The ESG integration process is divided into four stages:
1 - Screening
Identify perspectives on ESG from the screening phase. It is the first review and identification of ESG risks & opportunities and where controversial investments may be excluded despite their financial attractiveness.
PAI adopts an exclusion strategy for specific sectors which we consider to be in opposition with our values:
We also perform a background check of the potential acquisitions' top management, and an e-reputation analysis through a web crawler solution.
These considerations have resulted in PAI declining a deal and refusing to take advantage of profitable investment opportunities when they do not correspond with PAI's values.
2 - Due diligence
Our due diligence process involves systematically assessing companies in Phase II on key ESG risks and opportunities. Analysis is carried out using internal resources and, when necessary, external consultants.
Depending on an overall risk assessment in collaboration with the deal team, the ESG Team may:
Conduct a full internal due diligence,
Use external databases or experts,
Fully delegate the due diligence work to external consultants
Key issues and opportunities are identified in collaboration with the investment team prior to an investment. The ESG indicators selected for each target in Phase II and which PAI will perform a comprehensive analysis, depends on their level of materiality.
Using this list of ESG key indicators, the investment and ESG teams identify a set of priority items to be addressed in the due diligence analysis.
The related questions are embedded in the general DD process and the interactions with management. The objective, by integrating ESG, is to provide all teams with a holistic view of the company and to obtain a comprehensive understanding of all the underlying issues.
3 - Investment Committee decision
At the end of the due diligence process, an ESG memo is systematically presented to the Investment Committee prior the final investment decision. This memo includes a comprehensive list of all relevant risks and opportunities linked to the potential acquisition. The outcome of the ESG analysis can influence the final investment decision positively or negatively: for example, ESG-related conditions can be applied from the signing to the closing period of a deal.
4 - Ownership
To kick-start the ownership phase, ESG criteria are integrated in the build-up of the Value Creation Plan.
This includes a systematic post-acquisition ESG review carried out by an external third-party. The resulting audit is used as a basis to develop the Value Creation Plan's main output: the ESG-CSR1 action plan. It is a 3-year CSR 1 roadmap including quantifiable goals that have to be validated by the company's supervisory board. This process is based on a collaborative effort between PAI and the newly acquired company.
Monitored by PAI teams, this action plan is adapted to the specificities of each portfolio company.
During the ownership period, the information used for the ESG analsis includes the following:
- The annual ESG reporting campaign, during which all portfolio companies answer questions classified by indicators, both qualitative and quantitative (environmental policy, carbon footprint, electricity and water consumption, etc.)
- A "CSR Materiality Questionnaire", sent to all portfolio companies, completing the general reporting campaign and enabling PAI to ask portfolio companies specific questions about each key indicator linked to their activity,
- Meetings with CSR managers of all portfolio companies to discuss the evolution of their environmental practices, monitor their ESG development plan and steer the implementation of their upcoming CSR policies. This privileged relationship with CSR managers ensures a continuous improvement of all portfolio companies' ESG performance.
The ESG team maintains close relationships with the investment teams, which allows them to be aware and conscious of the ESG issues at each stage of the investment process.
If an ESG issue arises (detected, among other things, through the information collected during a reporting campaign), the ESG team and PAI's investment teams interact directly with the management of the concerned portfolio company to understand the risks and to set up an action plan.
In addition, PAI is systematically represented by at least one of its employees in governance and decision-making bodies of the portfolio companies. Further support is provided by a regular attendance to strategic and/or audit meetings.