ESG Pays Off: Investors Recognize Environmental, Social and Governance Factors as Great Value Drivers

How does social responsibility go hand in hand with big business? Mazanti Pulse met Erik Balleby Jensen, partner and the CEO of the Danish private equity fund Capidea.

“Investors are always on the lookout for the next big trend. And right now, ESG is one of the biggest industrywide trends. Being a responsible investor is not just the politically correct thing to do – it can actually be profitable as well,” says Erik Balleby Jensen.

“It’s not an either-or situation,” he adds.

Erik Balleby Jensen is a partner and the CEO of Capidea, a Danish private equity fund. Launched back in 2006, Capidea was one of the first private equity funds on the Danish market at a time when few people were talking about sustainability and social responsibility when it came to investments.

But that has certainly changed. Capidea now has a corporate ESG policy that extends to the companies in which it invests. Capidea has also introduced an ESG evaluation of every prospective portfolio company as a standard procedure before making any investment.

“We have advisers to review the company to assess its potential and see if there is anything we need to address. Are there ESG issues that we need to change or discuss with the management? Finally, when signing an agreement with us, the companies declare that everything is up to our ESG standards.”

That is usually not a big problem. A lot of companies already have ambitious ESG strategies and have integrated ESG accounting into their workflow, as customers increasingly demand full transparency, right from the supply stage to the finished product.

Social responsibility that pays off

For years, one of Capidea’s portfolio companies has had a very clear focus on hiring people on the edge of the labor market.

“The company was announced the third best workplace in Europe some years ago. That was before we invested, but we have continued working with their social responsibility strategy developing employees from the edge of the labor market,” says Erik Balleby Jensen.

This strategy has paid off. By successfully integrating people who otherwise struggle to find their feet in a job, this company has some of the most loyal employees.

“And while other companies in the area have difficulty finding labor, that is not the case with our portfolio company. People want to work with them. Those positive stories help create a very strong DNA in a company.”

ESG doesn’t come for free. But is Capidea willing to accept higher costs, for example, for securing the right suppliers?

“Of course,” says Erik Balleby Jensen, “ESG is a major focus. And I do believe it opens up new commercial potential, such as in the whole clean-tech area. Or in businesses focusing on plastic waste. Some of these issues pave the way for new products and workflows that consumers are willing to pay a little extra for. And if you can combine ESG with a healthy business, then you’re off to a good start!”

About Capidea

• A Danish private equity fund established in 2006
• Has total committed capital of approximately DKK 2.3 billion spread across three funds
• Invests in companies within trading, distribution, service and manufacturing
• As of September 2019, Capidea has invested in 21 companies representing a total turnover of approximately DKK 6 billion.

What is ESG?

ESG (Environmental, Social, Governance) criteria are a set of standards for a company’s operations. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

Source: Investopedia.com