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ESG considerations for investment exit strategies
ESG performanceÌýhas become aÌýsignificant measure of business health, value, and longevity, so communicatingÌýsuccessful ESG management isÌývital.Ìý
It demonstrates the value of portfolio businesses, the success of investments on exit and maintains a positive perception of both portfolio businesses and investment firms.Ìý
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Prioritising ESG
Getting ahead of ESG issues and expectations is important in maximising value, increasing returns, and establishing a firm’s reputation as high-quality and sustainable investors.ÌýAs both strategic advisors and technical consultants, we provideÌýcomplete support for private equity firms on exit, from maximising value at sale to demonstrating returns to investors.Ìý
Sell-side due diligence
Beyond good management, maximising the value of a business means understanding what aÌýpotentialÌýbuyer values and demonstrating that your business reflects their values.ÌýComprehensive sell-side due diligence isÌýthereforeÌývital andÌýshould be conducted with aÌýthoroughÌýunderstanding of theÌýmarket andÌýpotential buyers’ priorities.ÌýWhether the target buyer is a leader inÌýtheirÌýindustry, expanding into it, or another private equity firm, it’s important to speak to their priorities andÌýbe fully prepared to answerÌýtheir questions.ÌýÌý
ESGÌýconsiderationsÌýinfluence every corner of a business, from supply chain and product stewardship policies,Ìýto direct environmental and social business impacts,ÌýlabourÌýpractices, and employee culture.ÌýAs effective ESG managementÌýhas been shownÌýto reduce inefficiency and unnecessary losses, ESG considerationsÌýhave becomeÌýmore significant amongÌýtheseÌýmarketÌýpriorities.ÌýÌý
Value protection
From inefficiency to liability, ESG failures are expensive.ÌýWith possible legal, reputational, and financial costs to ESG mismanagement,Ìýunderstanding the ESG landscape of a potential acquisition is increasingly important in value protection.
Value protection is a priority for buyers and sellers and poor ESG management can impact the value of a business at sale. Identifying weaknesses in ESG management gives private equity firms the chance to identify any failings before they become a problem.
For firms exiting an investment, it is vital to be prepared to respond to any questions or challenges a potential buyer may identify during their due diligence process. With increasing value placed on good management and low ESG risk, this means conducting aÌýcomprehensive sell-side review.
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Value creation
Sell-side due diligence is also an opportunity to demonstrate and build upon ESG successes. It gives firms the chance to emphasize improvements made, highlight opportunities available, and demonstrateÌýwhere effective management structures are in place.ÌýPreparing a comprehensiveÌýreport for prospective buyers gives firms the ability to present a complete picture of an asset and its value.
More than a chance to protect value, sell-side due diligence allows firms to demonstrate the value they have added to an investment. Exit is the opportunity to reap the rewards of effective ESG integration and demonstrate the progress made throughout asset ownership. Goals and KPIs used to measure ESG performance can be compared on exit to their earliest implementation, and to industry benchmarks to quantitively communicate the impact of your ownership on business value. The impacts of any firm-level policies can also be identified and highlighted for investors.
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ESG management reporting
WhileÌýexit may signal the end of an investment, itÌýisÌýnot an end to the private equity lifecycle. The performance here can significantly impact how firms perform when fundraising for subsequent investments – the next stage of the cycle.ÌýMaintaining investor satisfaction is the key to ongoing success throughout the private equity lifecycle.ÌýÌý
With investors expectingÌýincreasedÌýtransparency from firms and prioritising corporate and social responsibility and sustainability, good communication of ESG management is vital to the maintenance of investor confidence and to securing capital for future investment cycles. Firms can use the information gathered during sell-side due diligence to produce ESG management reports for current and potential investors. They can present evidence of their responsible investment practices to reassure current and potential investors.Ìý
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Good ESG at exit
AtÌýexit, good ESGÌýmanagementÌýis about good communication.ÌýProducing a combination of reports from sell-side ESG due diligenceÌýto highlight growth opportunitiesÌýand maximise brand value, to comprehensive ESG disclosureÌýto meet public market investor expectations, ESG management onÌýexit is vital in securing the reputational health of a firm.Ìý
Oriented towardsÌýboth buyers and investors,ÌýintentionallyÌýmanaging ESGÌýatÌýexitÌýcan helpÌýestablish a competitive advantage at sale andÌýdemonstrate theÌýhigh valueÌýof both your business and your firm as an investment.Ìý
Our approach to investment exit strategies
As your strategic partner, our ESG and transaction advisory expertiseÌýcan help you identifyÌýtheÌýESGÌýissuesÌýkey toÌýyour firm andÌýmaximise theÌýimpactÌýof diligence and communicationÌýatÌýexit.ÌýFromÌýsell-side diligence reporting to investorÌýrelations, we help clientsÌýfind the best way to communicate their ESG management decisions and successes.ÌýAcknowledging that each firm and its portfolio is unique, weÌýcan help you create short and long-term value across your portfolio and strengthen your firm’s reputation during exit.Ìý
Effectively communicating ESG accomplishments can help:Ìý
- Highlight growthÌýopportunities
- Increase brandÌývalue
- Establish competitiveÌýadvantage
- Meet investor expectations.ÌýÌý
Get in touch
Contact us to discuss your ESG strategy and framework questions.
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