ESG – are private companies or publicly listed companies best placed to deliver ESG strategies?

In the week commencing 26th April The Financial Times hosted a European Deal Momentum webinar. This raised some key issues as to the role of Environmental Social Governance (ESG) issues in investment strategies and whether private companies or publicly listed companies are best placed to deliver those strategies. The takeaway points were:

1. COVID has heightened sensitivity to ESG issues particularly the "S".
2. ESG has been on the minds of corporates for some time but it is now front and centre. Governance as an issue has been present for many years, but the Environment and Social issues have come to the fore more recently.
3. There is a balance to strike in investment strategies as at one level society wants the investments made on its behalf e.g. by pension funds, to do well, but at the same time it increasingly wants the impact of investment decision making to account for societal changes.
4. There are some signs that activist shareholders are questioning whether the balance that some companies are taking in terms of their ESG focus is moving too far towards a consideration of ESG issues over returns to shareholders.
5. Listed company directors are having to balance the demands of stakeholders. The demands and expectations of the public markets towards a short-term perspective that is value driven is not well aligned with long-term decision making that has an ESG focus. Companies need to very clearly articulate their long term ESG aligned strategies in order to counter criticism from short-term activist campaigners.
6. What is the best form of ownership for a large company? Is the public market conducive to boards and owners having ESG issues at the forefront of their minds? Or is it private ownership that is the best way to generate long term value and the benefits to the wider community and in that case, are different ownership structures better placed to deliver on this?
7. Interestingly when Deliveroo was listed it was the public market that put a great deal of pressure on it to address its treatment of employees, an issue that had not been addressed when it was private. However, despite this and the fact that many institutional investors have ESG as a key factor in their investment decision making, there are many more investors in the public markets who take a short-term approach to investing. Maybe public markets need to look past quarterly and half year reporting results and look much longer-term.

The pursuit of ESG strategies clearly presents some complicated considerations that need to be carefully managed in order to ensure that they are aligned to investors' expectations.

In conclusion

We have seen that Private Equity fund investors are increasingly more aware of ESG issues and are raising more questions of Private Equity funds in this regard.

In response to this we have developed a private equity portfolio monitoring solution - the Governance, Reporting and Information Portal ("GRIP") - in conjunction with two mid-market Private Equity houses. This is a bespoke, tech-enabled solution to streamline ongoing responsibilities of portfolio companies and to ensure businesses are exit-ready. As part of this, a Private Equity fund can use GRIP to review, monitor and analyse core legal, compliance and ESG matters.

To discuss this further please contact Christian Silk or Matthew Stoate and in relation to GRIP, please contact Amy Lapsevska.