Podcast

How is ESG shaping the world of investments?

08 December 2020

In this episode, Serge Krancenblum sits down with Phil Davis, Director of ESG at Africa-focused private equity firm, Helios Investment Partners. Together they discuss Phil’s experience with ESG investing to date as well as his predictions for how this crucial area will continue to evolve, grow and impact the global investment sphere.

Phil Davis is a leader in his field with over 14 years of industry experience, during which he has worked on the ESG frameworks of some of the leading global private equity firms. Before joining Helios earlier this year, he was Head of Sustainability, EMEA at The Carlyle Group.

Helios is among the trailblazers in this space, having integrated ESG considerations into its investment framework since its inception. The firm’s recent Certification B achievement is further evidence of its adherence to the highest standards of corporate governance, transparency, accountability and social and environmental performance.

During this podcast, Phil explains how Helios intends to further advance and expand the scope of its ESG investments and shares key insight into how ESG is shaping the world of investments.

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Transcript

Speaker name
Serge Krancenblum
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Welcome to the IQ EQ Power Talk, I am Serge Krancenblum, the Executive Chairman of IQ-EQ and your host for today, I'm pleased to welcome our special guest, Phil Davis, Head of ESG at Helios, a leading private equity firm investing primarily in Africa. Phil has over 14 years of industry experience. Having worked on the ESG framework of some of the leading global private equity firms. Helios is one of the first movers having integrated ESG considerations into its investment framework since its inception. Helios’ recent Certification B achievement further recognises that the firm adheres to the highest standards of corporate governance, transparency, accountability, and social and environmental performance. Welcome Phil.

Speaker name
Phil Davis
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Thank you, Serge, and it's a pleasure to be here.

Speaker name
Serge Krancenblum
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Phil, having recently joined Helios as the Head of ESG, do you intend to move forward towards further advancing and expanding the scope of Helios’ ESG investments?

Speaker name
Phil Davis
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So Helios, and as you alluded to Serge, ESG has been in the heart of everything the firm has done since it was founded in 2004. This deep commitment has been further demonstrated by our B-Corp certification at the end of 2019 and the creation of a “Director of ESG” role in 2020. Since joining Helios three months ago, as Director of ESG, I'd been working on a new ESG impact vision and strategy that is rooted in the belief that there is currently a lot of capital looking for good financial return and positive impact, and this market is only growing. And if anything, has been accelerated by the COVID-19 crisis. I think moving forwards, we will also see a broader acceptance that all investments have impact, and then there will be a drive towards ensuring it's intentionally positive. As a result. I hope that impact investing ceases to be viewed as a niche investment strategy and simply becomes an essential part of investing. I believe that this growing acceptance will bring ESG and impact together to build better and more resilient businesses. The advantage of this approach is that it can be applied to the full investment portfolio rather than just the small niche. At Helios, the fund's greatest contribution to regional development comes from investing in and building profitable, resilient, and value generating businesses that create positive outcomes. COVID 19 crisis has shone a light on the need for businesses to be financially, operationally and sustainably resilient, and I think investors are going to increasingly place value on this resilience. There is also growing data and evidence that shows that focusing and improving on ESG and impact performance reduces operational costs, improves the brand equity and customer satisfaction, builds stronger local communities and enhances employee engagement and productivity. Our new ESG and impact strategies focus on driving change on issues that we believe are systematically important and financially material across our portfolio, and are linked to 11 of the UN sustainable development goals. Our impact and strategy is underpinned by focus on six themes that include creating jobs and local economic development, fostering strong community ties, building diverse engaged teams, strengthening climate resilience and access to clean energy, investing in sustainable growth markets, and also establishing the principles of strong governance.

Speaker name
Serge Krancenblum
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Thank you very much. Phil, you have a lot of experience. I understand that you have 14 years of experience, I mean, working always you know, in the sustainability drive for major private equity firms such as Carlyle, and we’d love to pick your brain and have some of the key insights you could bring on how ESG has been helping to shape the world of investments in the last years?

