Sustainability was a topic on everyone’s lips in 2022, including Argentum. We are delighted that the positive trend we have seen in the private equity sector in recent years is continuing unabated!
Argentum is continuously developing the company’s processes in ESG and sustainability and in 2022 we focused on aligning the company with the new EU Sustainable Finance Disclosure Regulations (SFDR). We have also linked our sustainability efforts to four specific sustainable development goals, which you can read more about here.
As a fund investor, Argentum follows up on all managers with which the company has employed capital. A full overview of the questions from the year’s ESG follow-up can be found here. The findings clearly show that ESG efforts in portfolio companies are still high on managers’ agendas. The response rate was also very good (response rate of 93 per cent).
We find that the majority of managers intend to categorise future funds as Article 8 funds under SFDR. Of the responses we have received, no fewer than 55 managers stated that their previous or next fund will be classified under Article 8, compared to 37 reporting the same last year. The majority of managers also consider work with ESG to yield positive financial effects in their companies and an increasing number state that the ESG efforts undertaken in their company have been an important factor in achieving a good sales price. We generally find that our managers have worked continuously with sustainability as part of their agenda and 68% of managers took concrete steps relating to their ESG policy or procedures in 2022.
For the second time, we are also collecting data as part of the ESG Data Convergence Initiative, an industry initiative aimed at establishing a standard set of ESG indicators for fund managers and fund investors, in order to ease the reporting burden and provide investors with greater insights into the companies in the portfolio. We note that an increasing number of managers in the portfolio are joining the project and the number of companies that have reported is higher than last year for all KPIs and significantly higher for some KPIs. Argentum takes a positive view of the project, but we are conscious that there will be a risk of erroneous reporting during the initial phase and that it might take some time to establish data that can be compared over longer periods of time. Our own emissions are rising somewhat compared to 2021 as a result of the normalisation of travel activities in 2022 following two years of low travel activity due to the pandemic.
Generally speaking, private equity funds are well positioned when it comes to influencing the ESG efforts of portfolio companies, precisely because governance factors are at the core of what the industry does. The fact that the findings in this report also show that more managers believe that ESG efforts increase the sales price of portfolio companies is interesting as it testifies to the fact that ESG has a serious positive financial effect, even though it can still be hard to distinguish from other factors. Nevertheless, I am convinced that the PE sector is crucial in helping develop new sustainable solutions and the companies of the future.