Responsible Investing and ESG
Investing responsibly today for a sustainable tomorrow
ESG in action
In considering a new fund commitment, Pantheon’s due diligence process ascertains the extent of the private equity manager’s willingness to adhere to sound ESG practices, favouring those managers who understand the nature of ESG risks and who seek to minimise them. PIP’s objective is to generate competitive risk-adjusted financial returns and we believe that by embracing ESG in its investment approach, Pantheon helps to support that aim.
ESG assessment is integrated into all of PIP's investments
Pantheon Exclusions Policy – avoid investments in certain sectors
RepRisk company screening
Primaries – Private equity manager ESG integration assessed by Pantheon (Low/Medium/High).
Co-investments – Targeted company review at acquisition, with RepRisk rating assigned. This includes sector, country and overall risk (AAA to D), and private equity manager ESG rating.
Secondaries – Targeted company review at acquisition and assessment of ESG approach of private equity manager.
Private equity manager’s ESG reporting and Advisory Board engagement.
Continuous company ESG risk assessment, using RepRisk.
Pantheon receives live alerts and newsflow on issues affecting portfolio companies.
Active engagement with managers on their investee companies
Transparent reporting and disclosure
ESG Case Studies
Star Health Insurance
Star Health Insurance provides affordable medical insurance, accident insurance and travel insurance plans in India.Read more
SF Filter is a leading distributor of mobile and industrial filters for after-market applications.Read more
Imperfect Foods was founded in 2015 with a mission to eliminate food waste and build a better food system for everyone.Read more
Pantheon’s systematic approach to ESG during investment due diligence
Ahead of any investment, a strict ESG assessment is undertaken by Pantheon and specific steps are followed to generate an overall ESG rating for the given investment opportunity.
For primaries – an investment into a manager’s fund when it is being raised – private equity managers are required to complete a detailed questionnaire. Through carefully targeted questions, Pantheon gathers significant amounts of information about how a private equity manager operates and how it scores on a range of ESG factors.
The result is that Pantheon has a deep understanding of the ESG strengths and weaknesses of each investment opportunity. This is formalised with each opportunity given an overall ESG rating.
The ESG rating and supporting documentation are provided to Pantheon’s Investment Committee as part of the decision-making process for the overall investment opportunity.
Not having a green rating does not automatically indicate a lack of intention to incorporate ESG but may be due to:
- A private equity manager being recently formed
- Not having had the time or resources to put in place an ESG policy
- Not having seen the benefits of ESG as awareness and adoption of ESG principles typically varies across regions.
Often this presents an opportunity for Pantheon to actively engage, talk and share best practice with the manager. As time passes, through engagement, most managers can be migrated to the green rating.
During the year to 31 May 2021, among the seven primary commitments made by PIP, the majority received a green rating with the remainder receiving an amber rating.
Some of the questions we ask…
Do you have a formal approach to integrating ESG factors within your investment process?
Have you signed the UNPRI or adopted any other ESG-related standards?
Does your investment process include monitoring climate change related regulation?
Do you include reporting on ESG risks that arise in the portfolio company to your advisory board / or in your quarterly reporting to Limited Partners?
How do you engage with portfolio companies on ESG issues?
Who within your organisation is responsible for taking ESG considerations in your investment decisions?
Due to the nature of secondaries and co-investments, Pantheon has visibility of the underlying companies in those funds or investments. This allows Pantheon to build up a detailed picture of the ESG credentials of the specific companies in the portion of the fund under consideration or – in the case of co-investments – apply rigorous due diligence to take into account potential ESG risks to which the company may be exposed. Pantheon also assesses the private equity manager’s plans for mitigating these risks.
ESG in conversation
In this interview, we talk to Rini Banerjee from Index Ventures, one of our leading venture capital managers, about Index’s approach to ESG, how they have advanced their diversity and inclusion efforts in recent years and how all of this supports their investment thesis to “leave the world a better place.”
Ongoing active portfolio monitoring
Pantheon understands that its responsibility and influence extends far beyond the point of investment, which is why it actively undertakes extensive ongoing portfolio monitoring after an investment is made.
Practically, this means underlying portfolio companies are monitored in order to identify ESG risks or issues. Pantheon does this on PIP’s behalf through RepRisk, a highly innovative business intelligence service that was fully integrated into Pantheon’s monitoring processes in 2017.
RepRisk’s rapid service provides live alerts and intelligence on issues affecting portfolio companies. Acting upon this information, Pantheon logs any incidents and follows up on any material issues with the relevant manager. Pantheon is able to open a two-way dialogue with its managers to understand the background, the accuracy of the reporting and find out how identified issues will be dealt with. It is this detailed, collaborate and active approach that ensures Pantheon stays informed of ESG issues, while also building better relationships with its private equity managers.
During the year to 31 May 2021, incidents in companies accounting for less than 1% of PIP’s NAV required follow up with the private equity manager. In all cases, Pantheon was satisfied that the correct action had been taken where necessary and that the issue did not betray systematic underlying process issues.
This level of engagement powerfully demonstrates how addressing ESG issues can create value and that being active on ESG makes moral and commercial sense.
Our corporate responsibiliy
Pantheon passionately believes that improving diversity and inclusion is the right thing to do, which is why we have set specific targets for furthering gender and racial diversity among employees. Furthermore, we are committed to increasing diversity and inclusion in the private equity industry and have initiatives working with non-profit organisations.