June 27, 2024
BCI’s private equity program manages a diverse portfolio comprising $30.7 billion in directs, co-investments, and funds. By actively engaging with our portfolio companies to identify material ESG risks and opportunities that drive economic value, we can achieve tangible outcomes that have the potential to result in higher risk-adjusted returns for our clients as our portfolio companies become more resilient, sustainable, and better positioned in their respective markets.
Evan Greenfield, Managing Director, ESG, shares how BCI’s private equity team actively creates value for our clients through ESG performance improvements.
BCI leverages ESG as a source of value creation across our portfolio. How is this accomplished in the private equity program?
EG: Our embedded ESG experts work closely with the private equity investment teams to integrate ESG considerations across the investment timeline, from due diligence to exit. We tailor our approach for each portfolio company and aim to identify and address material risks, unlock new growth opportunities, and improve operational efficiency.
We have developed an engagement-based ESG framework unique to private equity that helps us to create clear links between initiatives and quantify financial outcomes. It is designed to understand company-specific risk factors and opportunities, inform strategy, and create economic value during three main phases:
- Investment Due Diligence: At the outset, BCI evaluates material ESG risks based on the company’s industry and identifies mitigation pathways such as purchase price adjustments or post-investment reduction strategies. Value creation opportunities are also identified at this stage but the primary focus is on understanding ESG risk.
- Post-Investment Close: While always working to identify and mitigate ESG risks, early in the investment period BCI looks to leverage ESG as a core part of company strategy. In some cases, this includes engaging with management to create products and solutions related to sustainability and the energy transition.
- Investment Exit: Over the life of the investment, BCI supports our portfolio companies in demonstrating and sharing the tangible outcomes and value created by their ESG initiatives and tying this to financial outcomes. By leveraging ESG as a differentiation factor and competitive advantage, BCI aims to achieve higher exit valuations for portfolio companies.
Can you share a recent example of BCI’s work with portfolio companies?
EG: We engaged extensively with five portfolio companies, representing $1.6 billion in net asset value, over the past year to establish and quantify ESG-related initiatives. Through this work, we have identified numerous opportunities for value creation, and are working to execute on ESG related initiatives that we believe can unlock hundreds of millions in value for our portfolio.
One example is our engagement with PS Logistics, a leading flatbed truck transportation and logistics provider in the U.S. Collaborating with management, we quantified the financial benefit attributable to their ’driver-first’ culture. Management’s focus on prioritizing drivers has led to distinct financial benefits such as reduced insurance premium costs, avoidance of costs in recruiting and training new drivers, lower energy costs through route optimization, and greater market share from clients who are focused on sustainability in their supply chain.
Does the private equity team’s ESG approach extend to our general partners?
EG: Over the past year, we engaged more than 50 per cent of our fund portfolio general partners, based on assets under management, on ESG and climate-related opportunities to align expectations, exchange expertise, and enhance performance. This included conducting deep-dive educational sessions to showcase leading practices in ESG integration.
We also encourage our general partners to participate in the ESG Data Convergence Initiative (EDCI) – a global initiative that compiles private company ESG data using a standard set of metrics established by investors.
