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Impact investing study in the private equity field

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This presentation gathers the results from a collaborative study study commissioned by the Finnish Innovation Fund Sitra and the Finnish Venture Capital Association (FVCA), and carried out by Deloitte Ltd.

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Impact investing study in the private equity field

  1. 1. Impact investing study in the Private Equity Field Impact business Afternoon May 23th, 2017, Helsinki
  2. 2. © 2017 Deloitte & Touche Oy, Group of Companies. 2 Collaborative study A collaborative study by FVCA, Sitra and Deloitte
  3. 3. © 2017 Deloitte & Touche Oy, Group of Companies. 3 “IMPACT INVESTING IS AN INVESTMENT APPROACH THAT INTENTIONALLY SEEKS TO CREATE BOTH FINANCIAL RETURN AND POSITIVE SOCIAL OR ENVIRONMENTAL IMPACT THAT IS ACTIVELY MEASURED.” ENVIRONMENTAL THEMES: Intentionality matters Targets financial returns Targets environmental or social impact Outcomes are actively measured 0301 02 04 • Renewable energy • Resource and energy efficiency • Climate change • Water and air quality • Circular economy • Health and wellbeing • Education • Affordable housing • Financial inclusion • Food security SOCIAL THEMES: Examples of impact themes: A collaborative study by FVCA, Sitra and Deloitte
  4. 4. © 2017 Deloitte & Touche Oy, Group of Companies. 4 1.DEMAND? 3.FUTURE? ”What do institutional investors think about impact investing?” “What is the current state of ESG maturity and the role of impact for the Private equity investors?” ”What can be said about the future of impact investing in the Private equity field?” 3 OBJECTIVES: 2.CURRENT STATE? 4 STEPS: INSTITUTIONAL INVESTORS INTERVIEWS SURVEY FOR PEs PE INTERVIEWS FINAL REPORT 18 7,2605 55 Institutional investor interviews Answers to survey Number of portfolio companies Billion euros invested Private equity interviews Impact investing study: A collaborative study by FVCA, Sitra and Deloitte
  5. 5. © 2017 Deloitte & Touche Oy, Group of Companies. 5 Framework for responsible investing ESG risks ESG opportunities ESG integration Thematic investments Impact investing Return & risk Return, risk & impact Increased measuring, reporting and transparency FOOTPRINT • Emissions • Human rights • Governance HANDPRINT • Cleantech • Sustainable development • Health and wellbeing Impact investing and thematic investments bring a third dimension next to return and risk. The focus is on solving environmental and social problems. A collaborative study by FVCA, Sitra and Deloitte
  6. 6. © 2017 Deloitte & Touche Oy, Group of Companies. 6 Footprint-Handprint matrixESG Low Low HighImpact High IMPACT WITH RESPONSIBILITY (FOOTPRINT + HANDPRINT) IMPACT EXPERT (HANDPRINT) ESG EXPERT (FOOTPRINT) BEGINNER IN THE JOURNEY OF RESPONSIBILITY Based on the current state of ESG maturity and the role of impact, actors can be divided into four categories. Moving to the right upper corner = Footprint + Handprint A collaborative study by FVCA, Sitra and Deloitte
  7. 7. © 2017 Deloitte & Touche Oy, Group of Companies. 7 DEMAND? Institutional investors A collaborative study by FVCA, Sitra and Deloitte
  8. 8. © 2017 Deloitte & Touche Oy, Group of Companies. 8 Institutional investors have systematically built their practices around ESG Reporting requirements Continuous dialogue between LP & GP (+advisory committees) ? 2 3 4 Side letters & ESG principles 1 Institutional investors expect Private equity investors to proactively develop their ESG practices and communicate on their efforts. Development of ESG practices between Institutional investors and Private equity investors: A collaborative study by FVCA, Sitra and Deloitte
  9. 9. © 2017 Deloitte & Touche Oy, Group of Companies. 9 “The portfolios of Private Equity investors ALREADY INCLUDE LOTS OF IMPACT” Cleantech, circular economy, health and wellbeing… A collaborative study by FVCA, Sitra and Deloitte
  10. 10. © 2017 Deloitte & Touche Oy, Group of Companies. 10 Impact investing? The impact investing ecosystem is still at the early stage. Institutional investors are familiar with impact investing and they are following closely its development as well as building their own approaches to impact investing. Institutional investor interviews - Key findings: • The broader change in society is driving the growth of impact investing • Financial return and impact can go hand in hand – financial returns can not be sacrificed • Current ESG practices among the Private equity investors form a solid base for the development of impact investing • Impact can be used as a tool to identify future proof business opportunities (Thematic investments, UN Sustainable Development Goals) A collaborative study by FVCA, Sitra and Deloitte
  11. 11. © 2017 Deloitte & Touche Oy, Group of Companies. 11 CURRENT STATE? Private equity investors A collaborative study by FVCA, Sitra and Deloitte
  12. 12. © 2017 Deloitte & Touche Oy, Group of Companies. 12 ESG and impact maturity in the Private equity fieldESG Low Low HighImpact High The transition to right upper corner happens through the development of ESG practices. Responsible investing and ESG practices have been already integrated as a core part of Private equity investors’ business. = PE = PE average = Institutional investor average A collaborative study by FVCA, Sitra and Deloitte
