ESG: an investors view
Following the Real Deals and The Drawdown ESG: Explore, Strategise & Grow conference, Clearwater International reflects on the hot topics and trends discussed during the event.
More businesses are beginning to recognise the ESG tailwinds
The event was the first of its kind, providing a platform for investors and advisors to meet and discuss the topic of ESG and its relevance for private equity.
Through debates, panel discussions, interviews, and case studies the all-day event covered a breadth of topical issues including the role and impact of ESG regulation, the war on talent, ESG as a value creator, ESG in the due diligence process and much more.
Starting on an ESG journey
More businesses are beginning to recognise the ESG tailwinds but many small and medium sized businesses will find themselves in a similar position; wanting to start their ESG journey but lacking the band width, disposable capital, or inhouse expertise to launch a properly planned strategic roadmap. As new regulatory changes requiring all funds over a certain size to report on ESG metrics within their portfolio are rolled out, businesses without an established ESG policy may feel like the investment window is closing and that access to capital will become harder to obtain if they don’t change overnight.
most funds taking an ESG approach are not looking for the finished product
It is clear from listening to the speakers at the Real Deals ESG event that this is not the case.
Whilst some Article 9 funds will continue to invest in businesses with proven and explicit ESG credentials, most funds taking an ESG approach to investing are not looking for the finished product. They recognise the scale of the challenge facing resource-constrained businesses and view guidance on ESG as a value-add they can bring to a portfolio company.
Investment through the Just Transition lens
Funds are increasingly viewing ESG investment opportunities through the lens of the Just Transition which significantly broadens the definition of what an ESG business can look like. The Just Transition is a well adopted concept for delivering change which, in an ESG context, ensures the transition to a climate-neutral economy occurs in a fair way that does not disadvantage certain groups or geographies more than others. Within this framework, “brown industries” play an important role in the ESG transition and are viable investment vehicles for ESG investors looking to fund the pivot to a sustainable future.
credibility is key and cannot be faked
This does not mean to say that every business can be an ESG business. Critical for ESG investors, regardless of the businesses they invest in, is that management teams are genuine in their desire to shift their focus and make meaningful change to their business and supply chain.
Those seeking to cut corners to falsely veil their enterprise as ESG conscious, will be exposed in the diligence process and will struggle to find investment. Historically, greenwashing may have passed through diligence unnoticed, but as funds become increasingly sophisticated at interrogating ESG credentials, these gaps will shrink and diminish. Whilst metrics for measuring ESG are by no means universally agreed upon, credibility is key and cannot be faked.
