Case study by Permira
- A GP can commence organisation-wide integration of ESG factors by including specific reference within the GP’s Business Principles.
- A GP fs New Joiners Program can include a training session dedicated to the integration of ESG matters within the investment process and across the organisation.
- A GP can make the consideration and analysis of ESG factors a requirement for Investment Committee papers and discussion.
Permira adopts a buyout strategy for funds managed and focuses on the Consumer, Financial Services, Healthcare, Industrials and TMT sectors. The firm has twelve offices across Europe, the US and Asia with investments made on a global basis.
Developing an ESG strategy
Permira’s operations are underpinned by their Business Principles, in accordance with which all employees are expected to conduct their activities. As part of formalising their ESG initiative, Permira specifically revisited these organisation-level guidelines. Two of the eleven principles make specific reference to ESG factors: “Follow best practice with regard to applicable environmental, social and governance standards” and “Add sustainable value to investee companies”.
Permira employed the services of a third party specialist to assist in the formulation of its approach to responsible investment with the objective to build a structured system around the company’s existing activities in this area.
As part of this process, Permira worked with the third party specialist to develop a toolkit, which provides the methodology for analysis and management of ESG issues through the investment process. Lessons learned during the implementation of the toolkit are used for ongoing refinement – for example, company offsites have a dedicated ESG session, which provides updates on and feedback into this process.
Integrating ESG within the organisation
Permira has set up a working group dedicated to ESG matters. The group brings together investment professionals, the Chief Risk Officer and a member of the Investment Committee. Involving members on the working group that are able to challenge ESG considerations provides a basis for excellent discussions and can result in a clearer rationale for any actions taken (i.e. challenges such as “we are already doing this” and “it costs too many resources”).
In addition, one person per industry sector is appointed to be the “ESG knowledge centre” for deeper sectoral expertise and training where required.
To communicate the message on organisation-wide integration of ESG practices to all new employees, the New Joiners Program includes a training session dedicated to the integration of ESG matters within the investment process and across the organisation.
During any fundraising process, Permira’s experience is that their PRI signatory status and their approach to responsible investing pre-empts answering many questions from LPs on ESG factors and in some cases entirely satisfies this part of the LPs due diligence process. However, some LPs do request more details, which the team will provide where possible.
Integrating ESG into the investment process
All Permira employees involved with due diligence are aware of the need to incorporate ESG factors into the investment process from an early stage. This is a reflection of the specific consideration given to ESG issues by the Investment Committee, with the incorporation of a specific section on ESG considerations in the Investment Committee papers.
During initial due diligence, a particular focus is given to potential risks and a prospective investment could be rejected on ESG grounds at this stage. If a positive preliminary investment recommendation is made at this stage, a due diligence team will be built.
Further due diligence on new investment opportunities then seeks to assess the company’s current track record on ESG matters, considers the risks but also aims to identify improvement opportunities. In some cases this can pose significant challenges, for example with companies operating in numerous geographies and served by complex supply chains. Third party advisors are used in the due diligence process as necessary.
During due diligence, a 100 day post-investment plan is drafted. This is a detailed document against which all early stage progress is measured. Permira has found that it can be difficult to set ESG focused KPIs on a portfolio wide basis; these KPIs often become too high level and are ultimately not helpful. Permira therefore aims to specify the method of analysis based on the individual company and its industry.
As part of ongoing portfolio company monitoring activities, detailed ESG reviews have been completed on almost all companies in the portfolio using external advisors, which includes a comparison to current industry-wide practices.
Post-acquisition, Permira collects material ESG information, both as part of its scheduled cross-portfolio risk assessments and its twice-yearly portfolio monitoring exercise. This enables measurement of progress against issues identified during the investment process. Permira reports on material ESG issues to their LPs through its annual portfolio review document and, where appropriate, on an ad-hoc basis. Some of their LPs will also send out annual ESG questionnaires. Overall, Permira believes that when reporting to LPs it is better to overcommunicate ESG factors rather than the converse, particularly where an issue surfaces unexpectedly.
Permira believes that they can always learn from companies with existing good practices and these could then be applied to other portfolio companies as applicable.