Codifying responsible investment – Jill Williams

1st December, 2020

Investment Director Jill Williams explains how Mercia’s core values have accelerated the Group’s environmental, social and governance (“ESG”) journey and how best practice is vital in moving forward.

Our mantra at Mercia is ‘in the regions, from the regions, to the regions’. We passionately believe in making a positive and sustainable regional impact. This is as much a representation of our core corporate values as it is about driving a wider agenda around the regional funding gap, and the need for fast-growth SMEs to have access to a range of financial support.

Our history and values have therefore formed the foundations on which to build. Codifying these principles around ESG issues into our policies and culture is now a natural extension of our purpose.

Increasingly, ESG is earning its place on the board agenda for companies, small and large. Critically, it is about translating this into real traction in its implementation. Environmental issues have taken centre stage and societal matters such as diversity, social mobility and equality have gathered pace through important aspects such as the Black Lives Matter movement. In addition, corporate and ethical governance affairs have become more nuanced and more pressing.

We continue to progress along our own ESG journey as we define our own internal strategy, whilst also developing our practice around responsible investment decision-making and our active ownership of the businesses we support.

Responsible investment

To paraphrase the Cheshire Cat of Alice in Wonderland, “if you don’t much care where you want to get to, then it doesn’t much matter which way you go”. From every starting point there must be a courageous goal with a course of action plotted to reach it and by which progress can be measured. Using a benchmark that not only acts as a guideline, but is also universally recognised and approved by industry and peers alike, is important. This will differ for each sector, but for Mercia the gold standard is the UN’s Principles for Responsible Investment (“PRI”). Its six principles are “a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice” – essentially, a blueprint to follow that also provides the impact rationale behind each action. We have also been influenced by the UN’s Sustainable Development Goals when defining our guiding principles.

Understanding and achieving the beneficial value of ESG is what we believe makes it sustainable. As much as there is an important underlying purpose, there still needs to be a commercial imperative. Mercia recognises that a genuine belief in, and the practice of, sound ESG principles are associated with improved business performance.

Leading by example

Our responsible investment approach will consider the whole of our investment cycle, from deal origination and assessment, through to sustainable value creation and towards realisation.

Mercia has a central team coordinating ESG across the Group, monitoring and assessing what we see as a wealth of opportunities. We will be clearly defining processes and increasing visibility of ESG within the investment decision-making process as well as embracing the monitoring and review of ESG practices, developing key performance indicators and targets. This process was initiated by my appointment as ESG project leader and follows the training that I have undertaken with the British Private Equity & Venture Capital Association.

ESG translated across our portfolio

An essential role for the ESG team is to embed Mercia’s ESG principles across its investment portfolio. Naturally, any ESG considerations will have to be driven and delivered by the portfolio companies’ management teams and boards, assisted by Mercia. This has to be a process of creating and expanding better businesses rather than a simple tick box exercise. We would like to see ESG on all of our portfolio boards’ agendas because we passionately believe in its potential to add value, attract exceptional employees, customers and all stakeholders alike. With nearly 400 companies across the Mercia portfolio, the sooner we start this process, the greater will be that potential.

 

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