|Signatory type||Asset manager|
|Region of operation||Asia Pacific|
|Assets under management||US$40bn (as of December 2021)|
|COVERED IN THIS CASE STUDY|
|Asset class and strategy||Private equity (mid- and large-cap buyouts)|
|ESG issues||Environmental issues: plastics|
Why we do it?
BPEA believes a key to creating value in all our investments is through active ownership. We have integrated ESG into our active ownership approach, and we engage with investee companies at multiple levels, including the board and senior management, to ensure full alignment on our ESG plans.
How we do it?
With a strategy focusing primarily on mid- and large-cap buyouts, we use our controlling stake and position on the board to ensure ESG stays on the board agenda and permeates the entire organisation. The Baring Mobilization System (BMS) and Portfolio Management Committee (PMC) are two enablers of our active ownership strategy. The BMS guides and institutionalises BPEA’s active ownership approach, which involves putting in place controls and establishing the right teams at portfolio companies to help us drive transformational value creation.
In addition, key strategic ESG topics are monitored every six to 12 weeks as part of a structured review process led by BPEA’s Portfolio Management Committee (PMC) and attended by the portfolio company CEO, other senior leaders and the BPEA team. The PMC reviews progress against pre-aligned performance targets and agrees on a defined set of next steps ahead of the next structured review. The BMS and PMC are also reservoirs of best practices, where experiences on key topics are shared amongst portfolio companies. This approach, which combines active ownership with an institutionalised governance structure, enables us to keep ESG at the top of the agenda at our portfolio companies and ensure they execute on key strategies.
Driving value creation by developing solutions and capacity to address plastic issues
One of our portfolio companies is a world leader in cosmetics packaging solutions. BPEA helped the company define one of its key ESG value propositions: being a leader in packaging not only means playing a part in protecting the environment, but also in supporting customers through their sustainability journey.
BPEA put in a robust governance structure at the company to drive this proposition. Soon after our investment in 2016, the company set up a CSR Committee which was transformed into the ESG Committee in 2021 to capture and oversee key sustainability-related initiatives. One of the ESG Committee’s main functions is to surface important ESG topics and elevate the strategic ones to the board agenda, where they are regularly discussed with BPEA board representatives. Every six weeks, when the company presents to the PMC, the company’s senior management updates BPEA on the firm’s progress in these key areas.
As a supplier to international cosmetics brands, the company has been addressing its sustainability demands on a customer-by-customer basis. BPEA understood this industry trend early on and we suggested that the company map out and summarise the sustainability pledges of key customers, as well as of other customers seeking to move in a similar direction. The company identified the use of plastics as a central ESG topic within the industry, and BPEA aligned with the company to treat this as a critical part of the company’s business strategy.
Our board representatives, working with the other directors, elevated this topic at board meetings, and pushed the company to set defined plastics-related KPIs and targets. For example, one key customer has pledged that, by 2025, 50% of its packaging materials will be made with recycled or bioplastics. BPEA ensured the company’s targets supported this customer in achieving its pledge. In addition, BPEA introduced systematic tracking of the company’s progress on this topic, and it ultimately increased by four times the use of recycled plastics for this customer between 2017 and 2021, successfully retaining and expanding this key relationship.
We also work with external consultants and industry advisors to help better understand regulatory and industry trends, as well as market demand, and recommend corresponding strategies for investee companies. Some of these strategies, for example, include further strengthening the company’s efforts to source alternative materials and explore new sustainable designs. At meetings of the company’s board and PMCs, we recommended these focus areas as part of its overall plastics strategy. BPEA’s ESG professional also worked with the company to systematically track new suppliers of alternative materials and sustainable designs. The company worked to ensure that 26 suppliers of sustainable materials met its customers’ quality and appearance criteria, among other requirements. In 2019 and 2020, the company tested 58 sustainable materials, of which 35 types have become part of the company’s regular procurement. Over the same period, the company developed 59 new sustainable designs, 41 of which are refillable designs and 18 of which are mono-material designs.
Our focus on ESG, enabled by our active ownership, helped strengthen our investee company’s position as a critical solutions provider in the cosmetics packaging value chain, ensuring its customer acquisition and retention remain successful.
Challenges and solutions
As our approach has demonstrated, a rigorous governance structure to drive change and monitor progress can help yield meaningful results. A foundation of a rigorous active ownership approach is comprehensive and high-quality data, where many private companies are admittedly still facing difficulties in terms of reporting and disclosure. One of the priorities BPEA works on post-investment, therefore, is ensuring that companies track and report relevant information. In terms of ESG data, we devote resources to help companies with capacity building, especially with complicated metrics such as greenhouse gas emissions. At the same time, as more companies improve their data capabilities, companies can look to industry average and top-quartile performance, making it less challenging for investors to have practical, action-driven engagement with portfolio companies.
Although companies in Asia are becoming increasingly sophisticated, especially if they have international investors or customers, there is still a long way to go for active ownership and sustainability to take root. In our experience, many firms still view sustainability issues as “tick-box” exercises and are reluctant to engage after they have complied with the regulatory requirements. Our engagement with the portfolio companies has turned out to be most effective whenever we have been able to provide successful examples of active ownership leading to tangible value creation, especially in similar industries.