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Nordic Capital

PRI reporting framework 2020

You are in Direct – Private Equity » Outputs and outcomes

Outputs and outcomes

PE 14. ESG issues affected financial/ESG performance

14.1. Indicate whether your organisation measures how your approach to responsible investment in Private Equity investments has affected financial and/or ESG performance.

Describe the impact on:
Impact
Financial performance of investments
Describe the impact on:
Impact
ESG performance of investments

14.2. Describe how you are able to determine these outcomes.

With the commitment to make a positive contribution to society by helping to build strong companies, we drive sustainable development and awareness within our own organisation as well as in the portfolio companies. At Nordic Capital, we believe sustainability to be a key contributor to business performance and value creation and we have seen great progress in this area among our companies during our ownership. We experience it being complex to isolate certain ESG performance to a specific financial value as there are many factors driving the success of our companies. During our ownership and in our efforts driving the sustainable agenda, certain investments have proven us that a strong ESG development has direct positive impact of the financial value, but also that low or no performance in sustainability have a direct negative impact on the same.   Additionally, we trust potential buyers and new investors in the long run, are willing to pay premium for sustainable companies. Sustainability also plays an increased role when evaluated by other stakeholders also being associated with us.


PE 15. Examples of ESG issues that affected your PE investments

15.1. Provide examples of ESG issues that you identified in your potential and/or existing private equity investments during the reporting year.

Investment Stage
ESG issues

ESG issues

          Labour rights, Health and safety
        
          Trade sanctions, Corruption
        
Sector(s)
          Industrial and Business Services
        
Impact (or potential impact) on the investment

In this particular case, we could at an early stage flag sustainability issues in relation to the company's big exposure to sales markets covered by trade sanctions. The industry also had a history of corruption and issues concerning labour rights and health and safety. An investment and/or association with such company would have impacted us both financially and commercial as well as setting our reputation at risk.

Activities undertaken to influence the investment and its response

We abandoned this investment immediately and it was on a too early stage to influence.

Investment Stage
ESG issues

ESG issues

          Sustainable water usage, Contamination of soil and surrounding water
        
          Labour rights, Health and safety
        
Sector(s)
          Industrial and Business Services
        
Impact (or potential impact) on investment

We identified several sustainability issues when performing due diligence on this particular project, but the contamination issues and sanitation was a significant in this deal. External counsel in terms of environmental specialists were involved (ERM) to determine the extent of the issues as well as the financial impact.

Activities undertaken to influence the investment and its response

Due to the environmental issues related to this company, a discount was applied and in the end this deal was terminated.  

Investment Stage
ESG issues

ESG issues

          Corruption, Trade sanctions, Ethics in business model, Transparency, Cyber Security
        
Sector(s)
          Technology and Payments
        
Impact (or potential impact) on investment

In our due dilligence we identified several sustainability issues mainly relating to Corporate Governance and Compliance. There was a lack of transparency and difficutlies to get a proper overview of the sales and business processes. No clear policies or routines for sales and labour risks,  and they had a large exposure to high risk countries. Considering it being a company operating in the technology sector, lasks in cyber security was a key risk area. 

Activities undertaken to influence the investment and its response

We abandoned this potential investment due to these ESG related risks. A potential investment in this company could have put Nordic Capital at commercial and ESG related risks.  

Investment Stage
ESG issues

ESG issues

          Raw and processed materials, Waste handling/management,Circular products
        
          Health and Safety, Workers rights
        
          Transparency, Supply chain monitoring, Corruption
        
Sector(s)
          Technology and Payments
        
Impact (or potential impact) on investment

Significant issues found in due dilligence related to sustainability was related in different areas of E, S and G. A potential investment in this company would have impacted mainly financially. 

Activities undertaken to influence the investment and its response

We turned down this investment partly due to the identifed ESG issues. 

15.2. Describe how you define and evaluate the materiality of ESG factors.

If an ESG related issue is identified Nordic Capital will, on a case by case basis, commission additional specialist due diligence of the potential risk. In a potential investment, the Investment Team must always evaluate how sustainability issues and challenges can be turned into opportunities. Generally, from a sustainability perspective, if Nordic Capital can with reasonable effort identify an ESG issue and be part of the solution to turn the identified issue into an opportunity, then Nordic Capital does not define the identified ESG issue as material. Material issues are ones which are deal breakers such as where significant legal or reputational risks may arise.


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