cdc esg survey among fund managers -...
TRANSCRIPT
ESG management practices of fund managers 3
Agenda
2
An evaluation of CDC’s ESG instruments 4
Executive summary 1
Methodology 2
An evaluation of CDC’s ESG support to fund managers
3
CDC actively supports fund managers in developing and maintaining systems to manage ESG
issues and risks in their investment portfolios. This support consists of two instruments:
• ESG Toolkit
• Annual series of ESG workshops
But CDC has limited knowledge of the fund managers’ opinion regarding its ESG support besides
feedback on individual ESG workshops
CDC has asked Steward Redqueen to evaluate its ESG support based on fund managers’ feedback
Despite some socially desirable responding, the survey (in particular the interviews) provided
useful input for evaluating the two instruments and their improvement potential
CDC’s support is highly appreciated and impactful, but can be improved through customisation and efficiency
4
To start with, CDC is considered a business-minded partner with strong PE expertise
• CDC is a pragmatic LP with an eye for detail but never without a drive for business
ESG support instruments are relevant and useful to fund managers
• The Toolkit is most used and serves as an important reference point
• The workshop is an essential instrument for awareness raising and knowledge sharing
But they insufficiently meet the ever more specific needs of fund managers
• The Toolkit and workshop are too generic for today’s ESG management
Three recommendations for improvement
• Bring the Toolkit and workshop up-to-date with current market demands through customisation
• Leverage CDC’s unique position as private equity specialist in the DFI world
• Make support more efficient through standardisation and involvement of CDC’s front office
Methodology 2
Agenda
5
An evaluation of CDC’s ESG support 4
ESG management of fund managers 3
Executive summary 1
The survey consists of a questionnaire and interviews
6
Online via SurveyMonkey
5 subtopics:
• ESG and your firm
• CDC’s ESG support
• Workshop
• Toolkit
• Future ESG support
28 mostly quantitative questions:
• Multiple choice
• Scoring assessments
• Comment boxes
Questionnaire
In-depth telephone interviews of 30-45 minutes
Selection of fund managers for interviews based on:
• Geographic spread: reflecting CDC's geographic
investment scope
• Investment size: including larger and smaller
funds
• Investment focus: including specialist
investment funds (infrastructure, housing,
mining)
• Responses: interesting or striking comments in
the online questionnaire
• Suggestions: made by CDC ESG team
Interviews
A representative sample of CDC’s portfolio as a result of a high response rate and good geographic distribution
7
Respondents and response rate
• Online questionnaire: 53 individual responses, representing 44 out of 62 invited fund managers (71%)
• Telephone interviews: 18 out of invited 20 (90%)
The number of respondents to the online questionnaire exceeded the initially expected number (30) and fund
managers were very willing to conduct the telephone interviews
Latin
America 6%
Africa
49%
Asia
41%
Global
4%
Questionnaire
Latin
America 6%
Africa
44% Asia
39%
Global
11%
Interviews
ESG management practices of fund managers 3
Agenda
8
An evaluation of CDC’s ESG instruments 4
Executive summary 1
Methodology 2
As expected, respondents consider their ESG management performance to be equal or better than market standards
9
on par 37%
above par 50%
best-in-class
13%
Overall ESG performance rating
compared to peers
45%
45%
42%
42%
42%
40%
19%
55%
55%
58%
58%
58%
60%
81%
Environmental improvements
Energy efficiency improvements
Health & safety improvement
Staff skills development
Corporate governance improvement
Legal compliance
Business integrity
Subdivision of ESG performance rating
on par above par
Investee resistance and poor enforcement of regulation are considered most challenging to ESG management
10
94%
90%
67%
56%
49%
6%
10%
33%
44%
51%
0% 20% 40% 60% 80% 100%
Internal resistance within fund management
Lack of understanding of ESG among the investment team
Contradicting ESG requirements from LPs
Poor enforcement of regulation
Resistance from portfolio company management
Hurdles in the implementation of ESG management
not/hardly challenging (very) challenging
CDC’s ESG support is considered relevant and better when compared with peers
11
averagely, 20% substantially, 68% crucially, 12%
CDC’s involvement as a contribution to improved ESG management
4%
2%
12%
19%
48%
54%
37%
25%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Relevance of CDC's ESG support
Impact of CDC's ESG support
CDC's ESG support compared to other LPs
below par on par above par best-in-class
Fund managers discuss ESG management with most LPs and appreciate CDC for its proactive, pragmatic approach
12
All (DFI) LPs address ESG management in investments, but approaches differ
• Many LPs put a lot of resources in due diligence and then lose interest afterwards
• Fund managers find it hard to manage LPs who lose sight of the big picture and focus too much on details
they often stumble upon by accident
Harmonisation of contradicting ESG requirements from LPs would help
• ESG requirements are accepted as a fact of life when working with DFI investors
• It would save time if ESG reporting requirements would be harmonised among LPs
• LPs could have more impact if they agree on a common ESG agenda for a fund
CDC stands out in the crowd as a knowledgeable and pragmatic partner
• CDC is more pragmatic in due diligence but focuses just as much on the investment phase
• CDC provides helpful advice as a partner and challenges the fund manager to constantly improve
• Fund managers find that CDC has eye for detail but never without a drive for business
Quotes from respondents
13
“The challenge is to get ESG management from compliance-based issue in a deal to a value add component. ESG
management is one thing in principle, but another one in practice.
