligence investment decision and agreement andownership phases of the investment process

DUE DILIGENCE

Screening

compile a checklist to screen for high-level ESG risks

establish an exclusion list for high-level checks

Company deep dive

consider resource allocation for ESG due diligence

use due diligence questions in industry toolkits

INVESTMENT DECISION

include ESG considerations as standard practice ininvestment committee discussions

include ESG findings from due diligence in theinvestment memorandum

INVESTMENT AGREEMENT

share ESG objectives policies and practices withportfolio company

use templates from existing industry toolkits tointegrate ESG clauses into investment agreement

seek formal commitment from portfolio company byincorporating ESG issues into the deal documents and or the 100 day plan

collaborate with portfolio company to draft 100 dayplan

formulate a roadmap with a 3-5 year horizon with clearprocess benchmarks

5 Please note that this is a non-exhaustive list of suggested practices




3

OWNERSHIP

Engagement





Monitoring







Reporting to LPs






























UN Global Compact










3

OWNERSHIP

Engagement





Monitoring







Reporting to LPs






























UN Global Compact











UN Global Compact







integrating esg in pe

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