COVID-19 AND ESG:
The pandemic has emphasized the roles of business leadership, corporate social responsibility, and effective stakeholder management as never before. ESG is central to our investment beliefs at HarbourVest because we believe it is central to doing good business. The events of the past year presented numerous opportunities for great leadership and learning, and we decided to engage directly with GPs on these topics to draw out best practices.
To signal our belief in the role of business leadership, we signed the Investor Statement on Coronavirus Response in June. The statement acknowledges that to protect our society and the companies that we invest in from the worst potential outcome of the pandemic means protecting workers, and urges companies to consider these steps in particular:
- Provide paid leave
- Prioritize health and safety
- Maintain employment
- Maintain supplier/customer relationships
- Financial prudence
We sent the statement to our key manager exposures across all strategies and conducted 31 dedicated calls in July 2020 with GPs to ask about the social impacts of COVID-19 in their portfolio as well as any implications for their ESG programs going forward.
We found these dialogues to have a common thread: Effective ESG crisis management is about addressing short-term issues with a view to the long term. Once the immediate priority of liquidity was dealt with, GPs agreed that the main priorities swiftly became the health and safety of employees, clear communications, and job retention to either maintain business activity or prepare for its resumption. Our case study on portfolio company Rodenstock below provides a good example of this.
Our two main takeaways from these dialogues were that:
- In our view, GPs with established ESG programs were better prepared to respond to the social impacts of the pandemic
- Private equity is a unique form of finance in a crisis, and has been a means of invaluable support to portfolio companies
Looking ahead, the pandemic will have lasting, transformative effects on many business sectors. The GPs that we spoke to in July 2020 were already deep in board-level discussions about the operating future of their businesses, and we expect that the heightened expectations on societal responsibility will be an important factor for businesses in rebuilding for long-term resiliency.
IMPORTANCE OF ESG PROGRAMS
GPs with established ESG programs were better prepared to respond to social impact issues
CRUCIAL ROLE OF PRIVATE EQUITY
Beyond a source of liquidity, private equity can provide hands-on support in a crisis
- Social and governance issues as business-critical: employee safety and well-being, stakeholder management, cybersecurity, financial prudence
- Structures in place for monitoring impacts
- Confidential reporting in place to capture mismanagement of protocols
- Company response and reputation as paramount
- Share expert guidance and best practices across the portfolio via centralized resources, dedicated channels and forums
- Build networks to connect portfolio company executives grappling with the same issues
- Increase frequency of Board meetings, with employee health and safety as top priority
- Build structures for talent mobility and retention within the portfolio
PORTFOLIO COMPANY CASE STUDY: RODENSTOCK
- Germany’s leading manufacturer of ophthalmic lenses and frames.
- HarbourVest acquired exposure through a complex secondary transaction, partnering with Compass Partners on the acquisition of a portfolio of companies from Bridgepoint.
- HarbourVest spoke with the COO and HR Lead at Rodenstock in July 2020, asking them to look back on the past few months of the pandemic which were divided into two phases: from February to mid-March 2020, when the company’s priority was securing supply chain from Asia, and from mid-March 2020, when Europe went into lockdown, order entry dropped by 85-90%, and production was halted.
- HarbourVest, together with Compass, injected capital to help support the business; Compass and the senior management team at Rodenstock then implemented and executed on a very successful recovery strategy.