For Hg, responsible investing means growing sustainable businesses which are great employers and good corporate citizens, whilst also generating superior risk adjusted returns for the millions of pensioners and savers who are invested with our clients. Our time and money support the sustainable growth of knowledge businesses enabling them to change how their customers work and provide quality employment opportunities for thousands of people worldwide.
Our approach to Responsible Investing
We want the businesses we invest in to be genuinely focussed on doing well for all stakeholders including employees, customers, suppliers, shareholders and the wider society. We firmly believe that responsible business practices help generate superior long-term performance. As such, our RI approach supports the backbone of our investment philosophy – to invest in growth companies and sectors, rather than turnaround or distressed investing.
This is not just a screening process. As part of our RI approach, we take an active interest in how our companies manage environmental, social, and governance (‘ESG’) issues. We encourage, support and stretch the companies we partner with to strive for best practice responsible business standards.
Hg are launch members of the UK network of the Initiative Climat International (iCI), a global organisation sharing skills and experience to build towards a sustainable future through investment management and investment choices. The iCI is officially endorsed by the Principles for Responsible Investment.
Hg has been a signatory of the UN Principles for Responsible Investment (‘UNPRI’) since 2012 and since then we have continued to increase our ambitions and ESG commitments.
How we integrate Responsible Investing into our investment process
Hg has over $30 billion in funds under management, and invests on behalf of more than 100 clients. All our investments are covered by our Responsible Investment policy and ESG is embedded into the entire deal process, from screening to exit. When considering potential new investments, we screen them against our exclusion list, which outlines the sectors, businesses and activities in which we will not invest (see our Responsible Investment policy for the full list).
During due diligence, we assess companies for compliance with relevant laws in relation to environmental, social, governance, health and safety, bribery and corruption issues.
- A ESG red flag report identifies high level concerns arising from our diligence results.
We also consider the inherent ESG risk of the company and carry out an associated ESG review detailing risks and opportunities in relation to our Responsible Business framework.
- We take an active approach to managing ESG during our ownership. This starts with an ESG onboarding and maturity assessment within the first months of acquisition to prioritise ESG topics and agree an action plan.
- As part of our on-going engagement on ESG, we conduct a maturity assessment of our businesses to identify areas for improvement where Hg can support the companies to realise their ambitions within and beyond our Responsible Business framework. The assessments are updated at least annually.
- We send out regular ESG-related communications and have an online Responsible Business community. ESG-related face-to-face events also enable portfolio companies to share best practice, network and get support.
- Upon realisation, we aim to articulate the increased value from improved ESG performance with case studies and performance metrics. These are made available during vendor DD.
"Hg engages in Responsible Investment because it sits right at the core of our Purpose. We are trusted to improve the future of millions of investors by building sustainable businesses for tomorrow. This is our purpose statement, our reason for being – it is how we see our place in society and our contribution to it. We are totally committed to this and it is embedded in everything we do, in every decision, every day and for every individual."
Managing Partner & Chair of Hg’s Investment Committee
Responsibility across our businesses
Our responsible business framework
Our approach to responsible investment is outlined in our Responsible Business framework which is tailored specifically for software and services companies.
The framework highlights key ESG areas for our businesses, along with support provided by Hg. It covers the most material ESG topics for the sectors we invest in and is based on extensive benchmarking of best practices and industry standards, as well as interviews with Hg employees and feedback from our clients. The framework is reviewed annually, to adapt to regulatory changes, emerging ESG issues and to meet the expectations of our clients.
All our portfolio companies are assessed against the framework, which is focused on three areas; Essentials, Employees and Society:
There are certain minimum ESG requirements that Hg expects from all our businesses. These include:
- Governance and Business Integrity, such as code of conduct, appropriate controls, board composition and health & safety and grievance procedures.
- Risk and Compliance, including compliance with laws and regulations, active risk management, as well as standards and policies to combat bribery, corruption, money laundering and other malpractice.
- Data and Cybersecurity, which includes Hg’s minimum standards for cybersecurity along with appropriate information protection practices and GDPR compliance.
One of the most important assets of our businesses are the employees. A diverse workplace with engaged and motivated employees is vital for growth and business success. We look at employees from four aspects:
- Diversity of talent and equal opportunities irrespective of ethnicity, gender, disability and background.
- Engagement and motivation by promoting transparent communications, health and wellbeing, learning opportunities, recognition and good leadership.
- Grow businesses and talent, including organic job growth, healthy staff turnover, talent management and succession planning.
- Purpose and culture, including a value driving vision, mission, norms and behaviours.
We want all our businesses to strive for positive external impact by acting transparently and contributing to society through their business practice, charitable and community support and supplier and customer relations. Our businesses contribute to society in a number of ways:
- Community engagement including the management of community stakeholders, as well as apprenticeships, charitable giving and volunteering.
- Environmental impact, such as energy use, waste management, data centres, company fleet and climate change risks.
- Positive relationships with key external stakeholders including customers and suppliers.
- Transparency of company commitments and progress, including external reporting and sustainability communications.
"Hg’s genuine commitment to Responsible Business makes us proud to be part of the portfolio. There has never been a more important time to be a good corporate citizen and at IRIS we take our responsibilities as a business, as an employer and as a contributor to the UK economy extremely seriously. Looking at ‘now’ through an ESG lens is important, looking into the future even more so and in completing the annual ESG review, we focus on areas we can improve and how we can build a legacy for future generations. By performing well as a responsible business, we are continuing our journey to be a business of choice for customers and an employer of choice for the best, diverse talent available in today’s market."
Chief Executive Officer, IRIS Software Group
Responsibility at Hg
Hg’s Own Operations
Our Responsible Business framework applies just as much to Hg as it does for our businesses.
We strive to be a responsible investor, business and employer in a number of ways:
- We uphold the highest standards of business conduct. All employees are required to abide by Hg’s Guidelines for Business Conduct and Ethics, as well as our Anti-Corruption Policy.
- We are committed to be a world class employer, by creating a diverse and inclusive workplace where everyone is welcomed, motivated and stretched. We strive to develop a diverse pool of high calibre employees and staff and are dedicated to talent management and development to give everyone at Hg the opportunity to perform to the best of their ability.
- We strive to have a positive impact on society by building positive external relationships, act with transparency, minimise our environmental impact and give back to communities. Each year we contribute to our employees’ charities of choice, in 2018 we donated over £1 million to charitable causes.
- We are also delighted to be a Sponsor of Level 20, the not-for-profit organisation established to inspire women to join and succeed in the private equity industry. Our firm supports Level 20’s mission to encourage greater female representation across the private equity industry with the goal of having 20% of senior positions in the industry held by women and with a particular focus on increasing the number of women in investment roles. Hg’s Nic Humphries is a member of Level 20’s Advisory Council, alongside other senior men and women from the Private Equity industry.
"In many years’ experience of leading businesses I can say, without a doubt, that businesses that hold ESG values closest to the heart often prove to be the best-run businesses overall. My colleagues have the same philosophy and that’s why ESG is so embedded in Hg’s own strategy. I am delighted to report significant progress on our ESG strategy during 2019, achieving an AA++ rating from the UNPRI and declaring our carbon-neutral environmental position for the first time. This progress helps us to lead by example and with pride as we continue to support over 30 businesses in Hg’s portfolio with their own ESG scores."
Hg Partner on the Hg Portfolio Team