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30 Big Ideas Shaping ESG: Governance

Good governance requires leading by example and setting out a clear set of principles whether that is at GP, LP or portfolio company level.

A corporate governance toolkit

Development Partners International

The challenge: Building good governance is a complicated task for managers operating across borders in markets where practices and regulations can differ vastly.

The approach: The African investor has tackled this challenge head on by devising a proprietary corporate governance toolkit that can be applied across its portfolio to improve board culture and behaviour, controls and processes, disclosure and transparency, and share/stakeholder practices. Including terms, templates and diagnostic questions, the toolkit offers a standardised and repeatable means to boost good governance, and is a basis for ongoing appraisal.

DPI says: “The toolkit allows LPs to follow a standardised format to corporate governance for existing and new portfolios, regardless of their territory or corporate governance system.”

We say: A practical approach to a difficult issue.

Aligning sustainability objectives with the portfolio

Ambienta

The challenge: How to ensure ESG is embedded in portfolio companies.

The approach: Ambienta’s award-winning ESG in Action programme guides ESG integration at the GP and portfolio level. The proprietary programme is based on five macro steps, which are applied consistently across all operations including investment analysis, decision-making processes and portfolio management. The Italian private equity investor measures the effects of the impact it creates on an annual basis and discloses the figures publicly.

Ambienta says: “The ESG milestones we achieve through our investments are purposefully designed to remain embedded in the organisations and represent an enduring legacy for our companies.”

We say: Demonstrates the value of a holistic approach.

An LP ESG Advisory Board

Energy Impact Partners

The challenge: Giving LPs a stake in ESG policies.

The approach: The US GP has formalised LP input into its ESG and impact priorities by establishing an ESG Advisory Board comprised of its inhouse ESG/impact specialists and leading impact institutions within its LP base. Recognising that traditional LPAC engagement on the topic was insufficient to meet shared climate and energy transition goals, the ESG board was launched to improve the quality, transparency, diversity and accuracy of methods and metrics the firm applies to its ESG programmes and impact reporting.

Energy Impact says: “The ESG Advisory Board serves to continuously improve the quality, transparency, comprehensiveness, and accuracy of methods and metrics EIP applies.”

We say: A deepening of GP/LP engagement around responsible and impact investing.

EQT’s statement of purpose

EQT

The challenge: Setting out a clear set of principles and responsibilities.

The approach: In March 2020, as part of its annual report, EQT published a Statement of Purpose that formally integrates its positive impact priorities into its articles of association. Targets include ensuring 65 percent of professionals recruited in 2020 are female, and that a quarter of independent board members at the portfolio company level and the same percentage of advisors should also be women. In addition all portfolio companies are to start a transition to using 100 percent renewable energy.

EQT says: “EQT’s overall approach is to lead by example and inspire both portfolio companies and others in the industry to follow suit.”

We say: The statement is a textbook example of how GPs should be clarifying their responsibilities.