EQT: Private markets firms should ‘enshrine’ purpose and impact

The power of private capital to align financial and non-financial goals positions it to make a true difference, writes Christian Sinding, CEO and managing partner at EQT.

To rebuild a better and more sustainable world than the one we lived in before covid-19 will require effort from countless people, companies, governments and leaders alike.

As part of this, the private capital industry has tremendous power to make a true difference, because we have a governance model and active ownership approach that can get things done. When applied properly, we can align disparate interests, incentivise change and contribute towards achieving non-financial goals without compromising strong returns for investors. If our industry applies itself to investing with a purpose, we can help create a more sustainable, fairer world.

But what does it mean for private capital firms to invest with purpose? For EQT, it means making a positive impact with everything we do. This goal is one the entire company strives to meet – from the action we take as a firm to promote systemic change on key challenges such as diversity and climate change to the decision to only back companies and assets that contribute to achieving the UN Sustainable Development Goals, and through to the work EQT does to develop, grow and future-proof the portfolio companies.

“At EQT, we adhere to the philosophy that what gets measured gets done well, what gets done well gets rewarded, and what gets rewarded gets repeated”

For EQT, our purpose is not just something we talk about; we have made sure it defines the way we conduct our business at all levels, including the very highest. In 2020, EQT became one of the first companies in the world to enshrine our Statement of Purpose to have a positive impact into EQT AB’s Articles of Association.

We hope that other private capital investors will follow suit, but a commitment to making a positive impact is only worthwhile if it is followed up with real action. At EQT, we adhere to the philosophy that what gets measured gets done well, what gets done well gets rewarded and what gets rewarded gets repeated. With this in mind, EQT has set itself targets, across the firm and at the portfolio companies, on issues such as diversity and climate change. We continually measure performance in these areas, and no doubt there is still a lot of work to do. We will start to report the results publicly to be transparent about where we can do more and allow our firm to be held accountable.

Outside of the action we take at a firm level, the true power that the private capital industry has comes from where we allocate capital, and how we can accelerate positive trends and help combat negative ones. The private capital industry’s investment activity can no longer be dictated solely by financial returns, because the challenges the world faces are simply too great. This is particularly the case following the impact of covid; with the world’s economic system and societal priorities in flux, the actions of investors and business owners are rightly being scrutinised more than ever.

The reality is, however, that financial returns and positive impact can go hand-in-hand. If you look at two companies that are exactly the same, but one is more sustainable, which one will generate the strongest return? At EQT, the ambition is to invest only in businesses and assets that can have a positive impact on society or the environment, such that our work to develop and future-proof these investments not only benefits investors, but also society and the planet. We believe this way of investing represents the future for private capital, by truly aligning interests it is possible to contribute positively to the world without compromising the high returns we target.

Now more than ever it is important that we all step up to the plate when it comes to investing sustainably – GPs, investors – together, we can play a crucial part and make a real change. We should use our power to align financial and non-financial goals, so that having a positive impact is at the heart of everything we, and the portfolio companies, do. This will not only help the world ‘build back better’ but also help ensure the private capital industry itself maintains its license to operate.

Christian Sinding is CEO and managing partner of EQT.