Read: Advising on ESG integration by Rui Chang

Rui Chang (29) is an advisor of our Responsible Investment (RI) team and has worked at PGGM Investments for four years. She obtained an LL.M. in Public International Law from Utrecht University, with a specialisation in environmental law and law of the sea. About her team, Rui says: ‘The RI team is the centre of sustainability within PGGM Investments. Our work covers multiple aspects, including ESG integration, stewardship, and impact investing.’

ESG integration in Private Equity

As an advisor specialised in ESG integration, Rui’s main task is to help our private equity team to integrate ESG considerations in the investment process. Each year, PE and RI teams work together to set ESG targets. Based on these targets, Rui provides trainings that cover ESG analysis procedure, key industrial trends, and new sustainability topics. Rui: ‘The aim is to equip the investment managers with tools to deepen their ESG knowledge and strengthen post-investment engagement and monitoring. In some cases, when there are high risk deals, I provide additional inputs to the deal team. In addition to day-to-day ESG practices, I work with the private equity team to implement clients’ sustainability policy and make sure that the team is compliant with the sustainable finance-related regulation.’

Evaluating co-investments on ESG risk

More and more, PGGM Investments is expected to provide ESG information on portfolio company level. This is certainly a challenge since the mandate mainly invests through funds managed by external private equity firms. Rui: ‘This means that our influence is indirect in this particular asset class. The PE team therefore wants to strengthen their ESG skills in analysing companies in co-investment processes, where the deal team has an active role in evaluating companies on top of manager selection.’ To achieve this, RI organised a co-investment training using a case study. Various tools and steps were introduced to help the team to define the ESG risk environment, to identify and to assess relevant mitigants and opportunities. Rui continues: ‘The whole process would lead to a final ESG rating and focus areas for future monitoring and engagement.’

Shift to performance-based ESG analysis

Rui sees a gradual shift in the PE industry: from process analyses to actual performance assessments. Rui: ‘Process refers to how the managers take ESG considerations into account, for which the PE team has developed a scoring system that has been running for several years now. Despite limited data availability in private markets, the industry is now moving towards performance-based ESG analysis, where company level KPIs play an essential role. While EU regulation, such as SFDR, will certainly accelerate this process, we also rely on industry level collaborations to keep PE up to speed to new sustainability requirements.’