Abris Capital Partners is an independent private equity fund manager focused on mid-market buyout and growth opportunities in the major countries of Central Europe. Robert Sroka joined Abris in 2018 and is the firm’s ESG Director responsible for developing and overseeing a comprehensive responsible investment policy, ESG areas and corporate governance. He has 13 years’ experience in sustainability, responsible investment, anti-fraud, business ethics, corporate governance, compliance, non-financial reporting and human rights advisory.
Abris Capital has recently come out with a new ESG strategy. Why did you prepare it and what are the main features of the strategy?
If you don’t know where you are going, you will never get there. It is similar with business goals. The Abris ESG Universe 2023 strategy maps out our destination and shows us the path to reach it. However, it is worth emphasizing that in terms of ESG it is not only important to achieve the goal, but also how this goal is achieved – this is extremely important in our strategy.
The ESG Universe 2023 provides a comprehensive, overarching structure for all our work in this area. It encompasses 17 separate but linked projects across four key categories:
- Governance and culture – Abris has built a clear, well-defined and tested approach to integrating ESG into its investment activities. The first pillar of that strategy is about making Abris a role model organization for our portfolio companies and the wider private equity ecosystem. Our internal governance and culture must allow for consistent delivery of that purpose
- Standards – We will add new tools to strengthen efficiency and sharpen the decision-making process. By creating a database of all ESG procedures, we will build on the knowledge and experience of the team.
- Education – We plan to build an extensive ESG knowledge base for the Abris team and invest more in their education.
- Carbon neutrality – Carbon footprint reduction should be the most important mission for all management teams across the world. We therefore want Abris to be a frontrunner for the private equity industry in this area.
What was the process of the strategy creation? How much resources and time was needed for it?
We built the ESG strategy internally. The basis for the preparation of the strategy were our experiences from the implementation of the previous ESG Universe 2020 strategy, which culminated last year with the launch of the Abris ESG Scoring Application – a proprietary IT tool that tracks more than 500 measures, looking at specific risks within each portfolio company, supporting investment decision making and reporting value created to investors.
We learned a great deal from running this previous program – in many cases, the main lessons were from what we did not manage to do. In addition, we also completed a thorough analysis of our business, legal, social and environmental landscape. We examined market trends, and the expectations of our LPs, our portfolio companies and external stakeholders. Having this information in order, we asked ourselves what kind of private equity fund we want to be in three years’ time. The answer to this question allowed us to set goals and the ways in which we could achieve them.
You mentioned the ESG Scoring Application. Can you share some more information about it?
This is a proprietary IT application that we designed in house according to our very detailed requirements and was built with the help of an external IT specialist.
All of our portfolio companies are uploaded into this system and analysed based on almost 500 questions across a variety of different ESG aspects.
Some of these questions relate to exposure, some cover the performance of the company and some look at how ESG impacts financial value creation. Every year we review the performance of each company, allowing us to track progress, find gaps in performance and create action plans. Since we are a private equity firm, we usually hold companies for about 5 years. With our scoring system and action planning in place they are able to make significant improvements in their sustainability performance over this period.
What are the most important aspects of ESG in a private equity fund management company?
I believe that the first and most important element of a successful ESG strategy is that there is a commitment to it at all levels of the organisation – from the senior managers, to the investment managers and the portfolio companies themselves. It means a conscious decision to pay attention to ESG factors across all aspects of the investment process. It is also important for the investment team to understand how ESG can minimize investment risk and build value in portfolio companies. Finally, it is important to effectively integrate ESG into the fund’s governance.
Can you mention one good example about how ESG was integrated in practice into an investment decision?
One of our portfolio companies is Velvet Care. Velvet is Poland’s leading manufacturer of paper-based personal care products (including tissues, toilet paper and kitchen paper towels) and the owner of the highly regarded Velvet brand in Poland. The company’s products are currently sold in 15 countries.
As a production company, Velvet has a high impact on the environment, through greenhouse gases emissions, water and energy consumption, and waste. Their “ECO Agenda 2025” – the result of our ESG Action Plan – was launched in 2020 as a strategy to achieve more with less. “ECO Agenda 2025” is a unique approach in Poland, in which environmental objectives support the execution of ambitious business goals. Targets defined include reducing water consumption by 40% per ton of tissue manufactured, reducing the amount of plastic used in packaging by at least 20%, and significantly cutting the company’s carbon footprint by a further 25% by 2025.
Abris Capital is focusing on the Central European region. What are the main ESG/sustainability challenges that are specific to the region in your view?
Understanding the region is vital for investors and it helps us make better investment decisions. Abris has been deeply engrained in the region for many years and has a unique understanding of the CEE region. This also applies to ESG issues.
Our ESG activities are based on international standards but are adapted to the specificities of the region. Corporate governance remains the biggest ESG challenge in the CEE region. A sound definition of all the main ESG principles functioning within the company is a cornerstone of our strategy. This encompasses: defining the scope of work of the supervisory board and management board, ethics, compliance, anti-corruption, organizational structure, communication, controls, internal audit, whistleblowing and management systems. Appropriate arrangement of these areas allows for better management of the environmental and social aspects of ESG.
Of course, another significant challenge is climate change. From a business perspective, much will have to change, as this area begins to impact every aspect of every business’s operations, including customer expectations, the ability to obtain financing, business continuity plans in the event of unexpected weather phenomena, supply chains and production technology.
Companies that prepare early for these changes will be a step ahead of the competition.
The Sustainable Finance Disclosure Regulation of the EU has recently come into effect. How do you comply with it?
FSDR is an important change that is not only a bureaucratic invention but a regulatory reflection of what is happening in the investment market. It also takes into account the impact of the financial industry on society and the environment. We, too, have been observing these changes for several years and have included them in our Responsible Investment Policy. Therefore, FSDR did not surprise us with new requirements. Our ESG Scoring Application helps us to comply with FSDR and we use it to analyze ESG across our portfolio companies, to monitor ESG risks and to build a sustainable development strategy.
The last and a bit more personal question: what are the main challenges for a sustainability professional to work in the financial sector?
It is not easy to talk about ESG data – that is, non-financial data – with people who are used to speaking the language of finance. I believe the bridge between these two languages is to
define non-financial data more as “not yet financial” data
as ESG does now have the potential to impact financial performance positively, and its influence will only grow over time.