CDC ESG survey among fund managers

Transcription

1 CDC ESG survey among fund managers December 2013

2 Agenda Executive summary Methodology ESG management practices of fund managers An evaluation of CDC s ESG instruments 2

3 An evaluation of CDC s ESG support to fund managers 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 3

4 CDC s support is highly appreciated and impactful, but can be improved through customisation and efficiency 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 4

5 Agenda Executive summary Methodology ESG management of fund managers An evaluation of CDC s ESG support 5

6 The survey consists of a questionnaire and interviews Online via SurveyMonkey Questionnaire Interviews In-depth telephone interviews of minutes 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 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 6

7 A representative sample of CDC s portfolio as a result of a high response rate and good geographic distribution 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 Questionnaire Interviews Global 4% Latin America 6% Global 11% Latin America 6% Asia 41% Africa 49% Asia 39% Africa 44% 7

8 Agenda Executive summary Methodology ESG management practices of fund managers An evaluation of CDC s ESG instruments 8

9 As expected, respondents consider their ESG management performance to be equal or better than market standards Overall ESG performance rating compared to peers Subdivision of ESG performance rating on par above par Business integrity 19% 81% Legal compliance 40% 60% above par 50% best-inclass 13% Corporate governance improvement Staff skills development 42% 42% 58% 58% Health & safety improvement 42% 58% on par 37% Energy efficiency improvements 45% 55% Environmental improvements 45% 55% 9

10 Investee resistance and poor enforcement of regulation are considered most challenging to ESG management Hurdles in the implementation of ESG management not/hardly challenging (very) challenging Resistance from portfolio company management 49% 51% Poor enforcement of regulation 56% 44% Contradicting ESG requirements from LPs 67% 33% Lack of understanding of ESG among the investment team 90% 10% Internal resistance within fund management 94% 6% 0% 20% 40% 60% 80% 100% 10

11 CDC s ESG support is considered relevant and better when compared with peers CDC s involvement as a contribution to improved ESG management averagely, 20% substantially, 68% crucially, 12% CDC's ESG support compared to other LPs below par on par above par best-in-class Impact of CDC's ESG support 2% 19% 54% 25% Relevance of CDC's ESG support 4% 12% 48% 37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 11

12 Fund managers discuss ESG management with most LPs and appreciate CDC for its proactive, pragmatic approach 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 12

13 Quotes from respondents 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. 13

14 Agenda Executive summary Methodology ESG management practices of fund managers 4 An evaluation of CDC s ESG instruments Toolkit Workshop 14

15 Use of Toolkit moves from starting point to reference document ANALYSIS 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 15

16 LIMITATION But one size does not fit all 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 16

17 SUGGESTION Customisation is key to enhance the Toolkit s applicability 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 17

18 Quotes from respondents on the Toolkit 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. 18

19 The Toolkit is the most used ESG instrument and contributes to improved ESG management Use of CDC s support instruments in ESG management practices not at all averagely substantially crucially Ongoing support 12% 45% 35% 8% ESG Training 10% 33% 56% 2% ESG Toolkit 4% 27% 52% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Contribution to improved ESG management practices not at all averagely substantially crucially Ongoing support 12% 35% 46% 8% ESG Training 10% 22% 61% 8% ESG Toolkit 6% 23% 50% 21% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 19

20 Agenda Executive summary Methodology ESG management practices of fund managers 4 An evaluation of CDC s ESG instruments Toolkit Workshop 20

21 The workshop is an essential instrument for awareness raising and knowledge sharing ANALYSIS 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 21

22 But the workshop is not sufficiently tailored to meet the specific needs of the various participant groups LIMITATION 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 22

23 Customised workshops would better meet participant expectations SUGGESTION 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 23

24 Quotes from respondents on the workshop 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. 24

25 The workshop is most useful for awareness raising and knowledge sharing among new team members Usefulness of the ESG workshop for different fund team members somewhat useful useful very useful New team members 7% 36% 58% ESG officer 7% 39% 54% Investment officers 7% 52% 41% 0% 20% 40% 60% 80% 100% Extent to which the ESG workshop serves different purposes not at all averagely substantially crucially Networking 12% 12% 56% 20% Sharing of knowledge and experience in ESG management 7% 79% 14% Understanding how ESG can be implemented in a fund 26% 56% 19% Instruction of the functioning of CDC's ESG Toolkit 9% 63% 28% Awareness raising on ESG issues 7% 63% 30% 0% 20% 40% 60% 80% 100% 25

26 Steward Redqueen B.V. Kinderhuissingel 4A/B 2013 AS Haarlem, the Netherlands Tel: +31 (0) info@stewardredqueen.com