There has been something of a sea change in the way that the private equity industry pursues environmental, social and governance strategies over the last few years. From relying largely on outside consultants, private equity firms are increasingly appointing dedicated ESG heads to pore over portfolio companies and supply chains and guide their responsible investment strategies.
Permira and Coller Capital are among those to have appointed dedicated ESG chiefs since 2015. More big name appointments are expected over the coming months, with at least one of the big pan-European firms set to announce its first dedicated ESG head in the coming months, industry sources say.
So what does it take to manage a remit that encompasses everything from labour conditions in far-flung factories to providing data to an investor base increasingly concerned about environmental and social issues.
PEI canvassed the opinion of leading ESG heads and of the recruiters tasked with finding suitable candidates about the qualities for this demanding role.
The role involves working with a variety of stakeholders and that requires the ability to understand different viewpoints, says Ardian’s head of CSR and responsible investment Candice Brenet. “It’s important to be very open minded and curious because you have to be able to speak to different teams, adapt to their language, and be very convinced about what you do to be able to convince them. You have to be also very pragmatic and not apply principles that are disconnected from reality.”
While a background in sustainability issues is a definite plus – and something recruiters will typically target – it’s vital to also have the financial acumen to work with deal teams, says Adina Shackleton, Permira’s first dedicated head of environment, social and governance.
“I used to work in sustainability consulting. For about eight-and-a-half years I was with an international sustainability consultancy, working on environmental and social due diligence during transaction processes. I worked with private equity but also with development banks and corporate clients. I think having that on the ground experience of looking at environmental, social, governance issues in the context of transactions is really helpful,” she says.
“It’s not a job for a shrinking violet,” says Gail McManus, managing director of private equity recruiter PER which has hired for a number of senior ESG roles. “Communication skills are key. You have to hold the attention of a very demanding internal audience.”
That’s a point borne out by Ardian’s Candice Brenet: “There are lots of day-to-day tasks. These could be discussions with the legal and investment teams during fundraising regarding LP investment restrictions; it could be to support an investment team looking at a new investment opportunity where there are specific ESG risks and opportunities. We also do a lot at the corporate level to develop training programmes for our teams, which is key.”
Helen Pradas-Page who has recruited ESG heads for private equity firms in her role as principal consultant in banking and finance for Acre, a dedicated sustainability recruiter, looks for generalists who can master a complex brief. “Different sectors in different companies have different challenges,” she says. “There are such a variety of factors coming up at portfolio companies that it really is essential to have a broad understanding of different issues plus a very good black book of knowing who to contact when you need expertise.”
That doesn’t mean that specialist skills don’t come in handy. Mark Eckstein, director of environmental and social responsibility at the CDC Group, a development finance institution, looks for a set of sector specialisms such as a familiarity with areas such as agriculture, energy, infrastructure or textiles production to provide ESG support to the more than 130 private equity funds that it invests in.
“We work in a complicated market where rules may be poorly enforced,” he says. Prior to CDC, Eckstein, who himself has an MSC in applied hydrobiology, led the sustainable finance team at WWF in the US for six years and was also part of the environment and social risk management group at the International Finance Corporation in Washington DC. He has overseen a big expansion in ESG professionals at CDC from four when he joined in September 2013 to 11 now and 15 by the middle of this year.
“The big question for us is whether they have the confidence and familiarity to discuss the issues with the people who run the businesses.”
Emerging markets pose a particular challenge: “These are difficult markets and stuff happens. Especially in supply chains,” says Eckstein. “The key is to find the culturally appropriate way to present solutions to real world problems in emerging markets.”
AN EAR FOR A DEAL
Working with deal teams is an important part of the job – and that requires a sensitivity to their needs. “Listening skills are very important,” says Pradas-Page. “You must be able to find out what people think, understand what people want to achieve and build relationships so the deal team see value.”
Indeed the ability to build a relationship with the investment team is essential, she says. “You must be able to upskill and train the deal team in the understanding of ESG risks and opportunities using their language so they feel empowered to use ESG to identify opportunities.”
A STRATEGIC VIEW
The ultimate requirement though is to be what Pradas-Page refers to as a “change agent”: “If you are a change agent in a business you need to know how to build rapport and know how to empower the deal team.” That requires a head for strategy and the ability to convince management of the need for a more sensitive approach to environmental issues.
A key part of her job, says Permira’s Shackleton, is “being able to work with management teams and help them think about what sustainability and ESG means for them and what their material issues are and how they can actually drive performance improvements in relation to those key areas for that firm.”
Or as Ardian’s Brenet says: “No single day looks the same. We have to constantly think about our strategy and what we want to develop in the future. We are constantly improving. We work a lot within the industry, with the PRI [UN Principles for Responsible Investment] and peer groups, and do a lot of collaborative work.”