Fiona Reynolds: We’re seeing a move to more populist politics around the world and a loss of faith in institutions in large part because many people no longer believe that the system, including the financial system, works in their favor. Responsible Investment is part of the answer: and as such over the next decade the PRI is going to focus on how we can create a sustainable financial system that works for society as a whole and address the barriers to true long‑term responsible investment?
Candice Brenet: Responsible Investment will remain a priority for us because we see it as an integral part of our mission and as an important tool to create more sustainable value. Increasing the scope for Environmental, Social and Governance initiatives is a good way to grow our business in a manner which is aligned with the interests of all our stakeholders and we believe it enables Ardian to show that finance can build a better society as well as creating economic value.
* Principles for Responsible Investment.
Fiona Reynolds: Responsible Investment and private equity are a marriage made in heaven. One of our biggest challenges is short ‑ term thinking and the short ‑ term nature of public markets, but where you have investors like pension funds involved in private equity or infrastructure, you have patient capital and longer time horizons. This is what the market needs.
Candice Brenet: I agree. Because of our investment horizon we can work with companies to transform their performance over the long‑term in a way that’s sustainable. This generates financial returns but it also brings benefits for employees, for the environment and for society – from my point of view this is not just an opportunity but a duty for us.
Fiona Reynolds: We now have 1,650 signatories with very different interpretations of Responsible Investment and levels of commitment – some are extremely active while others are at the beginning of the journey and haven’t gone much further than signing up to the PRI. We need to show that being a signatory is a public commitment and with it comes responsibility and accountability and as such the PRI is beginning a process to put those who aren’t serious about implanting the principles on notice for delisting.
Candice Brenet: We think accountability is key because everything ultimately depends on the trust we build with our LPs and portfolio companies.
Fiona Reynolds: Among private equity managers, active ownership is essential. Responsible Investment means looking at the board and management of a company, how it treats its employees and compensates its senior management, accident rates, staff turnover and employee engagement. You can look at the environmental footprint, see the material risks and then make improvements to create value.
Candice Brenet: We spend a lot of time identifying ways to measure the value that our ESG initiatives create. This is a long‑term project and you cannot quantify everything but if we can demonstrate at least some of that value in a robust way it becomes very powerful and will do a lot to strengthen the case for Responsible Investment.
Fiona Reynolds: Investors need to become more active in their ongoing communication with and oversight of asset managers. Otherwise, you can have managers who say they’re PRI signatories and they do this or that but unless LPs are monitoring them properly they’re not going to know for sure. But equally I think asset owners also need to do more to recognize and weight the work that managers are doing and reward them accordingly. People respond to incentives. If they are demonstrably factoring ESG into their decisions to invest or reinvest, GPs will respond.
Candice Brenet: To really improve the impact of investments on people and the environment, we really believe that both GPs and LPs should focus on the issues that are truly material for each portfolio company. That’s why we decided to include ESG factsheets for every portfolio company in our management reports; to provide fairly condensed information that highlights the main ESG issues for each company, with concrete examples and performance indicators. Our conviction is that materiality is the key to an effective responsible investment approach.
“The PRI is going to focus on how we can create a sustainable financial system that works for society as a whole.” Fiona Reynolds
“It is very important to evidence the link between ESG policies and their impact on the business.” Candice Brenet
Fiona Reynolds: It is important to have good processes in place and a lot of what we measure at the moment is process. The challenge is in demonstrating that these processes actually translate into tangible and valuable outcomes. And I don’t just mean that they produce a financial return, although that’s obviously important. I mean a wider set of benefits that contribute to long‑term financial stability and have a positive impact on society at large.
Candice Brenet: The biggest challenge we face as a GP is on one hand to do very detailed work at an individual level with every portfolio company to properly address their key ESG issues, and on the other to provide our LPs with the appropriate level of information that will meet their needs, while remaining easy to manage. Different LPs have different expectations and building that “bridge” between portfolio companies and LPs is complex. As an LP, we also have to manage a huge amount of information from our GPs.
Fiona Reynolds: We believe the UN Sustainable Development Goals* released in September 2015 are going to be very important. In our next 10‑ year blueprint we want to identify the most material and investible of the SDGs and work on them across the organization: what research do we need to develop the business case? What disclosures are required? How can investors integrate them into their investment practices? We see the SDGs as an obvious way for investors to show that they’re contributing to positive social and environmental outcomes.
Candice Brenet: I think it is very important to evidence the link between ESG policies and their impact on the business. I really believe that working on extra financial initiatives with companies (be it to improve working conditions, to have a sustainable supply chain, to reduce waste and raw material consumptions, etc.) is a powerful lever to transform companies, among other levers like operational efficiency or digital transformation. The SDGs are a good tool to make responsible investment much more concrete to the industry.
* The Sustainable Development Goals (SDGs), officially known as “Transforming our world: the 2030 Agenda for Sustainable Development”, is a set of seventeen aspirational “Global Goals” spearheaded by the United Nations in 2015.
The PRI is the world's leading proponent of responsible investment. It works to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI is truly independent. It encourages investors to use responsible investment to enhance returns and better manage risks, and does not operate for its own profit; it engages with global policymakers but is not associated with any government; it is supported by, but not part of, the United Nations.
Fiona Reynolds, Managing Director, joined the PRI in 2013. She has overall responsibility for the PRI’s operations globally. Fiona has more than 20 years' experience in the pension sector, working in particular with the Australian government, and has played a key role in advocating pension policy change on behalf of working Australians.
Candice Brenet, Head of CSR and Responsible Investment at Ardian has been in charge of developing and implementing the firm’s ESG strategy since 2009 both at the firm level and at the investment level, for the whole range of activities of Ardian.