30 Responsible Investment 2021 - big ideas shaping ESG - KPMG International
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Responsible Investment 2021
February 2021 • privateequityinternational.com
30
big ideas
shaping ESG
Analysis
K E Y N O T E I N T E R V I E W
Private equity’s opportunity
to lead global change
As the drivers of an industry-wide focus on impact investing and ESG
pick up pace, KPMG’s Tania Carnegie argues the opportunity for private equity
is significant, particularly when players collaborate
Q Given the events of 2020,
how do you see the
private equity industry’s focus
SPONSOR
KPMG
Changing expectations of public com-
panies around stakeholder capitalism
also provide opportunities to create
on ESG changing in 2021, and value at portfolio companies, especially
what do you think the new The global pandemic, the Black Lives ones on track for an IPO.
drivers will be? Matter movement, wildfires and other Talent attraction and management
The past year demonstrated the in- natural disasters have all impacted the is also a key driver. Increasingly, peo-
creasing relevance of ESG, and how, economy, and the ability of companies ple expect to work for organisations
when managed effectively, it contrib- to carry on business as usual. Companies that align with their values, and a firm’s
utes to value creation and risk mitiga- with an effective ESG strategy are bet- commitment to ESG is one of the ways
tion. As a result, we are seeing private ter equipped to deal with such crises and it conveys what it stands for. If this en-
equity firms incorporate ESG through- may not suffer the effects as deeply. ergy is harnessed correctly it can have
out the investment lifecycle in a more There are a number of factors influ- a tremendous impact on culture, which
rigorous way. encing the view of ESG as a strategic has positive implications for private
Recent events have exacerbated exist- imperative, including LP expectations equity firms as employers, and for the
ing societal and environmental concerns. and the increased interest of regulators. companies they invest in.
56 Private Equity International • February 2021Analysis
“The opportunities
for private equity
firms associated
with supporting the
transition to a low
carbon economy extend
beyond environmental
implications”
Q Do you see a new impetus
towards impact investing?
How different are the drivers
for ESG?
The pandemic amplified the severi-
ty of key societal and economic issues
such as inequality, and added to the
urgency for commercial solutions at
scale – which is the domain of impact
investors. Additionally, the pandem-
ic dramatically increased the pace of
Q What challenges remain for GPs looking to invest more
responsibly? And what hurdles face the industry around
ESG and impact investing?
change as we saw with the rapid tran- One of the things that is evolving is the concept of what it means to be a
sition to digital as many scrambled to responsible investor. For example, people are realising it is not a black and
work, learn or access healthcare from white issue whether a company is responsible or not. It is about how a GP
home. This also makes clear the need assesses the opportunities and risks associated with an investment decision
for a fundamentally different way of along the dimensions of E, S and G, and how they can move the needle to
doing things, as well as a new sense of help achieve sustainable growth.
what is possible. Similarly, a lot of progress has been made to shift the mindset about
As a result, there was a flurry of impact investing, especially for traditional investors with focused investment
activity in 2020 from a transaction mandates. There is still work to be done, particularly around demonstrating
perspective as well as new fund devel- authenticity and accountability, and proof of concept to investors who
opment and expansion of existing plat- remain on the fence. These areas will continue to be a big focus.
forms. This further demonstrated the There has been a lot of focus on what to measure in the absence of
range of opportunities impact investing standards and ease of access to relevant data. Frameworks including the
represents across different industries, Sustainability Accounting Standards Board and Taskforce on Climate-
geographies, areas of impact-focus and Related Financial Disclosures are being widely adopted, which is helping to
stages of maturity of investee compa- establish common practices.
nies. The disruption combined with Towards the end of last year, we saw a number of initiatives and
the momentum in the market is attract- collaborations to help streamline different frameworks and approaches.
ing more investors. There is tremendous desire for greater alignment, which will attract more
Fundamentally, the drivers for ESG private equity firms and investors.
