Despite potential headwinds from recent environmental, social and governance (ESG) marketing or product initiatives that received highly publicized backlash earlier this year, private equity (PE) firms remain under increasing pressure from their limited partners to integrate ESG matters into their operations and investment practices at the fund- and the portfolio company-level. Many funds continue to engage consultants and/or employ dedicated ESG specialists within their management companies to support these efforts and related limited partners (LP) communications and reporting. Q4 2023 and looking ahead into 2024 should see increased adoption of ESG practices and initiatives throughout the PE community.
ESG priorities for healthcare investors should include the following:
- Define and understand the "ESG end goals" for your
portfolio, and be sure those are aligned with your LP base and
other key stakeholders. This focus should include identifying your
key ESG-related LP priorities, such as reducing carbon footprints
within your portfolio, diversity initiatives at board and portfolio
company levels, and employee retention and wellness.
- Assemble the right team and resources to better understand and
analyze where your funds and portfolio presently sit relative to
your end goals and define priority ESG action plans for the coming
year.
- Enhance ESG-related diligence policies and procedures (in
coordination with outside lawyers and advisors), both for new
investments and your existing portfolio.
- Collect and analyze your ESG data, including tracking key
performance indicators and implementing common policies at the
portfolio level.
- Assess your areas of ESG weakness and prepare for the
eventuality of reporting and disclosing your successes (and
failures) and quantifying financial costs and impacts.
- Consider how to positively impact the community and regional
economic development. For those healthcare services companies in
particular that include multi-location and jurisdiction physician
practice management organizations and that have a broad reach
across numerous local communities, these focused efforts could have
a tangible impact if coordinated at the management level and
benefit the many geographies serviced by the larger organization.
You could also consider how your healthcare organization could
benefit under-served geographies and populations.
- Have your management teams share in the implementation and "accountability" for the achievement of your goals, especially starting with your C-suites – i.e., from the top down.
The PE funds that are best positioned to lead the market will have a developed internal ESG expertise or function; actionable and appropriate ESG objectives; a demonstrated ability to acquire, analyze and report their ESG data; and portfolio company top-down buy-in and participation. The funds with these attributes should be able to garner the attention of the LPs with these priorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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