John Dwyer: Hello, my name is John Dwyer – I am Global Head of Deals and Private Equity. What is really critical to some of our clients now is the concept of responsible investment, it’s no longer just about making money, it’s about investing in a responsible way as it relates to environmental matters, sustainability matters and indeed Governance issues. And to that end we commissioned some work lately to really understand specifically by reference to our private equity clients. What they were doing around these issues, both in terms of today they are thinking going forward – and more particularly what we at PwC could do – to help them in this area of responsible investment going forward. Shami, what were the key points coming out of the survey and what did you find of interest?
Shami: Well John what we found was that there were two key drivers for responsible investment in the PE industry. The first is risk management, and the second is investor concern, most of the houses we spoke to told us that they were getting increasing questions from investors on sustainability and responsible investment and interestingly looking ahead they expect that to increase so 90% said they think that investor concern on this issue will increase in the next five years.
John Dwyer: And Phil, as somebody who has been involved in a number of successful pitches, particularly with our larger private equity clients, what are the major
Phil: John we asked all survey participants whether they felt that managing environment, social and governance issues could add value, and a resounding majority – in fact 94% all bar one – said yes, they could. What was really interesting though, was only 40% of the houses we asked are actually measuring the value. And there seem to be two main reasons for this; firstly they don’t have the data. By that I mean they haven’t got the base line data from which to start building a picture and some of them don’t actually know which key performance indicators to start measuring; the other factor is that value sometimes is intangible, it resides in Brand, in reputation and in employee engagement so those elements are harder to get a handle on. But some houses already quoting value figures, KKR for example, has recently published a figure of $365m saved through Eco efficiency, simply doing more with less from the 13 companies involved in their green portfolio programme. So this can be done and we’ve virtually worked with a number of clients in other sectors, measuring both tangible and intangible value from sustainability initiatives.
John Dwyer: Interesting and Shami in terms of our clients, what recommendations can we give them in terms of responsible investment and also more importantly how can we participate with them in that journey?
Shami: Well we have four simple recommendations; the first would be to access the right expertise. We’ve heard that the lack of internal capacity is a barrier for many and we’ve seen some PE houses being quite innovative about tackling that challenge, so they are forging partnerships with MGOs, they are running knowledge sharing sessions for portfolio companies or they are simply bringing in external expertise as and when required; our second recommendation would be to follow best practice, and with regard to that I would highlight one particular thing that they could all do, which is to take the ESG findings from due diligence and make sure they are integrated into their 100 day plan; thirdly as Phil has discussed continue to strive to measure ESG improvements and last, but not least, report publicly so that investors and board of stakeholders can see what good work they are doing.
John Dwyer: I have to say in my time being involved in the wider deals business, I haven’t seen clients so willingly participate in a survey but also more importantly from the whole wide ambit of responsible investment, we are getting many, many enquiries now regarding our specific services, particularly around sustainability and environmental areas, so I would encourage you all to understand this area better and indeed talk with Phil and Shami regarding the opportunities going forward.