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How ESG impact investing empowers disruptive business models

30 September 2021

David Sarfas

Managing Director, Private Capital

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David Sarfas

Managing Director, Private Capital

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As environmental and sustainability concerns move into the mainstream, ESG impact investing is increasingly integrated into the investment process

More and more of today’s investors want to understand the impact of climate change on certain investments.

That’s why the shift towards sustainable private equity is accelerating, with the focus moving to sustainable businesses, such as “cleantech” and those that protect global ecosystems, rather than sectors that aggravate climate change. Sustainable and responsible investing is increasingly mainstream.

In some cases – such as the EU Sustainable Finance Disclosure Regulation (SFDR) – environmental, social and governance (ESG) requirements are mandatory. But often ESG impact investing stipulations are embedded in investment policies even without regulation.

During a roundtable with key French private equity players at the recent IPEM event in Paris, experts from Intertrust Group and other organisations examined in detail how ESG impact investing is simultaneously empowering innovative business models and disrupting traditional businesses.

Sustainable impact investing vs traditional ESG investing

If we look at disruption in the environment, we can see two distinct angles. On one hand, we have investments in clean or sustainable assets that will transform production and consumption systems.

Such transformative assets can include Investing in sustainable energy. For instance in companies involved in:

  • Production
  • Distribution via smart grids
  • Energy-saving systems
  • Consumption through new mobility models

Similarly we find that consumers are newly demanding sustainable production and distribution of food and everyday consumer products with life cycles extended through the circular economy.

At the other end of the sustainable and responsible investing spectrum, come investments in traditional companies with a clear strategy to comply with climate targets.

With social and governance factors, the desire is for evolution rather than disruption. We are gradually moving towards implementing value-creation sharing mechanisms and modernising human resources policies through remote working, as well as fostering equality, diversity and social mobility.

The main benefit of an evolutionary process is that the impact of new policies within the social and governance spaces can be monitored more efficiently than the environmental impact, according to Jean-Philippe Richaud, Deputy CEO of asset managers, SWEN Capital.

Measuring sustainable impact investing performance

The big task, however, is to find the right approach to measuring overall ESG performance. We have made huge progress in tracking companies’ CO2 footprint, but measuring the non-financial impact remains much more complex.

The ultimate benefit of sustainable and responsible investing is that all businesses in the supply chain – not just those directly involved – have to revamp how they work, adopting a more collective mindset, according to Cécile Cabanis, Deputy CEO at Tikehau Capital.

“Investors have had a chance to influence this behaviour, in order to force businesses to work differently,” she said. “So, on top of the sectors that have all been disrupted, I think there is also a much more profound way of doing business that is being disrupted.”

The new regulatory framework for sustainable impact investments (such as SFDR), with its obligations on impact measurement and labelling, has helped new players emerge and is helping shape the financial ecosystem. If we consider sustainable and responsible investment targets, we see the rise of the “tech for good” movement, which benefits from consumer sensitivities and investors’ willingness to consider non-financial performance in their allocation policy.

ESG impact investing as a transformative force

However, not everyone sees ESG as a disruptive force. Ludo Bammens, Managing Director of European Corporate Affairs at global investment firm KKR, sees ESG and impact investing as a real transformative force. “It drives private capital allocation to sustainable investments as well as ESG turnarounds for companies that want and need to build long-term resilience,” he said.

We are still in the very early stages of ESG accountancy, but we can measure what we are achieving. Tracking ESG performance and ESG investing in a credible and transparent way can in itself be transformative. The momentum will continue to build.

Intertrust Group: our commitment to the ESG vision

Our five sustainable goals are:

  • Education: the education of employees and future employees is essential to our future
  • Gender equality: we are committed to achieving gender equality in our workforce
  • Economic growth: making sure our work is tied to economic growth
  • Reducing inequality: we have introduced a new framework to ensure consistency in how we pay and recognise our people across different demographic groups
  • Climate action: we are looking at more flexible working practices and digital transformation
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