ABN AMRO now offering positive-impact investing via private equity

Private equity, or capital stock offered by private companies outside the stock market, is popular with many investors thanks to the record-high returns (with a high level of risk) associated with these investments, and the additional diversification this asset class can bring to investment portfolios. Despite being a relatively new development, a rapidly growing number of private equity managers are prioritising sustainability, say Peter Tummers and Hugo Westerink, private equity specialists at ABN AMRO. They claim these managers are giving greater weight to non-financial criteria, like employee satisfaction and carbon emissions, when making investment decisions. “That’s excellent news,” Hugo says. “After all, the more money invested in sustainable companies, the greater the positive impact they can make on people, the planet and society.”

Adding value

Private equity managers invest risk-bearing capital in companies with a view to eventually selling them at a profit after making strategic improvements. Apple, META (Facebook) and Adyen are just three examples of firms that flourished thanks to such investors. But Peter says the key is to choose companies with potential, and private equity managers are starting to see sustainability as a means of adding financial and non-financial value: “The growing body of sustainability legislation and regulations has accelerated the process. If the goal is to sell the company at a profit within a few years’ time, you’ll obviously want to ensure that it meets all the latest standards, including those of a social nature.”

Future prospects

The focus on sustainability also helps shine a light on promising companies with future prospects. Hugo says, “These companies benefit from global investment in sustainability initiatives thanks to government incentives and a greater societal emphasis on sustainable developments. At the consumer level, for instance, people are increasingly choosing sustainable products and services. Obviously, sustainability is now crucial to a company’s competitive position.”

Investors with assets invested in private equity funds also have growing demands and expectations when it comes to sustainability. Hugo says, “Large institutional investors, like pension funds and insurance companies, as well as private investors now expect private equity managers to factor in ESG criteria. For some time now, ABN AMRO has given experienced investors with assets starting from EUR 5 million (or EUR 3 million subject to further conditions) the chance to invest in funds that in turn invest in one or more leading private equity funds. What’s new is that they can now opt for a focus on sustainability.”

Going for impact

More and more private equity managers are not only committed to sustainable investment, but are also going one step further by factoring sustainability criteria into their decision-making and by investing in companies with a measurable positive impact. “We’re very excited about this trend,” says Peter. ABN AMRO now gives experienced, high-net-worth investors the chance to participate in such a private equity impact fund, he explains: “We’ve selected a European fund that invests in twelve to fifteen small and medium-sized companies looking to maximise profitability while also making a measurable positive impact on people, the planet and society.”

Measuring impact

The impact manager selected by ABN AMRO invests in unlisted companies focusing on products and services with a beneficial effect on society. Examples include a creator of educational resources for children with learning difficulties, a biotech company and a consultancy firm that tests soil along railway lines.

An important part of impact investing has to do with measuring how and to what degree companies impact on people and the planet – and that can involve everything from minimising carbon emissions and air and water pollution to conserving natural resources and helping to reduce poverty. Peter says, “It’s about investors gaining the certainty that a positive impact is truly being made. But measuring impact is also a tool for change. Companies can use this information to further improve their services and production processes, thereby broadening their impact. If a creator of educational resources for youngsters with disabilities can show on paper what they’ve achieved with their projects, like helping more children move on to higher education, they’ll attract more business.”

Initiating positive change

“Although it’s only recently that private equity has started to become associated with sustainability, this particular asset class is ideally suited to driving corporate sustainability,” says Peter, “not least because these investors always have long-term objectives, and there’s a single controlling shareholder who sets policy. Private equity investments mean that fresh capital is available to the company to make its product range more sustainable or its production processes more energy-efficient. It’s clear that this asset class is perfectly positioned to initiate measurable positive change. Change that’s good for everyone: investors, people, the planet and society.”

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