Omar Hassan is the chief financial officer of Cloverlay, a Pennsylvania-based private equity firm with $450 million assets under management. He walks us through the steps his firm took in implementing its current ESG policy. Find out what motivated the firm to create a policy in the first place, who was involved and what Hassan thinks the future holds for ESG reporting.
Do you have an ESG policy?
We’ve had one for a couple of years now. It’s something we implemented back in 2017.
What inspired you to implement it back then?
The reasons were twofold. We wanted to think about it critically and have an answer for our stakeholders. To us, it just makes sense to have one regardless of where you are in the spectrum of ESG, mainly for transparency, and it is something we want to codify as part of our process.
Were LPs asking for it at the time?
We didn’t have any LPs specifically ask for it. There were some high-level conversations about it, and we were the ones initiating the conversation with the LPs, with questions like, ‘Hey, what are your thoughts on it, what are you thinking about?’ This could be just particular to our specific LP base.
How were your policies before 2017?
It was informal before that. We thought about it hand-in-hand with our normal risks of assessing an investment: where are there potential environmental issues, social issues or headline risks that are easily translatable to investment risk? In 2017, we just decided to put our policy to paper.
What was that process like? Who was involved and how long did that take?
It wasn’t that long of a process. Mainly it was me, our legal counsel and our main investment professionals (managing partner and our senior investment principals) who were involved. At the time, we didn’t want to rule anything out but we sat down and said, ‘Okay, what are we actually doing when assessing an energy deal or a transportation deal or something that can potentially run into some of these issues?’
Did you use any third parties?
We worked with our compliance consultant and our legal counsel to see what is acceptable from a regulatory perspective. So we relied heavily on them to help us think through the actual language.
Which consultant did you use?
We use a firm named Adherence and they were the main folks who helped us out; they help us with all compliance-related matters.
So now what do your policies look like? Have they changed?
We took the stance that we’re going to leave it high level. The policy doesn’t go into scenarios or specifics, but it lists out certain procedures where we could evaluate certain factors. We try to gather qualitative and quantitative information. We’re engaging with our LP base to get a good sense of what’s changing on their side that we need to think about and to make sure we have strong governance on our underlying investments so that we have the ability to influence behavior at that level. The last thing is monitoring – making sure we’re getting relevant information on a timely basis from our underlying investments.
What type of data gathering are you doing? And how often?
It’s probably once or twice a year within those relevant investments but we get our normal updates. We get to see jobs created, improvements made and so on. But also, confirming information like whether any environmental risks have changed since our initial diligence, and so on. That’s just a normal part of our monitoring process.
Have there been instances where, from one year to another, there was a change that you guys had to then fix or approach differently?
It didn’t happen from one year to another, but the one example I can give you is when we were selling a majority stake of one of our platforms, we wanted to get some sort of comfort that the current employees and management were going to stay intact. The shift in governance was going to be a major change and we wanted to understand the ramifications to the broader platform.
What do you think the future holds for ESG reporting?
What will probably end up happening is standardised metrics will start being more regular. I think it will be industry specific and different in the banking world versus energy or healthcare, for example.
Would you say that ESG-related issues suck up a lot of your time or resources?
Today, it doesn’t. I could foresee it being something to consider later. Today we have a decent enough process based on the size of our firm and the expectations that we have. But I think that could change pretty quickly.
Have you ever considered hiring a specific person, an ESG-focused professional for that role?
Not today. It might be something that we think about down the line. But I do think there’s a place for someone who’s at least been trained in that sort of discipline, and can wear multiple hats.
Omar Hassan is chief financial officer for Cloverlay. Prior to joining Cloverlay he served Apollo Global Management as an associate director and controller for hedge funds, private equity funds and managed accounts. His earlier experience includes in the investment management practice at PricewaterhouseCoopers.