Case study by Pantheon
Pantheon, a global private markets fund of funds headquartered in the UK, became increasingly aware that the flow of information from its private equity managers on ESG issues was lacking in consistency, and specifically that there were wide variations in the interpretation of “materiality” as a threshold for reporting incidents to LPs.
Consequently, in 2015, Pantheon decided to adopt a proactive monitoring approach. Pantheon started a search for a third-party data provider that could deliver satisfactory coverage and analytics of its underlying portfolio companies. Following a review of the providers of company ESG data, the firm decided to adopt the RepRisk platform. Most other providers pursue a top-down approach, offering detailed ESG information on a discrete list of (mainly quoted) companies. However, RepRisk’s bottom-up process, of monitoring ESG incidents reported across multi-language media, ensures excellent coverage and timely delivery of information on the issues affecting Pantheon’s 5,500 portfolio companies.
In previous years, Pantheon had recorded approximately 10 incidents per year. In 2017, Pantheon’s first full year of implementing the new monitoring process, RepRisk identified 160 incidents. The majority of the issues identified were benign and screened out quickly, but the process threw up around 20 opportunities for Pantheon to pro-actively contact its managers in relation to a specific ESG issue, and to explore further the implications for that business, its stakeholders and the manager’s own ESG processes.
The improved approach supports multiple objectives for Pantheon: it provides it with confidence that it knows which ESG issues and risks exist in its portfolio without having to rely solely on its GPs to disclose them; it supports Pantheon’s aim of being an “active investor” in line with its PRI obligations; and it has enabled the firm to develop best-in-class ESG reporting for its clients.
ESG monitoring, reporting and dialogue in private equity
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Case study: Pantheon