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ESG (environmental, social & governance) factors form a key aspect of today's investment decisions. Private equity houses (PE), large corporations and investment funds traditionally looked at responsible investment primarily from a compliance and risk perspective. These days, investors actively formulate ESG ambitions to meet stakeholder requirements and create value. How does your organisation embed ESG in its investment strategy, and how is it put into effect? And how do you assess ESG in mergers and acquisitions?
Private equity houses and corporates are increasingly focusing on responsible investment. Investment funds, too, are working on ways of structurally improving the sustainability of their projects. That is how they respond to the increasing attention paid to issues such as working conditions, environmental impact and tax payment by shareholders, customers, employees, politicians and society as a whole. Companies face rising costs if they fail to make their investments more sustainable, particularly on climate issues, if only because of stricter legislation.
Investments are of course intended to create value - financial, social or in other ways. Private equity houses specifically look for ways of creating value that delivers financial outperformance. In many cases sustainable business models are now creating better value and leading to a higher sales price or stock market value in an IPO. It is not by chance that it is becoming increasingly common for ESG criteria to be operated in mergers and acquisitions - by companies and by private equity players, as both buyer and seller.
We help investors identify which ESG criteria are relevant to responsible investment, depending on their sector. The United Nations’ Sustainable Development Goals (SDGs) can be a benchmark. We advise on the design, existence, and operation of the ESG policy: from defining your ambition to translating it into your strategy and operations and measuring and reporting your sustainability results. Identifying specific ESG risks and opportunities is a good place to start.
Making your investments subject to ESG criteria often leads to a higher valuation. We translate your responsible investment into measurable value - both financial and non-financial. This is done with impact measurement tools and sector benchmarks. The results of this valuation may present ways of increasing the value created by your responsible investment. For example, we help PE houses analyse polluting companies that could be made more sustainable after acquisition - buy black low, sell green high.
The risks and opportunities presented by mergers and acquisitions are growing in line with stakeholders' increasing focus on ESG. We advise PE houses and corporates as buyers or sellers on the assessment of ESG factors. For due diligence, for example, we look not only at the financial criteria but also at matters such as integrity, remuneration policy and diversity. We also focus on factors that are particularly important in the sector - such as the use of raw materials, carbon emissions, working conditions and the transparency of the supply chain.