ESG is now a top priority within the asset management industry, and many GPs consider are now prioritising a focus on measuring and improving ESG metrics across their portfolios. For a number of years we at NVM have recognised the importance of environmental, social and governance (ESG) factors, and are committed to enhancing our decision making and investment management, not only to ensure that we and our portfolio companies operate in the right way and positively impact our wider surroundings, but also in driving value for our investors.
NVM operates an ESG policy guided by five key pillars which help to inform our own decision-making processes, and provide an ESG framework for our portfolio companies to ensure they act in a responsible manner:
- Environment – minimising and managing environmental impacts
- People – investing in and developing employees
- Ethics – operating to the highest ethical standards
- Governance – working to the highest standards of corporate governance
- Community – making a positive contribution to the communities in which they operate.
Before making any investment decision we assess our potential investments against these criteria.
In addition, we have started to measure the ESG journey of our portfolio companies by asking each of our portfolio companies to carry out the ‘B-Impact Assessment’ – the online assessment tool provided by the B-Lab. This is the first step for companies wishing to seek B-Corp accreditation, and, whilst we recognise that this won’t be appropriate for every company we invest in, it provides a comprehensive external scorecard against which to benchmark our investments. We are pleased to report that within our portfolio we have one company which has achieved B-Corp status and we are discussing with others where it might be appropriate to go for this.
NVM will endeavour to:
- Integrate ESG matters into our deal process, investment decision and portfolio management;
- Take account of ESG issues as part of the investment process, with the results forming an important part of the overall analysis of investment opportunities;
- Ensure our investment teams understand the reasons, issues and opportunities behind ESG matters;
- Actively engage with our portfolio companies and their management teams to promote and seek better ESG performance; and
- Ensure consistent standards of monitoring and reporting of ESG matters across the portfolio.
5 Key Pillars
Minimising and managing key environmental impacts is fundamental to good environmental stewardship, and is at the core of acting as a responsible investor/business. Compliance with the appropriate regulatory framework is essential, and we expect all our portfolio companies to have the appropriate monitoring systems in place to ensure they meet all current regulatory requirements.
Beyond meeting compliance requirements, we believe there are numerous opportunities to create and deliver commercial opportunities and value through ongoing improvements to environmental management, specifically focusing on resource efficiency and energy management.
The focus and breadth of issues will be shaped by individual companies and would be expected, in most cases, to address the following operational impact areas:
- Energy – manage and minimise energy usage (considering buildings, fleet and travel);
- Waste – follow the waste management hierarchy: 1) prevention 2) reuse 3) recycle then 4) disposal (with disposal to landfill being the least preferred option); and
- Water – manage and minimise water usage.
A healthy culture is critical to a company’s long term value and competitive advantage. We believe that developing a culture supported by values, processes and policies, which focuses on respecting and investing in employees, contributes towards an engaged and motivated workforce. We encourage and provide the support for all our portfolio companies to:
- Ensure the physical and mental health and safety of all employees;
- Provide flexibility to employees in managing their work-life balance;
- Offer opportunities for learning and development;
- Identify and invest in talent; and
- Operate open two-way communication with employees.
This is not an exhaustive list and we expect initiatives in this area to be relevant to the individual business and the markets within which they operate. At the very least we would expect portfolio companies to meet industry practice in people management and benchmark themselves on a regular basis against industry peers. Health and Safety should be a key board agenda item for all portfolio companies.
At all times we expect honest and transparent trading. We require our portfolio companies to:
- Maintain high standards of business integrity at all times;
- Develop a transparent culture, and supporting policies, in relation to raising concerns about misconduct and unethical practices
- Have a clear anti-corruption and anti-bribery policy, supported by appropriate levels of compliance monitoring; and
- Understand the key risks associated with suppliers’ labour practices (i.e. the use of child labour, working conditions, wages and discrimination) and environmental impacts throughout the supply chain.
Good governance is vital and underpins both NVM and the performance of our portfolio companies. This starts with an effective board, and we encourage all boards to be made up of individuals with a balance of skills, backgrounds, experience and knowledge. We insist that companies have regular, structured board meetings with supporting papers, undertake regular strategic planning, and have a clear focus on the revenue opportunities and operational improvements that will drive stakeholder value. We encourage independent board chairs to promote open debate and facilitate meaningful discussions.
In addition to this, we expect our portfolio businesses to ensure that responsibility for ESG related matters is designated to an individual with suitable authority and that ESG matters are considered at board level on a regular basis, forming part of the decision making process at all levels of the business.
We recognise the importance of and the benefits that positive community engagement can bring, and promote and actively identify opportunities to participate in and support the communities within which we and our portfolio companies operate. Typical initiatives include:
- Linking up with charities working in the area;
- Sponsoring specific workplace projects;
- Sponsoring wider community initiatives; and
- Minimising any direct community impacts.
We recognise that portfolio companies work with a varied number of local and national charities, and that the reasons for each engagement are unique to each organisation.
United Nations Principles for Responsible Investment
NVM is a signatory of the United Nations Principles for Responsible Investment (“UNPRI”) and has used the following six principles as a framework to develop its ESG policy across all its investment activities.
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress towards implementing the Principles.
We review our continued adherence to these principles on an annual basis through evaluating activities we have undertaken in each year and identifying ways in which we can enhance our ESG risk management.
NVM reports to the UNPRI on the activities undertaken in each assessment year.