  13. 13. © 2017 Deloitte & Touche Oy, Group of Companies. 13 Responsibility is a core part of Private equity investors’ business 72,2 % Responsible investing can be seen as a basic requirement. 01 02 61,1 % 50,0 % 33,3 % 11,1 % ESG is important from the value creation point of view ESG creates opportunities for us Our ESG focus is mostly on risk management ESG does not bring any value for us How do you see the role of ESG in your business? However, the role of ESG measuring is still at the moderate level 41,2 % We haven’t build practices to measure and monitor ESG. ESG has also role in developing portfolio companies and in exit 03 04 61,1 % We consider ESG related opportunities in developing portfolio companies. 38,9 % We try to build an interesting investment story from the ESG point of view for our investments. The focus of ESG has moved from risk management to opportunities ESG-FOOTPRINT A collaborative study by FVCA, Sitra and Deloitte
  14. 14. © 2017 Deloitte & Touche Oy, Group of Companies. 14 Impact investing as a term is familiar to respondents 17,6 % I don’t know the term impact Investing/I have a weak understanding. 01 02 Thematic investments are seen as interesting opportunities However, impact is not yet visible in the PEs’ strategies 03 04 44,4 % Impact does not have a role in our investment strategy. Investments are approached primarily from return perspective, but impact is also present 72,2 % We seek also impact, but return is the first target. 11,1 % We target only return. vs. 52,9 % Thematic investments, targeting environmental and social impact, provide interesting investment opportunities. IMPACT-HANDPRINT A collaborative study by FVCA, Sitra and Deloitte
  15. 15. © 2017 Deloitte & Touche Oy, Group of Companies. 15 “We can target impact by investing in INNOVATIVE COMPANIES THAT CHANGE THE WORLD” A collaborative study by FVCA, Sitra and Deloitte
  16. 16. © 2017 Deloitte & Touche Oy, Group of Companies. 16 FUTURE? A collaborative study by FVCA, Sitra and Deloitte
  17. 17. © 2017 Deloitte & Touche Oy, Group of Companies. 17 Challenges? 16,7 % 50,0 % 83,3 % 22,2 % 55,6 % Lack of investment opportunities Immaturity of ecosystem Impact measurement Knowledge and skills Understanding the relationship between impact and return What you consider to be the biggest challenges for the growth of impact investing? ”There is enough information available, but concrete procedures are missing or they are still emerging.” A collaborative study by FVCA, Sitra and Deloitte
  18. 18. © 2017 Deloitte & Touche Oy, Group of Companies. 18 Future outlook? 5,60% 38,90% 27,80% 27,80% No Maybe Yes I don't know Are you going to consider impact in the next fund? Only 5,6 percent of respondents say that they are not going to consider impact in the next fund. A collaborative study by FVCA, Sitra and Deloitte
  19. 19. © 2017 Deloitte & Touche Oy, Group of Companies. 19 KEY FINDINGS and RECOMMENDATIONS A collaborative study by FVCA, Sitra and Deloitte
  20. 20. © 2017 Deloitte & Touche Oy, Group of Companies. 20 01 ESG has a central and integrated role in the PE’s business – the focus has moved from risks to opportunities. 02 ESG forms a solid base for the growth of impact investing in the PE field. 03 Impact can be seen as a tool to identify future-proof long term business opportunities. 04 05 06 Institutional investors see that PE firms have lots of impact in their current portfolios – currently this impact is not utilized. There is both demand and potential supply for impact investing in the PE field, but currently they don’t encounter. The most important driver for the growth of impact investing, is seen to be the interest of institutional investors. KEY FINDINGS: A collaborative study by FVCA, Sitra and Deloitte
  21. 21. © 2017 Deloitte & Touche Oy, Group of Companies. 21 RECOMMENDATIONS:01 Current portfolios: Identify the impact in the current portfolios and utilize it more effectively. 02 Proactive communication: Bring impact visible and communicate it to LPs. 03 Future-proof business: Focusing on the handprint can help to understand, which themes will be the most important in the future. 04 05 06 Bring impact to strategy: Include impact in the investment strategy and use it as a part of the investment stories. Common language: Building a common language and dialogue between LPs and GPs is vital for the development of impact investing. Need for pioneers: Ecosystem is still at the early stage and someone needs to be first. A collaborative study by FVCA, Sitra and Deloitte
  22. 22. © 2017 Deloitte & Touche Oy, Group of Companies. 22 Collaborative study Riikka Poukka Leader, Sustainability Services riikka.poukka@deloitte.fi +358 50 5758217 THANK YOU! A collaborative study by FVCA, Sitra and Deloitte
  23. 23. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. In Finland, Deloitte & Touche Oy is the member firm of Deloitte Touche Tohmatsu Limited, and services are provided by Deloitte & Touche Oy and its subsidiaries. In Finland Deloitte is among the nation’s leading professional services firms, providing audit, tax, legal, consulting, and financial advisory services through 450 people in 3 cities. Known as an employer of choice for innovative human resources programs, Deloitte is dedicated to helping its clients and its people excel. For more information, please visit our website at www.deloitte.fi. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2017 Deloitte & Touche Oy, Group of Companies.

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