Responsibility can take on many different names and meanings. In the context of business, it refers to a company’s commitment to do more than just make a profit. It can involve businesses actively striving to contribute positively to the environment or even to social causes. Ultimately it defines how they conduct themselves responsibly. The name often associated with this commitment is Environmental, Social and Corporate Governance (ESG), which can be broken down into:

  • Environmental – how businesses treat the planet
  • Social – how businesses treat people
  • Corporate Governance – how businesses are being run

Although the case for a strong ESG proposition becomes more compelling when looking to combat issues such as climate change and the gender pay gap, it also makes sense from a commercial standpoint. A recent study from PWC found that 66% of respondents cited value creation as their main driver for ESG activity.

Responsibility is no longer considered a nice-to-have, it is now key in judging the value of businesses and will continue to be a core factor long into the future.

At NorthEdge we’ve carved out a strong position on ESG among private equity firms and work with our portfolio to help them improve on their ESG to help futureproof and drive value in their businesses. But the beauty of being a responsible business is that whilst you’re contributing to an improved society, you can also use ESG to make commercial gains.

According to McKinsey, strong ESG credentials can help businesses access new markets while growing in existing ones. ESG improvements also lead to significant productivity increases by boosting employee motivation and helping to attract talent.

All of this collectively demonstrates that working towards improving ESG credentials pays dividends, not only because it’s the right thing to do, but because it also makes businesses more valuable for all stakeholders.

Case Studies

From Health and Safety to product innovation, Belfield has several ESG initiatives in progress. Through improved facilities, enhanced and equalised employee benefits and increased training, its health, safety and wellbeing KPIs are all trending towards best in class. In addition, the team are working with their strategic partners and key customers to create sustainable products that are not only made from sustainable or recycled materials, but that can also be fully recycled at the end of their life - positively contributing towards the circular economy.

Watch the video to find out more.

Clearly Drinks, a NorthEdge portfolio company, recognised the impact it was having on the environment through its use of single use plastic, energy and water. We worked closely with the team on several initiatives to improve their ESG performance. Most notably the business’ plastic bottles are now 100% recyclable and zero waste is sent to landfill. The team have made a commitment to eliminating 640 tonnes of plastic from packaging by 2022 and are working with people across the industry to drive the sustainability agenda.

In 2020 we supported the business to make a £5m investment into a new canning line, further supporting their ambition of reducing the plastic it uses as it continues to scale.

Watch the video to find out more about how Clearly Drinks is leading the way in its Industry on all things ESG, including the work it does to support its communities:

A recent Forbes article highlighted the ‘tech talent war’, as Covid-19 has caused a wave of tech adoption for businesses across all industries and therefore a fight to find the best people.

For technology business CTS, one of the biggest impacts it can have is through its people. Since our investment in 2018 we have supported the business to continually evolve its approach to people, which has included several initiatives:

  • Defining their core values – they are what the business lives by and dictates how it does business

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  • Flexa verified employer demonstrating their commitment to a fully flexible working culture
  • Dedicated DEI, Environmental, Charity & Culture working groups
  • Elevate, their internal development programme designed to build the next generation of leaders – 65% of their managers are from Internal promotions
  • Utilising the B Corporation framework to set their people policies and processes
  • Various wellbeing initiatives and mental health support services
  • Enhanced parental leave
  • Partnerships with Wagora, who strive to bridge the gender gap in the technology industry, and myGwork, a business community for LGBTQ+ professionals, graduates and inclusive employers

To find out more, click here.

Environmental

The world is changing and with it businesses have a responsibility to manage their environmental footprint, not least to support the efforts to prevent climate change.

Environmental factors are of increased interest to consumers. Coupled with this heightened awareness, there’s an added level of scrutiny from a political viewpoint. The environmental criteria that affects a business’ responsibility include the energy businesses take in and the waste they produce, the resources they need, and the consequences on the planet as a result.

The benefits of having a strong environmental strategy are reflected in the commercials too. Implementing sustainable practices can attract B2B and B2C customers looking for products that are kinder to the earth. As well as strengthening the value of the brand, ESG can help to reduce costs substantially.

Research from McKinsey found a significant correlation between resource efficiency and financial performance. Sourcing sustainable energy and resources creates greener businesses overall and can create cost efficiencies involved in energy consumption and waste disposal.

