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Industry ESG performance focus brings opportunities for French private equity

1 November 2021

Regis Leleu

Head of France

Regis Leleu

Head of France

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Investors in France are finding new channels for growth as more industry sectors embrace low-carbon transition and sustainability strategies

As the French economy prepares to meet the UN’s sustainable development goals for 2030, the finance and private equity sectors are increasingly aware of the unique opportunities presented by ESG investing. Financial players in France are investing substantially in sustainable growth projects that adhere to environmental, social and governance (ESG) criteria.

For French private equity and funds, seizing this moment means rethinking 20th-century business models and finding new investment opportunities. For the companies they target, embracing sustainability strategies and ESG means shrinking the costs of resources, increasing earnings before interest, taxes, depreciation and amortisation (EBITDA), and bolstering valuations.

All industry sectors in France are now including ESG strategies in their business plans, according to Henry Saint Bris, president of Ansa, an independent sustainability advisor to companies and private equity funds.

He was talking at the September inauguration of Intertrust Group’s office in Paris. While carbon-intensive sectors such as industrial production and construction were the first to move in this direction, he explained, the trend has now spread to other, less obvious sectors such as fashion, agri-food and packaging.

The so-called “take, make, waste” approach that took off in the post-war period is showing its limits against a major societal shift, he added.

Baby-boomer business leaders are being replaced by younger chief executives who want to address the environmental and human rights concerns of their millennial workforce. At the same time, brands are moving ahead with ESG without waiting for regulators because they are following their customers’ aspirations. “The finance sector, too, has understood that being ‘net zero’ in greenhouse gas emissions by 2050 represents a unique opportunity as the entire economy will have to be transformed,” Saint Bris said.

More French industry sectors embrace sustainability strategies

Saint Bris illustrated his point by taking the example of a company making leather goods for French leading luxury-good brands. “Of course, their first concern is to reduce the impact from chemicals used in leather production,” said Saint Bris. “But for them, the key strategic question now is finding their place in the second-hand market, which will follow the trend now observed for fashion. It is estimated that between now and 2028, the number of clothes in the second-hand market will be double the number of clothes produced by fast fashion companies.”

The number of major French brands stepping up their ESG game keeps growing. For example, car maker Renault is setting up a facility near Paris that aims to cut waste by recycling and retrofitting older vehicles, as well as offering a 3D-printed spare parts service.

Meanwhile Galeries Lafayette, the upmarket department store, is doubling down on responsible shopping with an entire floor at its flagship store in Paris dedicated to second-hand and sustainable fashion.

French government support for industry to improve ESG performance

None of this has happened in a void. The French government has been a leader in rising to the challenge of sustainability, pulling out all the stops to ensure the success of the 2015 United Nations Climate Change Conference (COP 21), which was held in the country’s capital. The resulting Paris Agreement recognised the need to align financial flows with the energy transition.

Further policies in France have persuaded the business community that ESG is an opportunity rather than a constraint, as the country switches to a low-carbon economy. These policies include the law on energy transition, which specifies the means by which UN targets can be met, and article 173-VI, which recognises the positive role of investors.

In fact, article 173-VI obliges financial investors to ask themselves questions and to put pressure on the companies they invest in to provide better-quality ESG data and information regarding their climate-related impact and actions.

These policies have persuaded the financial sector (including funds and private equity in France) to play a key role, with direct financing of companies that are switching to low carbon business models and those that, despite a current high carbon footprint, are making efforts to reduce their impact.

Social and governance aspects of ESG France

However, funds and French private equity investors should not lose sight of the social and governance aspects – the S and the G of ESG – when evaluating their investment targets. Human rights, employment standards, community relations, gender and diversity, data protection and privacy, health-and-safety measures are also key ESG performance metrics when evaluating a possible investment.

At Intertrust Group France, we understand local rules, culture and customs, and how they affect legal and regulatory requirements. Having established our first office in the country in June 2021, we aim to address the need for a comprehensive, full-service provider that can help private equity and funds navigate the complexities of ESG investing in this exciting market.

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