An interview with the head of sustainability and digital transformation at Ardian.
Ardian was one of first players in the French private equity ecosystem to really take environmental, social and governance (ESG) criteria seriously, notably with its signing of the UN’s Principles of Responsible Investment in 2009. Can you sum up what sustainability means to Ardian?
SRI [socially responsible investing] and ESG engagements are of utmost importance to the company, whether that’s internally, in our relationships with staff members, or externally, in our investment dealings. The desire to be responsible and promote sustainability shows we have the greater good of society in mind as financiers when carrying out our investment activities, and are motivated by more than just financial considerations.
What’s your view on greenwashing? Isn’t the world of finance guilty of paying mere lip service to the idea of sustainable development?
Like in many industries, some companies are stronger than others in this regard and unfortunately green marketing does take place. However, awareness of the issues and a real willingness to change is sweeping the industry. If we go back ten years, you realize that a lot of funds had no idea what ESG was, but fast-forward to the present day and that has totally changed.
At Ardian, we have ensured significant oversight over our GPs [general partners] regarding this subject since 2011, and we have begun to assist the companies in our portfolio with implementing ESG measures. Each year we make progress with our GPs and portfolio companies; the measures we take become more concrete and the results more encouraging. There is an increasing awareness of why sustainable development is crucial and of how it intersects with the traditional interests of a company.
What sort of information are you asking GPs to provide in relation to your fund-of-fund activities?
Here, again, practices have evolved in a favorable way. ESG due diligence is now being implemented as a matter of course. In addition, management companies have more and more staff exclusively dedicated to this topic. Others prefer to sub-contract ESG matters to consulting firms, but we feel that internalizing this expertise is key. At Ardian, we look at a fund’s investment aspect – selection of targets, governance, quality of ESG reporting at Comex level, notably – and our own internal organization. We believe that the steps taken by funds reveal a newfound maturity in their approach to ESG issues and a willingness to advance the M&A ecosystem.
How can an institutional shareholder or private equity firm, for example, influence the decisions of an industry or company towards non-financial imperatives? Could they go so far as to refuse to invest in – or even disinvest from – companies that do not respect ESG criteria?
Unlisted companies require a certain time frame. Private equity firms can decide to invest in a company and oversee its ESG transformation over several years, including initiatives which take time to pay off, financially speaking. For example, the benefits of a more sustainable supply chain are not immediate. Their added value can be expressed in terms of quality, security and cost, which take years to appreciate.
Without a doubt, certain deals do not prioritize ESG elements. For example, recently we conducted negotiations with a plastics and recycled plastics packaging company. When the investment team got in touch, we were skeptical, but by focusing minds on the subject of ESG criteria, and after a thorough analysis of the company, we were able to come to an agreement on how the partnership could go forward. In the end, everyone – the management of the company, the investment team and our department – agreed on the importance of delivering a plan of transformation.
On the other hand, there have been times when we have declined to take up an investment opportunity because the prospective partner’s vision did not correspond to our sustainability DNA.
As regards the lifetime of an investment, typically between three and seven years, we work closely with our teams, which stand ready to provide directors with any advice they may need. In addition, it is our policy to hold an annual meeting with directors entirely dedicated to improving their company’s ESG performance.
How exactly is Ardian promoting social inclusion and gender parity?
The question of diversity and social inclusion is a top priority for us. In fact, it is one of the pillars of our sustainability programme. With the help of our human resources department, we work on three main issues: parity, disability and social mobility issues. Improving social mobility has featured strongly in the work of the Ardian Foundation since 2010, but we have decided to boost our engagement in this regard by integrating it into our recruitment process.
Private equity has long lived in a bubble with a set way of doing things. In our future development, we consider diversity as a lever of both financial and non-financial wealth. It will spur our industry on to open up to what’s happening in civil society, which is itself becoming ever more diverse.
Ardian has also joined the Investor Leadership Network, a network of major European and North American investors banded together by the desire to promote diversity. Our objective is to have women make up at least 30% of those in leadership and risk-taking positions in the industry. The goal, beyond attracting more women to private equity, is to benefit from their skills in decision-making positions. We have consciously tried to hire the best female talent during our most recent recruitment drives.
At Ardian, we pay particular attention to ensuring equal treatment when it comes to pay and promotion. Establishing a working environment that’s more attuned to the needs of parents is an essential part of ensuring we can attract and retain more women. We also regularly organize educational workshops on subjects such as false perceptions and negative representations that people may have on the subject of diversity.
Can we have a progress update on the Carbon Initiative 2020, launched by several French funds including Ardian, which aims to make reducing greenhouse gas emissions a factor when putting together investment portfolios?
Lots of significant developments have taken place since the 2020 objective was renewed. Initially it only involved French GPs and concerned carbon emissions, but the scope has been expanded to include other countries and a broader range of climate issues, such as biodiversity and the energy transition. Today, 37 management companies in France endorse these principles, and at the international level, principles for responsible investment (PRIs) are increasingly being endorsed, because they are the only ones to adequately address the climate emergency from the perspective of a non-listed company. There has been a significant level of success to date, and British, Dutch and American GPs have looked at our work with considerable interest.