A Decade of Leadership in Sustainable Investment
Beth Houghton, Partner and Head of Palatine’s Impact Fund
We see private equity as a force for positivity; an opportunity to support management teams to do things the right way, whether that’s for their employees, customers, supply chains or the regulatory authorities. This belief has underpinned our approach to sustainability for over a decade.
Today, we publish our latest Sustainability Report which provides insight into how we’re deploying our expertise and our network to inspire and guide mid-market companies to strive for better ESG performance alongside financial growth.
As we are in now the decisive decade for tackling climate change, every person and every business must contribute tangibly to meeting this huge and existential challenge. Our Sustainability Report tells our story so far, highlights recent achievements from our portfolio (across both our Buy Out and Impact Funds) and sheds new light on the link between ESG performance and company valuations.
The full report can be downloaded here. Some key takeaways are detailed below:
A top down ESG Strategy is key
We’ve been successful in creating material shifts in our portfolio’s ESG performance through a strategic approach which starts pre-investment and is carried through to exit.
This is underpinned by our award-winning Six Pillar ESG framework, through which we benchmark portfolio businesses against a core set of ESG metrics and identify strategic opportunities to improve their performance.
Pre-deal, we profile all investments for material ESG risk and opportunities and begin to engage management teams in our approach.
Post-deal we set a strategy and delivery plan with bespoke KPIs to measure progress. Our in-house Sustainability Team and network of expert advisors directly support our companies in delivering these plans and we create opportunities for our portfolio to collaborate and share successes and learnings through a variety of forums and training opportunities.
We collate annual ESG KPI data and updates on each company’s initiatives and future ambitions to create ESG performance summaries and calculate where proactive ESG management has driven value to the bottom line.
Linking ESG to Returns
Despite the increased focus on ESG performance over recent years, there remains a scarcity of evidence demonstrating the link between ESG, financial performance and investment returns. We’re seeking to change that.
Over the last 10 years we’ve collected quantitative ESG performance data annually across our portfolio. Analysis of this data clearly shows that those who invest in improving their sustainability performance benefit from stronger financial growth and higher rates of return.
We’ve found that businesses which achieve an ESG rating of 4 or above (a benchmark score for companies which have holistically integrated ESG into their strategy), there is a marked increase in financial performance and returns. These findings have been borne out in recent deals completed by Palatine. Of the three full exits the investor completed during 2021, the businesses had an average ESG score of 4.3 and generated an average exit multiple of 4.7x.
Our portfolio has continued to make great strides in recent years. Recent success includes:
- Between 2019 and 2020 we have achieved a 62% reduction in tonnes of carbon dioxide equivalent (tCO2e) per £M of revenue and 54% reduction per employee across our portfolio
- All portfolio companies measured their energy use and 71% took steps to minimise their energy consumption in 2021
- We became the first private equity house in the UK to put our entire portfolio through internationally-recognised Carbon Literacy training
Social & Governance
- 83% of companies completed a full employee engagement survey
- 4,475 jobs provided with 83 FTE roles created in 2020
- 82% of companies have at least one female operational board member