In conversation with Lan Kang, Managing Director and
Head of Portfolio Management, and Lisa Chaves, Managing Director
and Head of Investor Relations in the Americas, at CBC Group
Q. What role does ESG play in your investment decisions?
Lisa Chaves: At a fund level, we have an ESG committee, and we've increased our resources by hiring an ESG consultant based in London. We've developed a vision for ESG, so now it's a question of how we execute on that vision.
In practice, the ESG committee looks at each investment under consideration—it has compliance members but also investment professionals—and ESG has become part of the decision-making. We have a due diligence questionnaire that we've developed that relates to ESG and if we identify issues or problems with an investment, we won't move forward with it.
Q. What kind of issues are you looking for?
Lan Kang: Our questionnaire is separated into four buckets. First, there are some general questions, such as whether the business has an ESG policy, whether they're tracking key issues, or whether they've faced any kind of litigation.
Then we look at each aspect of ESG. On environment, we look at topics like carbon emissions, water consumption, energy efficiency. On social, we ask about metrics such as jobs created, female representation in the workforce, and health and safety. On governance, we look for things like a corporate code of ethics.
We review that questionnaire quarterly and make additions to the template, because the issues are evolving all the time. We're looking to gather as much information as possible.
Q. What about after you've invested?
Lan Kang: Our ESG work certainly doesn't stop at the point of investment. We have an ESG taskforce, comprised of people from a range of disciplines, and we work closely with individual portfolio companies on their ESG efforts. Our role as investors and, sometimes, as an incubator, is to help build bigger and stronger companies, so we incorporate ESG into that work. At the beginning, it might be quite preliminary, but as the company grows, we have a framework to help them measure key parameters.
Q. Do you find portfolio businesses receptive to this focus on ESG?
Lan Kang: It varies by industry and by individual company. ESG may not be the management team's top priority and they may have other challenges to deal with, so we calibrate our approach. If a company is very young, we don't impose a large number of ESG criteria on them; we integrate an approach to ESG gradually over time so that we're not putting a burden on management. Communication is crucial.
Lisa Chaves: I think we're doing a good job of educating the portfolio businesses. We do annual reviews that focus on ESG, so they get used to the kind of questions that are important and begin to understand why we're asking them. We make the link between ESG and how it drives value.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Morrison & Foerster LLP. All rights reserved