How would you summarise the ESG landscape in private equity and private credit in 2021?
Kurt Björklund: We believe that companies that do the right thing, do better – across non-financial and financial metrics. In our experience, public markets, credit and private investors alike are signalling they want to invest in prospects that make meaningful contributions beyond financial returns – in fact, such companies command a value premium. As an asset owner, when we invest in companies on the right side of structural change (for example, those proactively tackling climate change), and when we do our ESG homework well (by that I mean thorough ESG due diligence and integration across the investment lifecycle), we believe that we create more value.
Adinah Shackleton: We’ve welcomed recent EU and UK regulation that is helping to accelerate enhanced non-financial disclosure and wider value creation. During 2021, we continued to review funds across buyout, growth opportunities and credit against the evolving EU Sustainable Finance Disclosure Regulations (SFDR).
Whilst Permira has an overarching philosophy on the importance of ESG for value protection and (for some funds) value creation, we have a range of funds and strategies that integrate sustainability risks, and some that in addition also promote certain environmental and social characteristics through their investment strategy. In those cases, we tailor our ESG monitoring and engagement to the funds’ strategy, and also the level of influence we have on underlying investments. By embracing SFDR and other regulatory developments, we believe we can make an even stronger case to our investment teams, portfolio companies and other stakeholders about the material importance of ESG.
On climate change, what progress was made across the funds’ portfolio companies – and within Permira as a firm?
Adinah Shackleton: With momentum building around COP26 in October, we increased engagement with the portfolio2, including a series of webinars with external advisers on carbon footprinting and target setting. Our annual request for climate information from portfolio companies in the buyout funds has shown good progress, with the trajectory expected to continue this year, as more companies raise their ambitions. Having fed into the Science Based Targets initiative (SBTi) Private Equity Sector Guidance, we are assessing the practical implications of setting an SBT for the firm and particular fund strategies. We are encouraged to see three companies in the private equity buyout funds already committing to SBTs, with more planning to do so in the next two years. We look forward to reporting back on this in our 2022 report, as we continue to build on engagement with portfolio companies.
Highlights
of PE buyout fund portfolio companies have board oversight of climate risks1
reduction in Permira’s own carbon footprint since 2018
of PE buyout fund portfolio companies have a D&I steering committee1
of the ILPA Diversity in Action initiative
of our investment team are women (up from 19% in 2020)
of PE buyout fund portfolio companies have an ESG working group or committee1
Diversity and inclusion (D&I) remains a key priority in Permira and across the funds – why is that so?
Kurt Björklund: We believe that private equity has always been about agility, problem-solving and seeing opportunities that others may not, and these attributes require diverse teams. Family-friendly and flexible working policies will help us attract, develop and retain diverse talent. We recognise that there is more we need to do at senior levels, including around ethnic diversity – lots is happening in those areas this year, as you will see in this report.
Adinah Shackleton: We’re also taking action across those portfolio companies where we have greater influence2. For future buyout funds, where we have a majority equity position, we have set targets for gender diversity on boards.
What’s next on the agenda?
Adinah Shackleton: We believe that the next 12 months will be about doubling down on regulatory and disclosure commitments, including preparing for enhanced climate disclosure and assessing the practical implications of SBT. Meanwhile, we plan to continue adding further rigour to our ESG due diligence, monitoring and engagement across the investment lifecycle.
Kurt Björklund: With extensive cross-sectoral and ESG expertise, combined with our hallmark collaborative culture, I’m confident in a future of values-based investing at the core of the funds’ already-transformational investment approach. This is the next chapter in the Permira ESG story – and it’s great to have our investors and wider stakeholders on this important journey with us.
The world has seen two global emergencies in two years: the Covid-19 pandemic and now the humanitarian tragedy in Ukraine. How has Permira responded?
Kurt Björklund: Recent history has demonstrated that there’s no such thing as ‘normal’ – global economic systems and societies exist within unpredictable and, at times, volatile contexts. We’ve reacted quickly and robustly in the face of recent events, mobilising the Permira Relief Fund once again to provide aid to charities and portfolio companies facing hardship during the pandemic, and more recently, to assist refugees and those suffering amidst the Ukraine crisis.
1. The data presented in the percentages includes 46 buyout fund portfolio companies for 2021. For 2021, 4 companies were excluded where a) exits were signed before the end of 2021 (2 companies), b) an exit was pending (1 company) and c) no reporting submission was received because the investment was only completed in December 2021 when the ESG reporting process began (1 company).
2. With a focus on private equity buyout funds where we have the greatest influence. The focus is on buyout funds, where we have the greatest influence. Within the buyout funds, more focus is placed on companies with higher ESG risk or opportunity. Engagement in the PGO portfolio is more limited and may focus on ESG risks identified during due diligence or emerging post-investment, as relevant. For direct lending, there are fewer opportunities for direct engagement and has previously been focused on companies where the funds have equity or there is no sponsor.