“CDC is by far the most proactive investor in terms of adding value to our operations, providing advice in our
investment decision-making and challenging us on discussion points.”
“Among DFIs, CDC is clearly the frontrunner as private equity investor. They really understand our business and
know what private equity is about.”
Agenda
14
An evaluation of CDC’s ESG instruments
• Toolkit
• Workshop
4
ESG management practices of fund managers 3
Executive summary 1
Methodology 2
Use of Toolkit moves from starting point to reference document
15
The Toolkit is a useful starting point for fund managers in the process of developing an ESG
management approach
• Many fund managers have based their policies and procedures on the Toolkit
• The Toolkit’s comprehensiveness helps coming to grips with ESG management which is often perceived as
intangible and difficult
Once fund managers have their own policies and procedures in place, the Toolkit becomes a reference
document
• It provides practical frameworks for ESG management in investments (e.g. Action Plan)
• It is also consulted for information on specific technical issues
The usefulness and applicability of the various tools differs
• Tools 6 (due diligence), 11 (monitoring) and 12 (reporting) are most used as these give clear, pragmatic
guidance on ESG management
• Tool 14 is least used as it addresses the ESG from a risk perspective instead of a value-driven approach
ANALYSIS
But one size does not fit all
16
Not all fund managers appreciate the Toolkit’s comprehensiveness
• ESG specialists are pleased with the Toolkit’s comprehensiveness, but suggest it should be updated to reflect
the more sophisticated approaches to ESG that are evident in some funds
• Commercial people like the generic approach which makes the Toolkit user-friendly, but would value tools that
were more targeted to their specific needs
• As a static PDF-file the Toolkit is tough to digest and it is difficult to find specific information
Nowadays, fund managers want ESG tools that are tailored to the nature of their investments
• Besides a framework on how to manage ESG issues, fund managers need guidance on what is acceptable by
industry standard and what is not
• ESG issues become investment-specific and need to integrate with relevant industry sector standards
Investment size makes a particular distinction on a fund manager’s opinion regarding the Toolkit
• Numerous large-sized fund managers investing in corporates have ESG management approaches that are now
beyond the level of the Toolkit
• For small-sized fund managers, particularly SME investors, the Toolkit is too ambitious and questionnaires are
too detailed
LIMITATION
Customisation is key to enhance the Toolkit’s applicability
17
Measurable standards would improve the Toolkit as reference point, which is its most pivotal function
• Tools in bite-size chunks and with clear, measurable objectives makes the Toolkit workable for non-specialists
Market-specific focus would improve the Toolkit’s applicability to its broad set of users
• Sector-specific guidance helps advanced fund managers taking their next step in ESG management
• At the same time, basic versions of the formats and tools make the Toolkit usable for SME fund managers
An interactive presentation would improve the Toolkit’s user-friendliness
• An on-line landing page can present a lot more information and in a more digestible way (tools, formats,
background information, etc.)
• An interactive Toolkit makes it easier for users to find what they need and for CDC to upload additional
information
SUGGESTION
Quotes from respondents on the Toolkit
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“The Toolkit is very useful and most our policies and procedures are based on it. Great reference point and helpful
for implementation.”
“Toolkit is extensive – as it should be – but one may lose overview because of its extensiveness”
“The Toolkit is comprehensive, but is not applicable to the size and nature of our investments. The level of detail
required is disproportionate to the information available to us.”
