Aligning ESG efforts with your fund administrator

OUTSOURCING

Aligning ESG efforts with your fund administrator When it comes to ESG, the focus is largely (and not wrongly) on improvements within portfolio companies.

However, with LPs increasingly interested in how private equity firms themselves are operating when it comes to ESG, it’s worth thinking about a GP’s own suppliers and third party providers to ensure both parties are aligned.

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ays Emma Keane, director in the newly established Irish office at Highvern, “There is a real opportunity now for fund administrators to look at their own activities and the impact their business is having on the environment and society and to make a positive impact on the industry to drive change.”

SERVICE PROVIDER SELECTION

For managers seeking a fund administrator for the first time, or those looking to move away from their existing provider, what questions need to be asked when trying to understand a potential partner’s ESG initiatives and aims?

One simple and quick way to spot a fund administrator’s focus on ESG is by scanning through their marketing and sales materials. Says Keane, “Check whether your service provider is part of a global initiative scheme such as the UN SDGs ensuring that their goals are both realistic and aligned with worldwide efforts. We are transparent in our commitment to engaging with our clients, suppliers and advisors in order to work jointly towards the achievement of these goals but also in understanding that the ambition of these stakeholders changes over time with the changing industry.”

Next is speaking to the administrator and finding out about their ESG policy, as well as how it is implemented. Often fund administrators will only focus on their ESG product offerings around reporting tools, with little focus or emphasis on their own actions.

Highlighting key ESG initiatives within the organisation can foster a partnership approach.

EXISTING PROVIDERS

For funds with long-term fund administration

partnerships, finding out what improvements, initiatives or actions have been taken by the fund administrator when it comes to ESG is a good step to inform a GP’s own reporting to investors.

For example, Highvern’s Keane is a member of the SteerCo of the Green Team Network, a local Irish initiative aimed at all market participants within the Irish Funds industry to facilitate knowledge sharing and collaboration addressing sustainability goals. Keane was involved in the development of the Green Pledge, which addresses areas including policies and education, carbon footprint, vendor management and travel.

Keane says, “By signing up to the Green Pledge, this is a signal to potential clients, advisors and employees that as a business, you are pledging to do more. While it is an Irish initiative, we are seeing fund administrators use it as a global template for incorporating greener initiatives within their business operating model.”

Another positive sign can be if fund administrators are taking a proactive approach when it comes to keeping clients updated on ESG efforts. This could be a quarterly update covering ESG initiatives within the firm as part of the board pack. “Fund administrators should now be setting the standard on what GPs should be asking their service providers. The update can cover points around actions taken, for example calculating the carbon footprint of the firm, as well as what the firm pledges to do, for example facilitating a greener commute for employees and what is required to achieve this,” explains Keane.

WHAT TO LOOK OUT FOR

ESG is of course all relative, and each organisation has their own specific areas where improvements can be made. The size and

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maturity of the organisation cannot be ignored when assessing ESG initiatives. For example, a smaller, newer organisation will benefit from more flexibility to be able to implement change compared to a larger organisation. However, a larger organisation will likely have less budgetary constraints. But, there are some commonalities to look out for when speaking with fund administrators on their ESG procedures, most of which will be important to include in investor reports.

PROMINENCE WITHIN THE FIRM

ESG requires commitment and behaviour changes from the entire organisation - not just whoever has been put in charge of ESG. With that in mind, finding out how an administrator organises itself around ESG is a clear reflection of the importance ESG has within the firm.

By running an ESG committee that is staffed by members from across the organisation, and at different levels, this promotes the importance of ESG factors within the firm while also facilitating diverse discussion and engagement.

“Going from pledge to action requires a plan, strong communication and engagement at all levels. The ESG committee should report to the executive committee to further embed the importance of real actions, real responsibility and genuinely driving change within the culture of the organisation,” explains Keane.

This set up has seen Highvern thinking more carefully about its environmental impact. “When we’re travelling, we’ve been thinking harder about what transport we use and the hotels we stay in,” says Keane. “We found a list of ‘green’ hotels, but the committee dug a little deeper and found the list was more of a marketing ploy rather than listing hotels with excellent environmental credentials. Having this embedded awareness around greenwashing is also invaluable to our ESG journey.”

Highvern’s ESG agenda and behavioural awareness has been driven by Ellen Hibbs, who has chaired the ESG Committee since it began in 2020. “Hibbs has been instrumental in establishing a greener culture within the organisation and including others to bring a focus to the committee to deliver,” comments Keane.

Examples of ESG committee initiatives include: • Corporate partnership with EVie, offering employees subsidised electric bikes in Jersey and Guernsey.

• Local partnership with National Trust in Jersey for tree planting, hedgerow maintenance, and preserving buildings.

CARBON FOOTPRINT

While most managers will be focused on attempting to measure the carbon footprints of their investee companies, it is inevitable that soon they will be required to report their own, which means also knowing the footprint of providers.

Last year Highvern calculated its carbon

footprint. The calculation took a base year, in this case 2019, and compared it to the current year calculation to track the results of emission reductions over time. Inputs into the calculation included direct GHG emissions, energy indirect GHG emissions and indirect GHG emissions.

“While working from home during the pandemic has had a positive impact on the carbon footprint calculation for Highvern, the exercise itself illustrated the impact its activities have on the environment around us and has facilitated the conversation around possible changes that the business can implement today and also along its expansion journey into more jurisdictions,” says Keane.

“The calculation showed that business travel and employee commutes are the largest contributor to our carbon footprint. As a result, Highvern is implementing a ‘greener commute’ by having bike racks and shower facilities within office buildings, as well as reducing business travel by increased use of virtual meetings,” adds Keane.

Now that Highvern has calculated its carbon footprint, it’s working towards becoming carbon negative. “We want to go beyond simply offsetting carbon and being neutral, we want to have a positive impact,” says Keane.

DIVERSITY & INCLUSION

As DEI races up the agenda of GPs and LPs alike, it’s vital to know that your service providers are also as focused.

A company’s approach to recruitment and retention can offer important insights into their attitudes towards DEI. “I’ve seen it first hand having been through the recruitment process myself towards the end of last year,” explains Keane. “Particularly as a woman looking at potential opportunities in the market, you will do your research as to where the company stands on diversity and the statistics on women in leadership roles. It is important the company is conscious of the role models within the business and that all staff are represented and have something to aspire to. At Highvern there is such a welcoming culture, you can feel it in every conversation.”

Highvern is a member of the ‘IOD 51 Employers Menopause friendly workplace’ and ‘IOD Diversity and Inclusion Charter’ which includes adherence to the following principles; • Everyone should feel they belong • Everyone should have the opportunity to thrive • We should all treat others fairly and inclusively • Discrimination and bias should be challenged • Inclusion is at the heart of great leadership • Organisations should be courageous in challenging the status quo.

Making ESG a top priority not only provides a competitive edge, but it ensures objectives are aligned with the future generation of leaders. ◆ June 2022 21

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