Watch the Clearly Drinks case study to see how they have been putting a number Environmental improvements into practice, and read NorthEdge’s latest ESG report Taking Responsibility to find out the commitments we are making to improve our impact on the planet.

A report by McKinsey found that upwards of 70% of consumers would pay an additional 5% more for a green product, if it met the same performance standards as a nongreen alternative.

Social

The Social criteria addresses the relationships companies have with people and institutions in the communities where they do business.

Recent studies(1) have shown that positive social impact correlates with higher job satisfaction, and field experiments suggest that when companies “give back to the community,” employees react with enthusiasm. Working with local businesses and charities in the community can instil a sense of purpose within employees, allow them to connect with one another and increase overall productivity.

Given that every business operates within a broader, diverse society, there is also a need to reflect that internally. A report from McKinsey showed that companies in the top quartile for both gender and ethnic diversity are 12% more likely to outperform all other companies. Instilling measures to promote diversity, equity and inclusion within organisations will not only attract and retain the best set of diverse talent, it will also help to harvest a culture of trust, support, encouragement and diverse thinking.

To find out more about NorthEdge’s approach to Diversity & Inclusion, click here. To see how we support our communities, click here.

An organisation, no matter how well designed, is only as good as the people who live and work in it.

Dee Hock, founder and former CEO of the Visa credit card association

Governance

Governance covers the internal system of practices, controls, and procedures that businesses adopt to govern themselves, make effective decisions, comply with the law, and meet the needs of external stakeholders.

A key aspect of Governance is Cyber and Information Security. According to the World Economic Forum Cyber-attacks became rated the fifth top rated risk in 2020, with the rate of cyber-attacks expected to double by 2025. In addition, Cybercrime overall is reported to be 600% up as a result of the Covid-19 pandemic. At NorthEdge we support our portfolio companies throughout the investment cycle to mitigate their risk of cyber-attacks and effectively manage their cyber security response through a defined programme run by a specialist third-party operating partner.

Good corporate governance is a vital component of companies’ lasting success. Businesses that are well governed can typically point to strong management and information guiding their decision-making and a secure operating environment. Fundamentally, it also provides consumers, regulators and other external stakeholders with the confidence that the business is committed to improving its ESG performance and strategy for the long-term.

Organisations with high environmental, social and governance (ESG) factors have a lower cost of debt and equity and 89% of these companies will ultimately outperform the market in the medium and long term.

Deutsche Bank

ESG initiatives should be measured, managed and continuously improved

To continually improve on ESG, whether it be doing better for the environment, improving D&I or even maintaining best practice cyber security as part of your governance commitments, it has to remain a regular agenda point for management teams.

Our portfolio companies complete an annual ESG survey which targets a sustainable improvement in ESG progress over time. We help by bringing our in-house knowledge to support portfolio companies identify and implement improvement opportunities across a range of ESG initiatives.

Because ESG is so intrinsically linked to other Value Levers that make up a Value Creation Plan, it can’t be viewed as a box ticking exercise. It has to be something that businesses are constantly measuring and improving upon year on year – just like they would with commercial performance.

However, understanding where to begin is often a difficult task. No two businesses are the same – one may have a significant opportunity to lead the way in its industry on D&I, while another may face external and immediate pressure to build better data processes to keep customer data safe.

Prioritisation and alignment of ESG goals across the business needs to be clear in order for ESG strategies to have momentum. Having one-, five- and ten-year strategies for how your ESG approach will evolve over time is critical to maintaining value as an organisation and as an employer.

From understanding the risks and opportunities identified during our initial ESG screening of an investment target to incorporating Responsibility as a core lever in the Value Creation Plan (VCP), we support our portfolio companies to create a baseline for reporting and identify initiatives that will help them to improve over time. These initiatives get measured through our annual ESG portfolio survey as well as through dedicated VCP KPIs in Board packs.

The role of Private Equity

As well as supporting firms through investment and active partnership, a fundamental part of our role is to equip a business for future and sustained growth. Helping management teams improve on ESG is a core part of that.

We work with our portfolio to understand ESG risks and opportunities throughout the investment cycle and support them in addressing their short-, medium- and long-term goals – whether that be through investment, connecting them with our broader network through our Nexus platform or providing access to our in-house ESG knowledge.

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(1) Jan-Emmanuel de Neve et al., “Work and well-being: A global perspective,” in Global Happiness Policy Report, edited by Global Council for Happiness and Wellbeing, New York, NY: Sustainable Development Solutions Network, 2018.