and impact investing are similar. ESG
February 2021 • Responsible Investment 57Analysis
relates to factors relevant to the gov- roundtables with our private equity and
ernance and operations of the com- “Although asset management clients to explore
pany, while impact investors focus on what can be accomplished to advance
how the products or services offered the leadership ESG and impact by working together.
create positive impact. The two ap- As a firm we have been working with
proaches complement one another and demonstrated by the other big-four firms on a project to
create value in different ways by look- define common metrics for sustaina-
ing at social and environmental issues individual firms is ble value creation championed by the
through different perspectives. World Economic Forum’s Internation-
critical to continue al Business Council. We have also been
Q What opportunities does
private equity have to
raising the bar, it is working with the International Finance
Corporation and other assurance pro-
position itself at the heart of a through collaboration viders to refine the independent ver-
green recovery as nations look ification guidelines associated with
to build back better? that the entire the Operating Principles for Impact
The pandemic provided a serious wake- Management.
up call that the social and economic industry advances” KPMG contributes to many in-
shocks associated with climate change itiatives of the industry organisa-
will far eclipse those of covid-19. tions we are members of, including
Many large corporations and gov- FCLTGlobal, a not-for-profit that
ernments have made net zero commit- encourages long-term investment and
ments reflecting the increased priority business decision-making. We recently
of climate. Many private equity firms stability in marginalised communities. participated in a meeting convened by
are already working with their portfo- As the effects of climate change are FCLTGlobal of private equity CEOs
lio companies to improve energy effi- far-reaching, so too is the positive to develop an action plan to increase
ciency, with an increasing number now impact of investment in the green diversity in the boardrooms of portfo-
focusing on ways to enhance climate recovery. lio companies.
resilience. Significant progress is need-
ed in short order to meet pledges made
(beyond the use of offsets and initial
reduction efforts) to realise the benefits
Q What about the rest of the
private equity community,
beyond GPs? What is KPMG
Q How do you see the risk-
return discussion evolving
around ESG and impact?
of those strategies. doing to drive industry The perception that ESG or impact
Private equity provides the capital collaboration on ESG and investing requires investors to accept
to bring these solutions to scale, plus impact matters? a lower financial return is diminishing
the focus and dedication needed to be Last year we launched KPMG IM- with proven examples of how these ap-
successful. A number of firms are al- PACT, an initiative to bring together proaches contribute to value creation.
ready investing in renewable energy our global professionals and subject An effective approach to ESG helps
and pursuing strategic opportunities in matter experts to help our clients de- private equity investors better antici-
areas including sustainable infrastruc- liver growth with purpose, and I lead pate risks, be more resilient and max-
ture, packaging and agriculture. To be the effort to support our private equi- imise operational efficiency.
transformational, we need innovation ty and asset management clients. We Some still question whether impact
to drive permanent changes in the en- are working on creative ways we can is consistent with an investment man-
ergy efficiency of day-to-day life. This contribute, in particular as convenor, date to maximise risk-adjusted returns.
creates a breadth of new investment to help move the industry forward in a Investments made over the past few
opportunities across different indus- collaborative way. years have demonstrated that tremen-
tries and sectors around the world. The ESG and impact investing eco- dous value can be created by compa-
The opportunities for private eq- systems are dynamic and growing. Al- nies with market-based solutions to the
uity firms associated with supporting though the leadership demonstrated by biggest problems facing society. Rath-
the transition to a low carbon econo- individual firms is critical to continue er than being incompatible, it is a key
my extend beyond environmental im- raising the bar, it is through collabora- driver of financial performance. n
plications. It is more holistic as it also tion that the entire industry advances.
Tania Carnegie, MVO, MBA, CPA is the global
includes supporting economic equal- This is where things get exciting… over lead – private equity and asset management
ity through job creation and more the past year we have hosted a series of for KPMG IMPACT
58 Private Equity International • February 2021You can also read
