Creating sustainable value through responsible investment
WestBridge understands and embraces the importance of responsible investing, firmly believing it helps create and protect value. Here senior investment manager James MacLeay explains why.
Responsible investment is a hot topic across all asset classes, not just private equity. It relates to the investment strategy that incorporates environmental, social and governance (ESG) factors into the investment process. Although there may be some overlaps, it isn’t the same as impact, social or ethical investing
A common misconception is that responsible investment leads to lower returns. In our view, the opposite is true. It can actually help enhance returns by identifying value accretive initiatives and acting as a risk mitigation tool.
Taking each component of ESG in turn it is clear to see that responsible investment and increased financial returns go hand in hand:
- The environmental criteria of ESG is subject to increasing scrutiny from society and wider stakeholders. Businesses are increasingly expected to manage their resources in a sustainable way and minimise their carbon footprint. Sustainable resource management and a reduced carbon footprint can result in meaningful operational efficiencies and cost reductions, can significantly increase brand reputation and support long term growth prospects.
- The social aspect of responsible investment covers the relationships between the company and its stakeholders, whether employees, suppliers, customers or those further afield. By investing in staff through employee engagement, welfare and talent attraction schemes, companies can boost employee motivation, productivity and retention.
- Governance is an area on which private equity has historically been focussed, perhaps by putting a non-executive chair in place, upgrading controls, policies and processes that improve decision making and investing in risk management to protect value.
At WestBridge, we understand the direct link between responsible investing and creating value, therefore, our approach to ESG is aligned to our investment objectives. Pressure from LP’s and the media has meant that many larger private equity investors have been incorporating ESG into their investing for the last 5+ years, often with dedicated teams.
In the lower mid-market, however, with smaller teams and less public scrutiny, there hasn’t been as much of a focus on ESG outside the impact funds.
We are in the business of creating long term value for investors and firmly believe that responsible investing and a clear strategy on ESG will help to generate sustainable growth in our portfolio and drive returns for investors. This is why we take ESG seriously and incorporate it into all aspects of our investment process.
This is evidenced across the WestBridge portfolio. We are helping to support, fund and encourage numerous ESG related initiatives. The COVID-19 pandemic and the consequent interruption of business and introduction of different business models has enabled some of our portfolio companies to change their working practices. They have become more efficient, more environmentally friendly and shown increased care for their staff and wider stakeholders.
In the past year, many of our portfolio companies have had a significant proportion of staff working from home and COVID-19 related restrictions and measures have been in place for those who remained in the workplace.
By way of example, APEM and Aptus have increased the number of mental health first aiders in their teams as they seek to support employees’ physical, mental and financial wellbeing.
Elsewhere in the portfolio, a number of companies have either increased or implemented staff surveys to ensure the leadership teams understands any lockdown-related problem areas or opportunities that have been identified by staff.
With a combined employee base of 2,000, ensuring that we invest in, support and retain our staff is an important factor in creating long term, sustainable growth.
Typically, WestBridge invests between £10m and £25m in established, profitable and fast-growing UK small cap businesses with enterprise values of up to £50m. We are always keen to hear from ambitious management teams that require development capital, acquisition funding or support for a management buyout. To hear more about our investment criteria or discuss the suitability of a company, do get in touch.