Verdane: eyes on ESG

A direct secondaries firm must evaluate ESG just like a primary GP, explains Verdane's investor relations director Frida Einarson.

When did Verdane develop its ESG guidelines and how are the guidelines modeled?

We have had formalised guidelines for about five years. The current policy was put in place in 2010. We have discussed and continue to discuss ESG with several other general partners and with our limited partners. We also participate in industry workshops and seminars to keep up-to-date with best practice. We are active owners, so our approach must be quite similar to that of primary GPs. However, we cannot aspire to the same standard in all the companies Verdane funds own (currently over 100, with a team at Verdane of 21 professionals). In the companies where the ownership positions are really small, just a few percent, we can oftentimes not have the same impact as in the companies where the funds are majority owners.

Frida Einarson
Frida Einarson

How does Verdane consider ESG when making direct secondaries investments?

We are increasingly trying to move from thinking about ESG risks to ESG opportunities. That means searching for business opportunities that address the big challenges we face relating to climate change, scarce resources, conflicts and unfair treatment of employees or other individuals. In other words, companies that can do well by doing good. Such opportunities may not necessarily be present in every portfolio or portfolio company, but we think the mindset is important.

Identifying risks is of course still key because of the significant economic impact they can have and we do this most actively in due diligence on new portfolios (where ESG risks and opportunities are discussed in the investment memos) and in the build phase (where ESG sessions are part of annual board discussions).

How does ESG factor into the due diligence process?

ESG is a standard item in all investment due diligence, to capture both risks and opportunities relating to ESG. Certain sectors must be completely avoided. The fund currently investing, Fund VIII, will not make investments in sectors such as arms manufacturing, tobacco and pornography.

Does Verdane rely at all on the ESG guidelines put into place by primary private equity firms, of which it acquires stakes from?

No, because once we have acquired stakes of companies we become the owner and active manager, so that wouldn’t really work. If we acquired stakes from a primary private equity firm with a well-developed approach to ESG, we would certainly engage with them to learn more, however.

Does Verdane expect to change its ESG programme any time soon?

We update the policy at least annually, so yes, beginning of next year at the latest. We don’t expect any radical changes however.