What is ESG?
ESG stands for Environmental, Social and Governance. It is a collective term used by organisations to consider environmental, social and governance risks and opportunities. It refers to an organisation’s responsible investment management practices and how it incorporates these risks and opportunities into its governance operations and business model. The term also considers how a company is disclosing this information to key stakeholders and measuring performance against identified environmental and social material vectors.
Materiality
An effective ESG strategy is built around topics which are most material/relevant to an organisation. To date, materiality has been assessed based on an outside-in view i.e., considering the risks and opportunities environmental and social challenges create for the organisation itself (single materiality).
More recently this concept is evolving, and organisations are being required to undertake a double material assessment. For example, the Corporate Sustainability Reporting Directive (CSRD)1 (Will apply to large, unlisted EU companies (including EU subsidiaries of non-EU parent companies) which exceed two of the following criteria: Net turnover of more than €40 million; More than 250 employees; Balance sheet total of €20 million) requires organisations to undertake a double materiality assessment.
Double materiality means you consider the relevance of an ESG topic from two perspectives i.e., the outside-in view discussed above as well as the inside-out view, which considers the organisation’s impact on society and the environment.
1 Due to apply to large, unlisted EU companies (including EU subsidiaries of non-EU parent companies) which exceed two of the following criteria: Net turnover of more than €40 million; More than 250 employees; Balance sheet total of €20 million.
Initiative Climat International (iCI) and industry guides
The table below shows some of the factors private capital may consider under each category both within its direct operations and within its supply chain (particularly when considering environmental and social vectors).
Private capital is coming under increasing pressure from all angles to disclose ESG related information. To make the data-gathering and disclosure efficient and useful to all stakeholders, the sector must continue to unite, collaborate and share knowledge on approaches that work well, and experiences learnt. The BVCA’s Responsible Investment Advisory Group (RIAG), works with many of the sector's ESG leaders, and provides a great platform to facilitate collaboration and support the sector to respond to the ESG challenges it faces."
ESG in private markets is now a truly mainstream concern and is top of mind for the team at PAI. We consider sustainability to be essential for long-term growth and value creation. Put simply, it’s an integral part of our real economy investment strategy and underpins how we invest, manage and realise value. Our objective is for our portfolio companies to be bigger, better and more sustainable at exit than they were at acquisition. Prioritising areas such as decarbonisation, biodiversity and diversity & inclusion helps us to achieve this.
