The majority of portfolio companies strive to create positive impact for their key stakeholders, but they often need help reaching their full potential.
Socially conscious private investors have a compelling opportunity to use operational expertise, resources and networks for more than just strategic and financial enhancements within portfolio companies. They also should have a mandate to help these companies drive impact.
Active ownership for impact is a core value we utilise at Bain Capital Double Impact to help our companies act on their mission-driven foundations to drive impact through intentionality and execution.
Recognising that our “Impact Blueprint” may not be a fit for all, we find that the following steps help our portfolio companies translate good intentions into scalable and measurable impact.
Setting intentionality begins with actively partnering with portfolio company management teams and board members to align on targeted impact outcomes. We then identify and create a set of non-financial metrics that are core to the company’s impact potential. These metrics strive for outcome measurement across areas like diversity or care access for underserved populations. They are customised to best capture its potential social or environmental impact.
Our blueprint establishes a plan for how to drive impact, establishes baseline metrics to measure progress against these goals, and designs a set of initiatives to achieve impact results alongside operational and financial targets. We also align accountability for impact through management incentives as well as internal impact councils, which engage members from a broad cross-section of the workforce to drive better outcomes.
ESG and impact investing are rightfully growing in importance as investors recognise the ability of their portfolio companies to drive positive outcomes in the face of large-scale societal problems.
Cecilia Chao, Bain Capital Double Impact
As an example, we partnered with Penn Foster, the nation’s leading skills development company in 2018 to accelerate its growth and solve challenges faced by employers in meeting their needs for full, productive workforces. Penn Foster provides skills training to adult learners and positions itself as one of the most affordable programmes available for the occupations it serves. Given our shared interests with management in enabling broader access, we worked to better measure the growth in sponsored enrolments through Penn Foster’s expanded B2B channel. We also created incentives focused on programme completions across all of Penn Foster’s programs, both B2C and B2B. By setting intentionality early in our ownership period and creating initiatives with these metrics in mind, we charted a manageable path to execution. As a result, from 2018-20 Penn Foster grew programme completions nearly 35 percent. The company expanded access to education by enrolling an estimated 85,000 sponsored learners through its B2B channel in 2020 alone.
In addition to using the IMP’s Five Dimensions of Impact to actively screen opportunities, we’ve found that the B Impact Assessment can aid portfolio company impact intentionality and execution. Enlisting a third-party organisation to provide an overall, top-down assessment helps benchmark and improve the company’s overall impact. In fact, pairing the B Impact Assessment with our Impact Blueprint approach has enabled our portfolio companies to improve their B Impact Score by almost 30 percent in their first year of our partnership.
Impact at exit
Ensuring the longevity and sustainability of impact outcomes post-exit is crucial. Investors can intentionally screen for responsible potential buyers and embed a set of exit criteria that includes the potential of sustained impact in the decision-making process. Investors can also ensure impact through exit by better performing comprehensive diligence on strategic or financial buyers and implementing innovative impact covenants in purchase agreements.
ESG and impact investing are rightfully growing in importance as investors recognise the ability of their portfolio companies to drive positive outcomes in the face of large-scale societal problems. The notion that these investments can not only deliver market-rate returns, but also drive sustainable growth will soon become foundational to almost every private investor.
Portfolio companies are demonstrating a desire to thoughtfully consider and create impact with their stakeholders, but often the best intentions can go unfulfilled without guidance and a clear roadmap. Socially conscious private investors have the opportunity to utilise decades of value creation experience that have traditionally been used to strategically enhance and grow companies, to drive not just financial results, but also social and environmental outcomes.
Cecilia Chao is Managing Director of Bain Capital Double Impact.