ESG Management during Investment Ownership

RPS ESG consultants develop frameworks and strategies to maximize clients' results during ownership.

ESG performance

ESG goals and performance are becoming more significant measures of business health, value, and longevity. Meeting the ESG requirements of investors and screening for ESG red flags are now important steps in asset value protection. Extending these attentions through business operation and into core business function is an opportunity to secure and maximize your portfolio company’s value and outcomes.

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Minimizing risk

ESG issues can create direct and indirect financial impacts on businesses, with possible legal, reputational, and financial costs to failing to meet the ESG expectations of governments, employees, and customers.

During the ownership and operation of a business, private equity firms must ensure that they are addressing the industry specific concerns of their portfolio companies to ensure that they continue to meet their investors’ expectations and remain aligned with industry best practices.

As public expectations and ESG regulations increase, it’s important that private equity firms understand the legislation, restrictions, and expectations regarding ESG practices at every level of their business. Companies must be prepared to demonstrate ESG performance in areas from their indirect impact through supply chains through to product stewardship, direct environmental and social business impacts, and employee culture and labour practices. Failure to do so can expose a business to reputational damage, costly litigation, fines, work stoppages, and reduced employee retention.

Meeting expectations

Private equity firms must be prepared to meet the environmental and social sustainability expectations of their investors and customers. This demands they understand the specifically relevant expectations of the regions and industries of each of their portfolio companies.

Stakeholders are increasingly expecting to see demonstrated improvement in ESG topics important to a given business and General Partners should be prepared to present ESG-related information during annual Limited Partner meetings at a minimum.

Implementing ESG policies and priorities at the core of a business provides a framework for reporting and makes communication with both investors and consumers easier. Identifying and tracking performance around key performance indicators (KPIs) for ESG strategy implementation takes this further and allows for more meaningful conversations with investors regarding the strategic direction and health of the business.

High performing businesses have in general chosen to get ahead of the expectations for transparency and communications around their social and environmental impacts.

Maximizing outcomes

Investors are not the only stakeholders in a business, nor are they the only parties aligning their investment and spending with their values. Environmentally and socially sustainable practices are increasingly a priority, and clients and consumers are spending accordingly. With increasing transparency from corporations, allowing consumers to monitor a company’s environmental and social impacts and stances, failure to meet ESG expectations can create a significant business loss. However, strong ESG performance can also distinguish a product or company from its competitors.

Effective ESG implementation goes beyond compliance or risk-minimization and allows businesses to evaluate their performance from a new perspective. The implementation and ongoing performance assessment of an ESG strategy also allow a business to evaluate and stay abreast of the outcomes of their business function decisions. Companies can use ESG performance measurement to identify preventable expenses and untapped opportunities for improvement, unlocking the potential for value protection and creation.

ESG in business ownership

Good ESG practices are good business practices and effectively implementing ESG strategies is about more than just having an ESG policy. ESG initiatives are most impactful when integrated into the core business strategy. An ESG strategy should be tailored to the needs and context of each portfolio company, with goals and standards specifically chosen to minimise risks and maximise outcomes. Although some goals can apply across a variety of industries, ESG performance should be measured against issues directly related to the risks and success of a specific business given its business model.

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ESG KPIs

To implement a successful ESG strategy, companies should identify core areas most relevant to their business and use an organized system to track the key initiatives with the greatest material impact on the business.

Identifying quantifiable ESG key performance indicators (KPIs) allows a company to compare its own performance to industry benchmarks. Appropriate KPIs will act as a measure of business health and will be tailored to a business’ product and service offering, regulatory environment, geographic footprint, industry, and position in the value chain, and extent of horizontal and vertical integration, although it is important not to select more KPIs than can reasonably be tracked or managed.

Our approach

RPS has the breadth of industry experience and ESG expertise needed to identify the specific ESG issues that truly matter to each business, and integrate ESG strategies in the ways that make sense for firms and for portfolio companies. Building upon our expertise in ESG due diligence, we understand the universe of possible ESG issues, and how they relate to our clients. We partner with firms to develop a tailored and organised strategic direction for ESG planning within their businesses, helping clients to reduce costs, increase asset value, and minimize risk.

Specifically, we help our clients identify and address ESG issues to:

  • Increase ROI;
  • Minimize risk;
  • Reduce expenses;
  • Improve employee retention;
  • Avoid business disruption;
  • Reduce regulatory liability;
  • Meet customers’ sustainability expectations;
  • Increase market share;
  • Satisfy LPs expectations; and
  • Enhance GP and company reputation

RPS can also help clients to take next step to tracking ESG performance, improving the integration of ESG into their core business function. We help firms identify and validate possible ESG metrics for each of their portfolio companies and use our proprietary reporting platform to track and manage chosen KPIs. Integrating this with the tracking of any existing firm-level ESG policies, RPS can help ensure that portfolio companies align fully with the firm on all ESG issues. For private equity firms, the platform provides a centralized online platform for managing KPIs at portfolio, company, and site-specific level, which can be used to inform ESG topic management and identify specific action items to show improvements toward strategic goals or industry benchmarks.

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