Investing responsibly today for a sustainable tomorrow

Increasingly, investors are demanding high standards from companies in relation to sustainability and societal impact. These standards, which include climate change, diversity and corporate ethics, are commonly covered by the term Environmental, Social and Governance (“ESG”). While definitions vary, ESG is used to help evaluate a company or organisation’s progress against key criteria.

There is often a misapprehension that ESG factors are not regarded as important in private equity investment. However, this could not be further from the truth. Pantheon believes that the consideration of ESG risk forms part of general risk management and effective mitigation of such risks strengthens downside protection and enhances a company’s reputation. In fact, it is Pantheon’s view that the implementation of sound ESG practices can have a material impact on value creation in private equity.

As a result of Pantheon’s approach and with the full commitment of the Board, ESG is at the core of PIP’s investment philosophy with ESG factors incorporated into the entire investment process. This starts with the initial due diligence and assessment of the suitability of a fund/company for inclusion in PIP’s portfolio. But it does not stop there. There is also an extensive ongoing monitoring programme which comes into play after an investment has been made.

Pantheon’s dedicated ESG Committee is comprised of senior individuals from its Investment, Risk and Investor Relations teams. As part of its duties, the Committee sets Pantheon’s ESG strategy and policy, and provides feedback across the business and to external stakeholders.

ESG is in Pantheon’s DNA

While many parts of the investment world are being redefined through the lens of responsible investing, Pantheon has a history of being fully engaged with ESG matters. From working with managers backing businesses with a clear social mission to persistent industry advocacy, Pantheon has relentlessly sought to promote and demonstrate its commitment to the ESG agenda in private equity.

The bar was set when Pantheon became one of the first private equity signatories to the UN-backed Principles for Responsible Investing (PRI) in 2007. The PRI is the world’s leading proponent of responsible investing and is underpinned by six principles that signatories commit to uphold. These are:

As an engaged and active supporter of the PRI, Pantheon has fully embedded the six principles into its investment approach, strategy and ethos, and each year is required to report on progress against these principles.

In 2009, Pantheon joined the PRI Steering Group, an influential position helping to shape the PRI’s work and in 2015, Pantheon was awarded A+ in the PRI’s first formal assessment.

Showing leadership through industry advocacy

A core pillar of Pantheon’s leadership in ESG is through industry advocacy. It does this in a variety of ways including:

Pantheon believes that its efforts are making a real difference in raising ESG standards across the private equity industry.

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.

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.

Corporate responsibility

On all key issues, including diversity and inclusion, environmental impact and employee culture, PIP’s investment manager, Pantheon, has specific plans delivering tangible results.

Employee culture based on diversity and inclusion

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. Pantheon has purposefully created an employee culture based on respect, inclusivity and integrity. This foundation means employees can thrive and contribute effectively to the success of PIP.

Pantheon is committed to increasing diversity and inclusion in private equity. This includes initiatives such as Level 20, a not for profit organisation whose mission is to improve gender diversity in the European private equity industry. Level 20 was co-founded by Helen Steers, Partner and co-manager of PIP, in 2015.

Find out more about Pantheon’s approach to Corporate Responsibility, ESG and Employee Engagement here.