Speaker name
Phil Davis
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In many respects, the evolution of ESG has mirrored my own personal career. It started with corporate social responsibility that didn't have a particularly strong link or tie to what the private equity firm or portfolio company did. And largely focused on community engagement through philanthropy and volunteering. Investors then started to increasingly become aware of the importance of environmental health and safety risk and how it could be a material consideration on new or existing investments. Firms started to build internal expertise, as well as processes and procedures, including undertaking environmental health and safety due diligence. ESG integration then built on environmental health and safety risks to consider a much broader set of risk issues and also value creation opportunities with a tailored approach for each investment and the need for specialist resources at private equity firms. However, at the same time impact investing began to employ capital that was rooted in solving environmental and social challenges and mainstream private equity funds began to launch dedicated impact funds. However, impact companies that align strongly to the UN sustainable development goals currently only make up a very small proportion of the total investment ingress. As I outlined a moment ago, I believe the next phase is the convergence of ESG and impact to build better and more resilient businesses. This view I believe, is supported by the growing momentum, which in light of the financial crisis in 2008, when action on ESG issues, including climate change, were largely not prioritized. There is now much stronger acceptance that ESG needs to be a core path for COVID-19 recovery, and we are seeing strong commitments from the EU and now the US with President-Elect Biden.

Speaker name
Serge Krancenblum
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Very true. Helios has been certified as a B Corporation, how does this differentiate you from other private equity firms?

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Phil Davis
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Helios is the world's largest emerging markets focused private equity firm to achieve B-Corp status. B-Corp certified businesses have to demonstrate the highest standards of verified, social and environmental performance, public transparency and legal accountability to balance profits and purpose. We firmly believe this approach creates more valuable and more sustainable businesses with stronger long-term growth prospects. For us, certifying as a B-Corp is a way to signal this commitment, not only to our investors, but also as a positive example to our portfolio companies. By working and making progress on ESG and impact at Helios, we are demonstrating what can be achieved and since our certification was announced, we have had a number of portfolio companies reaching out to us to ask about their own B-Corp certification process.

Speaker name
Serge Krancenblum
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Do you think that having an ESG framework will be mandatory for all fund managers in the future?

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Phil Davis
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IIf you had asked me five years ago, whether an ESG framework would be mandatory for all fund managers, I have to admit I would have been hugely sceptical. However, people's awareness of these issues has increased dramatically, and the pace of change is only accelerating. I often wonder where we are likely to be in another five to 10 years. But bringing the answer back to the present, there are certainly lots of signals to suggest that an ESG framework will be mandatory for all fund managers in the near future. For example, the EU will be introducing the sustainable disclosure regulations in 2021 that will require all investment fund managers to disclose all investment firms that they manage and the manner in which sustainability risks are integrated into investment decisions. The most onerous of the disclosure requirements is reserved for firms with more than 500 employees. These firms must disclose on their website, their principle adverse impacts, which currently includes 32 ESG related key performance indicators. For firms with fewer than 500 employees, there is a quiet requirement to comply or include a statement on their website explaining why they do not comply. This is potentially a fairly significant concern from a reputational perspective. There is always the possibility that LPs and investors align their own requirements to the sustainable disclosure regulations, especially where they have more than 500 employees, so those outside of the EU could still be indirectly required to comply. It is also clear that the SEC in the US is also looking very closely at ESG and the disclosure of ESG frameworks and metrics. Following the recent election. it seems that their focus is only likely to increase, especially for ESG issues, such as diversity and climate risks.

Speaker name
Serge Krancenblum
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I can only approve what you are saying and also the fact that if there are no regulations which are going to make a number of ESG things compulsory, anyway the limited partners, the investors, will put a lot of pressure on the fund managers to make sure, in the future, that they will be ESG compliant. So, this is definitely the future. I want to thank you deeply for having participated in this thought leadership session. Many thanks for sharing your insights with our partners and I am looking forward to the next thought leadership session in a few weeks. Thank you very much to you all.

Speaker name
Phil Davis
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Thank you so much. I really enjoy participating in the podcast.