AP6 discussed sustainability with portfolio companies at Triton. Three LPs were invited to discuss ESG with portfolio companies and the owner, Triton, at the Triton ESG Forum 2018.
From left: Amandeep Johal (Triton), Keimpe Keuning (LGT), Anna Follér (AP6), Alex Scott (Pantheon) och Graeme Ardus (Triton).
Photos: Johan Olsson
Triton invited AP6 and two other investors to its annual Environment, Social Responsibility and Governance (ESG) Forum, where they were given an opportunity to clarify and tighten the requirements on portfolio companies’ sustainability efforts. It enabled AP6 to have direct engagement on sustainability with the companies that Triton invests in.
“In its role as owner, Triton wanted its companies to meet some of its investors, so they could see that investors also have questions and requirements pertaining to sustainability. That was the overall aim. As an investor, we do exactly the same thing, but our engagement is with their owners. Here, we could contribute by clarifying our views on reporting, monitoring and transparency. Our perspective was not only the requirements and demands we have now, but also future improvements,” says Anna Follér, Sustainability Manager at AP6.
For the fifth consecutive year, Triton invited its portfolio companies to a two-day seminar, Triton ESG Forum 2018, aimed at sharing knowledge and experience about ESG.
On the first day, AP6 participated on a panel with two other LPs that had been invited: LGT and Pantheon.
When Triton talks about sustainability with its portfolio companies, the message is concise and consistent. Sustainability is extremely important and it must be taken seriously. Several senior executives from Triton were also present, including Thomas Hofvenstam (Investment Advisory Committee), Mats Eklund (CFO and COO) Graeme Ardus (Head of ESG) and Amandeep Johal (Head of Compliance).
All of Triton’s acquisitions are introduced to a comprehensive Compliance and ESG program. The senior executives of each company are responsible for ensuring that the program has been implemented and that their company meets all of its requirements. As a responsible owner, Triton regularly evaluates and monitors its companies’ progress in this area. It’s a well integrated process, mirroring how AP6 has made sustainability an obligatory component of the material forwarded to the Investment Advisory Committee.
Important for portfolio companies to understand how investors view sustainability
Collecting and striving to meet owner requirements is certainly important. But it is also very valuable for companies to meet the investors and learn more about the requirements they have on Triton.
“We noticed that our participation was valuable. Clarification sharpened and the requirements became much more tangible and concrete. It became very clear to the portfolio companies that there is an external party stating requirements and monitoring how owners report. That, in turn, generated interesting questions and led to interesting discussions,” says Anna Follér.
For example, the portfolio companies wanted to learn more about how AP6 evaluates and selects its partners. They also wanted to know the boundaries for what an investor like AP6 can accept, along with its reasoning on setting such boundaries.
Information on AP6’s efforts to compile a carbon footprint definitely improved portfolio companies’ understanding of Triton’s requirements on GHG (greenhouse gas) reporting. AP6 has been measuring the carbon footprint of its portfolio for several years. Realizing this had somewhat of a eureka effect on the portfolio companies. Their understanding of the importance of this issue for their investors increased substantially.
This, in turn, led to greater understanding and clarification of the wider relevance of climate issues, from an investor perspective.
The portfolio company, Kärhs, basis its assessments on the UN sustainability goals
Other issues that were discussed were how the various measures of sustainability are used, e.g. Specific ESG KPIs, and what can be concluded from them.
The UN Sustainable Development Goals (a collection of 17 global goals, adopted in 2015 as the 2030 agenda) were also discussed. This improved understanding of the value in being aligned with these goals, for both companies and investors. Few hands went up, when we asked representatives of the portfolio companies if they had analysed the extent to which they are aligned with the UN SDGs.
“We noticed that our participation contributed to making requirements much more concrete. It became very clear to the portfolio companies that there is an external party stating requirements and monitoring how owners report. That, in turn, generated interesting questions and led to interesting discussions,” says Anna Follér, Sustainability Manager at AP6.
But one company, Kährs, did stand out. It has been in business for more than 160 years and is today one of the oldest and most innovative manufacturers of engineered wood floors in the world.
“They have looked at their alignment with the UN SDGs and many issues were raised during the process. It provided insight and resulted in specific measures,” explains Anna Follér.
The company has a strong focus on sustainability. In the mid 1980s, Kährs developed an entirely solvent-free production process. And, in the 1990s, the company obtained ISO 14001 environmental certification. It started using waste products from forest felling to provide district heating for the community around the factory. The ash that remains is returned to the forest as fertiliser. Sustainability is also a prominent message in the company’s marketing. They highlight the manufacturing process and explain the lifecycle of wood flooring, from raw material to recycling.
Big opportunities to impact unlisted companies
The way in which Triton has invited selected LPs to engage directly with the portfolio companies on the topic of ESG gave AP6 an opportunity for close contact with the actual investments. Communication is direct, questions can be posed spontaneously, and larger topics can be addressed without all the formalities.
“Triton has used us to support its sustainability efforts. That, in itself, is confirmation of the value in AP6’s model for working with both requirement specifications and suggestions for improvement. In every regard, it’s an excellent example of the access that an active LP can achieve in this asset class. It gave us direct contact with the portfolio companies and an opportunity to explain our ESG priorities for both the short and long term. Compare this with investors in listed assets, where their role is more or less confined to AGMs and voting, or writing letters to company executives. That’s important too, of course. But it’s interesting to compare and see how close the engagement with unlisted companies can actually be,” says Anna Follér.