Portfolio ESG engagement

The level of ESG engagement throughout the investment period varies by strategy and fund.1

Portfolio engagement

Engagement varies by fund1 and is tailored depending on the commitments of the fund under the EU Sustainable Finance Disclosure Regulations (SFDR).2 Examples of engagement mechanisms are shown below.

Annual request for ESG information

Each year, we make a formal request for ESG information to companies in the private equity and direct lending credit funds.7 The survey asks about policies, core key performance indicators (KPIs) and company-specific KPIs. Data in this report are disclosed for portfolio and credit investee companies, including 46 (98%) of those in the private equity buyout funds, eight in the growth funds9 and 47 in the direct lending credit funds.10

With this insight, we are able to better target ESG engagement, training and best practice sharing. A key development in 2021 was disclosing key metrics to the ESG Data Convergence Project for comparative reporting in private equity (as marked by * below).

1. The nature, extent and type of engagement with portfolio companies varies depending on the type of fund, on the portfolio company itself and on the commitments of the fund under the EU Sustainable Finance Disclosure Regulations (SFDR). Whether it is possible to engage directly, and the extent and type of that engagement is influenced by factors including whether the funds' investment confers control of the portfolio company, the length of time invested, information available from the company, the relevant maturity of the relevant company’s ESG program/approach and the priority of ESG given the nature of the company’s sector and activities. Given these factors, in general the greatest opportunities for direct engagement exist with portfolio companies of private equity buyout funds. There are generally less opportunities with portfolio companies of growth opportunities funds and with companies which have received loans from direct lending funds. For structured credit and CLO management funds there are very limited opportunities for engagement.

2. We assessed the Permira funds against SFDR and there is currently a combination of unclassified (raised prior to 10 March 2021) funds, ‘mainstream’ funds (Article 6) and ‘light green’ funds (Article 8). The remaining funds, raised prior to 10 March 2021 are currently unclassified; however, this is currently under review following additional guidance from the European Commission on the treatment of funds raised prior to the 10 March 2021. We continue to keep classifications under review as market practice around SFDR evolves, particularly now the underlying details of the Regulatory Technical Standards have been finalised. Find the latest on SDFR and the Permira funds here.

3. 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.

4. Targeting specific roles such as Legal Counsels, Chief Human Resources Officers or Chief Operating Officers.

5. The invitation is extended to direct lending fund portfolio companies where the funds have equity or where there is no sponsor.

6. In 2021, these included four buyout funds, two growth opportunities funds and three direct lending credit funds. Requests may be via managers of underlying funds and for some publicly listed companies, published data will be drawn upon.

7. Introduced early 2022.

8. For structured credit funds, engagement is via CLO managers.

9. Fewer companies in the growth funds responded to the 2021 request compared to 2020. We are currently refining the data request to attract higher response rates again in 2022.

10. 47 out of 50 disclosed across three funds (PCS2, PCS3 and PCS4).