Private equity and CSR: from responsible investment to positive impact

Private equity players are entering, for good, a new phase of maturity with regard to ESG (Environmental, Social and Governance) criteria.

Aware of their impact on the economy and of society's expectations of investors in the real economy, they have multiplied their thoughts and actions in recent years. At the instigation of their professional association France Invest, nearly three-quarters of management companies have committed to formalising their ESG approach and applying the six Principles for Responsible Investment (PRI)*.

Companies invested by French private equity created more than 200,000 jobs between 2012 and 2017. The measures implemented are beginning to bear fruit and many indicators are on the rise: number of ESG due diligences, monitoring of the frequency and seriousness of workplace accidents, implementation of ESG reports, environmental assessments. Investment companies such as EURAZEO have played a pioneering and accelerating role in this area.

So how do we go further in this transformation and nurture this positive dynamic?

From responsibility to positive impact!

The starting point for these changes must be a collective awareness (investors and shareholders) of the raison d'être of each company and its place in the very long-term positive trends for society.

The transformation of private equity on these subjects is undeniably accelerated by that of companies, which are undergoing a real revolution on these subjects. Social and environmental responsibility can no longer be simply a matter of compliance, reputation or risk management. It is a question of competitiveness and sustainability. At a time when the war for talent is raging, when human capital is undoubtedly the first limiting factor to growth and transformation, taking into account societal issues has become a sine qua non condition for attracting talent, pushing companies to clarify their raison d'être, their position on major societal issues, and the concrete actions taken in this area.

For management teams, this means that CSR (Corporate Social Responsibility) should no longer be just a defensive, compliance issue, which translates into prohibitions; it is about committing to finance with a positive impact.

The positive impact is first of all to invest in companies driven by new societal trends.

At GENEO entrepreneurial capital, we invest in Human and Work because we believe that the development of human beings at work is a fundamental issue for both companies and society. We are investing in Pinette PEI because we believe that putting the innovation and know-how of this company specializing in composites to help lighten all means of mobility contributes to a more breathable and livable planet. We invest in HOPPEN because we believe that improving the quality of life in healthcare institutions is essential for the well-being of both patients and medical staff. We invest in KHARDAM because we believe that the transformation of real estate is a vector of sustainable development and better living together. We invest in Dickson PTL because it improves the safety of people and machines in factories around the world. We invest in VALTUS because it breaks down the loneliness of leaders and provides them with talent to help them and their teams meet the challenges they face.

We place these reasons at the heart of our traditional investor analysis tools: risks, opportunities, strategy, brand positioning, value creation.

Positive impact also means providing concrete support to invested companies and helping them to implement their ideas and programmes to improve their positive impact, focusing on their core business and the way they do it.

At GENEO, we have identified 14 possible areas for progress. In consultation with the management teams, we choose 3 or 4 of them, on which we set quantified objectives, and we integrate them into the "Growth Book" co-constructed by GENEO and the management team, along with the other structural areas of support selected by the management teams, such as operational optimisation, the conquest of new markets, external growth, and so on.

To support the implementation of these progress plans, we provide them with our platform of dedicated experts to assist in their implementation. Implementation is monitored specifically within the framework of corporate governance.

Finally, we fully raise the subject of value sharing for the benefit of all those who have contributed to it, starting with the employees and the territory, notably by using existing schemes (employee shareholding, profit-sharing, profit-sharing supplement) and France Invest's latest recommendation on matching contributions to the PEE.

That's the GENEO method.

What are the implications for management teams?

But all these steps in the companies financed are only possible and legitimate if we ourselves, in our own management companies, set an example.

Regardless of the size of the management company, it is a matter of implementing for ourselves this positive impact approach that we offer to our investments and of training the teams.

At GENEO, we have integrated three main areas of growth into our own growth chart, which is a factor of performance and positive impact:

• strong, transparent and demanding governance: our strategic committee specifically reviews the investment policy, the ESG policy, conflicts of interest and all matters relating to the legal and financial management of the investment vehicle ;
• gender balance, aimed at all levels of the management company, starting with the partners ;
• value sharing: like other investment companies such as RAISE, all GENEO employees donate one third of their carried interest to our Endowment Fund designed to promote job creation in neglected areas. We will support the philanthropic projects of our shareholders to give them an double dividend, financial and societal

We would like to end this forum by addressing all young investment professionals on the unlisted side.

Enjoy doing a great job. Our impact on society is considerable and growing. More than 7000 companies already trust us to accompany them, representing several million jobs. It is both a great joy but also a great responsibility to their employees and their families who expect us to play a leading role in making the world a better place.

By inventing the Entrepreneurial Capital and Growth Notebook, GENEO is making a commitment to you to do everything possible to outperform and accelerate the impact of our business in addressing environmental issues, increasing turnover and creating jobs in our holdings.

Fanny LETIER and François RIVOLIER

* The Principles for Responsible Investment were developed by the United Nations in 2006 to: integrate ESG issues into investment analysis and decision-making processes; become active shareholders and integrate ESG issues into shareholding policies and procedures; require, to the extent possible, transparency on ESG issues from invested investments; encourage the adoption and implementation of the Principles in the investment sector; cooperate to improve the effectiveness of the implementation of the Principles; and report on their activities and progress on the implementation of the 6 Principles.