The Toolkit is the most used ESG instrument and contributes to improved ESG management
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4%
10%
12%
27%
33%
45%
52%
56%
35%
17%
2%
8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
ESG Toolkit
ESG Training
Ongoing support
Use of CDC’s support instruments in ESG management practices
not at all averagely substantially crucially
6%
10%
12%
23%
22%
35%
50%
61%
46%
21%
8%
8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
ESG Toolkit
ESG Training
Ongoing support
Contribution to improved ESG management practices
not at all averagely substantially crucially
Agenda
20
An evaluation of CDC’s ESG instruments
• Toolkit
• Workshop
4
ESG management practices of fund managers 3
Executive summary 1
Methodology 2
The workshop is an essential instrument for awareness raising and knowledge sharing
21
The workshop is a useful and well-appreciated part of CDC’s support to fund managers
• 100% of respondents think CDC should continue to run its workshops
• A vast majority wishes the workshop would last longer and would be organised more often
The workshop is most suited for awareness raising among the novices in ESG management
• The workshop improves general understanding of ESG management, provides deeper insight in specific or
new ESG issues and gives an opportunity to ask questions on CDC standards
• It provides crucial info on the practical application of several tools, particularly CDC’s Toolkit
To the more experienced fund managers, the workshop provides a moment for self-reflection and
sharing experiences with peers
• It provides an opportunity to assess the quality of a fund’s own ESG management and to identify potential
room for improvement
• Participants also learn important lessons from sharing experiences and ideas with other fund managers
ANALYSIS
But the workshop is not sufficiently tailored to meet the specific needs of the various participant groups
22
There is a growing gap between the capacity building needs of frontrunners and those funds that are
new to ESG issues
• Awareness raising and Toolkit instructions are useful for less experienced fund managers
• But experienced fund managers are beyond that point and want to take the next step and improve their
existing management systems
The workshop’s generic approach hampers meeting the ever more specific needs of participants
• As ESG management matures, issues become more complex and investment-specific
• Fund managers (of all kinds) would benefit from increased customisation of capacity building focused on their
reality
• The workshop currently does not sufficiently address the details of regions, company types, sectors
Although pragmatic and practical, the workshop needs more hard results and best practices
• Skeptical participants are more easily convinced when ESG management is translated into monetary terms
and business cases, both on the downside and the upside
• Investment managers need more best practices as examples to motivate investee companies to work on ESG
improvements
LIMITATION
Customised workshops would better meet participant expectations
23
The workshop could be divided in different modules/break-out sessions targeting specific participants
needs
• Generic modules for novice ESG managers on ESG management frameworks, standards, tools, best practices
• Specific modules for seasoned ESG managers on specific ESG issues such as corporate governance, energy
efficiency, development impact, human rights, relevant industry sector standards
• Customised modules for investment managers on the financial impact of ESG on an investee‘s bottom line
More case studies and best practices would strengthen the message
• Case studies show the practical application of the theoretical part
• Best practices inspire participants to do similar work at their investments
• The message sticks even better when told by a peer; CDC could invite frontrunner fund managers or
companies to share their experiences and present their ESG business case
Virtual workshops could be a cost effective alternative with a strong outreach potential
• Despite its limited resources, CDC could meet the demand for more (frequent) training with virtual workshops
• This would be particularly helpful when targeting a group of fund managers around a specific issue or theme
beyond a regional focus
SUGGESTION
Quotes from respondents on the workshop
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“Partly due to the awareness raising efforts of CDC, fund managers are finally getting their heads around ESG
management. They acknowledge the importance of it and know what it is about. But now they’re ready for the next
step and want to tailor it to their structures and specific requirements of their portfolio.”
“We were already in full swing in having our own ESG systems when we attended CDC's workshop. So the
workshop did not materially change the way our systems work, but it did allow us to distill information that is
relevant to us and benchmark where we are and where we can go in terms of best practice.”
“The workshop is very helpful and an excellent platform for learning and networking, but it is too short and the
frequency of the event is too low. Considering the extent of the Toolkit and other topics addressed, I feel that we’ve
only scratched the surface with the workshop.”
“The most important take away for me was a recognition that the ESG team at CDC genuinely want to help us do a
good job and that they are very approachable. After participating in the workshop I feel motivated to speak to CDC
about issue that may arise.”
The workshop is most useful for awareness raising and knowledge sharing among new team members
25
12%
7%
9%
26%
7%
12%
63%
63%
56%
79%
56%
30%
28%
19%
14%
20%
0% 20% 40% 60% 80% 100%
Awareness raising on ESG issues
Instruction of the functioning of CDC's ESG Toolkit
Understanding how ESG can be implemented in a fund
Sharing of knowledge and experience in ESG management
Networking
Extent to which the ESG workshop serves different purposes
not at all averagely substantially crucially
7%
7%
7%
52%
39%
36%
41%
54%
58%
0% 20% 40% 60% 80% 100%
Investment officers
ESG officer
New team members
Usefulness of the ESG workshop for different fund team members
somewhat useful useful very useful
Steward Redqueen B.V. Kinderhuissingel 4A/B
2013 AS Haarlem, the Netherlands Tel: +31 (0)23 553 0400
www.stewardredqueen.com - [email protected]