Polish private equity fund manager Abris Capital released its first ESG report this year, but its ESG journey started a few years prior, says Monika Nachyla, a partner at the firm responsible for creating the ESG program.
“Three years ago, the management of the firm felt the times were changing, and there was a need to document and organize a bit more intensely and more transparently to get closer to what was considered best practice on the market,” she tells Private Funds CFO.
Creating a program, pillar by pillar
When forming the ESG program Nachyła took advice from GPs with ESG programs and chose two standards as guidance for their policy. They picked a combination of the “most pragmatic and practical elements” of the United Nation’s Sustainable Development Goals and the United Nations-supported Principles for Responsible Investment, Nachyla says.
“Not being a UNPRI signatory or committing to other standards is becoming a deal breaker now,” says Stephen Richmond, Abris Capital’s chief financial officer.
Abris became signatories of UNPRI in 2016.
“Prior to Monika joining us in 2017 we were under some pressure for several years from one Scandinavian LP to become a UNPRI signatory, which we resisted for a time because nobody else in the region was,” Richmond says. “But I think the world has changed to some extent. It’s almost a prerequisite.”
Nachyla describes a noticeable shift within their limited partners from their second to third fund.
“When we were raising fund number two 40 percent of our LPs were signatories to PRI,” she said. “When we raised fund three, 82 percent were signatories of PRI.”
Abris created their program in 2017, dubbed ESG 2020 Universe. Before then the firm had an “informal” approach to ESG, Richmond says. The main differences being the firm now has “a more formalized system and can actually demonstrate that the firm is ESG conscious,” he says.
There are three pillars that create the foundation of the policy. Pillar One is an ESG “end to end investment process,” which means ESG is covered for all portfolio companies starting from due diligence until the exit. “The investment committee makes it very clear to all the deal teams that no deal gets approved without being tested on ESG compliance and without having a very clear ESG action plan for the first hundred days and then long term going forward,” Nachyla says.
The second pillar is “Abris as a role model.” In practice this means Abris is “obliged to implement all the ESG requirements, at least most of them, that we request from our portfolio companies. So, we do everything ourselves as well,” she said.
The third pillar is becoming a thought leader in the industry when it comes to ESG topics, demonstrated by its role as a co-founder and a member of the ESG Committee of the Polish Private Equity and Venture Capital Association.
Hiring an ESG director
For Abris, hiring an ESG director, Robert Sroka, was a big part of ensuring its program runs smoothly. While Nachyla created the program, she has other responsibilities and the firm needed someone else to do all the ESG “heavy lifting,” Richmond says.
The hiring process itself took about four months It wasn’t a challenge for Nachyla to convince the other Abris executives to hire a director, the challenges were external because the “job doesn’t really exist,” Nachyla says.
“When I tried to recruit the person, nobody really had a job title of ESG director or manager,” she says. “Together with a headhunter, we had to create a profile which would be the closest description of the job that had to be done without having the universe of people to look at. We took the guy who was the closest with the job stack to what we needed. For the first couple of months he had to learn what it meant to be an ESG director in a private equity firm.”
Here’s the job description Abris used when looking for an ESG director:
Purpose of the position
The goal of the person employed in the position of Environmental, Social & Governance Director CEE will be to develop the principles of Abris investment policy promoting the following values:
– promoting the sustainable use of resources and energy
– elimination or reduction of hazardous materials production, waste and emissions – while minimizing the environmental impact of this waste and emissions that cannot be avoided
– avoiding activities that contribute to climate change
– growing concern for animals, local flora and the natural landscape
– product innovations
– ensuring respect for human rights, including fair earnings and fair principles of cooperation
– introducing and developing a diversity policy
– promoting consumer protection activities
– respect for local culture and heritage
– support for local communities and groups, especially those in need
Responsibility related to corporate governance:
– development of professional management structures, fully compliant with the law and transparent
– improving the well-being of employees
– promotion of positive corporate values
– care for shareholders rights
The basic responsibilities of Environmental, Social & Governance Director CEE will include:
– Developing and implementing an ESG strategy as a key decision-making factor, considered at all stages of the investment process: from the selection of the transaction and its assessment, through the phase of building the portfolio value, to the completion of the investment.
– Developing an ESG policy / procedures and acting as a leader in the implementation both in the fund management company and in portfolio companies, as well as promoting the ESG policy in potential new investment projects.
– Developing efficiency measures and monitoring the application of the ESG policy in portfolio companies.
– Providing support during due diligence by adopting a broader perspective when selecting potential investment goals and taking into account qualitative factors from the ESG group – investments only in companies that comply with international ESG standards.
– Participation in the company’s activities aimed at obtaining new investment funds (fund raising) in the scope of presenting the Abris ESG policy to investors.
– Cooperation with the Management Boards of portfolio companies in increasing the involvement of companies in such areas as ecology, corporate governance and society
– Cooperation with external consultants in risk reduction in the area of ESG
– Compiling all reports and all other information in the ESG area.
One aspect of the firm’s due diligence of potential portfolio companies includes ESG scoring. Currently when the firm’s ESG director visits portfolio companies he fills out an Excel sheet with 350 measures that are used to identify ESG risks, and subsequently measure progress on an annual basis for each portfolio company. Abris is now refining that process by creating a software application that will “be interactive, so the data can be filled in by the company or by the deal team, not necessarily only by the ESG director,” Nachyla says. “It will be a great tool to make the year action plans and to measure the value creation on ESG front of each company from year to year.”