ESG Integration in Action
Integrating ESG Into the Investment Lifecycle
At Warburg Pincus, we seek to incorporate sustainability factors alongside other financial business factors into our investment lifecycle, as a potential avenue for mitigating risk and enhancing value. When considering an investment, sustainability factors are included as we deem appropriate into the criteria we use to diligence a company as further described in our ESG Policy.
Upon investment, we provide access to a range of resources for our portfolio companies to support their efforts of integrating sustainability best practices, as appropriate. We also seek to enhance sustainability practices through our portfolio company board seats. With increasingly more emphasis on strong sustainability profiles in both private and public markets, we are seeing more portfolio companies focused on sustainability efforts upon exit.
Due Diligence
We understand that material sustainability issues differ by geography and industry sector, and we have developed ESG due diligence guidelines (which generally align with the SASB Standards) and supporting training materials intended to prepare investment professionals to identify material sustainability considerations relevant to a potential investment.1
Identification of Material Risks
We believe the widening landscape of sustainability issues requires a perspective on past, current, and potential future areas of operational, regulatory, and reputational risks. We aim to utilize our internal ESG due diligence guides as well as external partners, such as the IFRS Sustainability Alliance (formerly known as SASB Alliance) and others, to inform our understanding of sustainability risks relevant to each industry. Warburg Pincus seeks to support our investment professionals in their understanding and assessment of sustainability-related issues through a variety of activities. For instance, the firm periodically provides teach-ins, training sessions, and updates on our sustainability strategy. We provide a dedicated session during new hire training and discuss market trends at sector group meetings. The firm’s ESG Committee members also serve as sustainability champions in their respective functional groups and facilitate the implementation of best practices.
Due Diligence Support
Certain investment opportunities involve relatively higher levels of sustainability risk due to industry sector, location, reputational concerns, or other factors — including health and safety, human rights, and environmental factors — and increasingly, climate risks. For those opportunities, we believe a deeper level of both local and sector expertise is needed.
Our deal teams, working alongside our Sustainability Strategy team, regularly engage external experts during the due diligence process to analyze material sustainability considerations in order to understand a more complete picture of risks and opportunities.
Inclusion of ESG Section in the Investment Memo
As our program has matured, investment teams are generally expected to include a section in their investment memoranda that, to the extent possible as part of the approval process for each investment, discusses material sustainability issues, risks, and opportunities identified during due diligence.
Investment Opportunities that Benefit from Sustainability Tailwinds
Our deal teams monitor market trends that may offer investment opportunities that benefit from sustainability tailwinds. Please see our Sustainability Report for examples.
Ownership Through Exit
Value Creation
We believe that sustainability considerations are an important aspect of value creation across our portfolio. Value Creation is our portfolio company CEO-led process to engage, align, develop, and prioritize initiatives with our portfolio management teams. Our Sustainability Strategy team, alongside our other Value Creation team resources, often works with portfolio company management teams to identify potential areas for the development of their sustainability-related practices.
For more information on our value creation efforts, please click here.
Education and Engagement
Our Sustainability Strategy team works directly with portfolio company management teams to help educate them on emerging sustainability topics. We continue to develop a toolkit of resources, including advising on a one-on-one basis, those companies wishing to further develop efforts, channeling external resources when needed. We seek to provide support to portfolio companies, as needed, wherever they are on their sustainability journeys.2
We host events and discussions for our portfolio companies on sustainability-specific issues to promote connectivity and sharing of sustainability best practices among leaders of our portfolio companies. During these gatherings, our Sustainability Strategy team and other members of our Value Creation team typically update senior portfolio company executives on the latest trends in responsible business and sustainability. We seek to host in-person and virtual events addressing a wide variety of sustainability-related topics for our portfolio company executives, in collaboration with leading experts. Highlights include sessions on ESG and Climate Insights; Advancing Diversity, Equity, and Inclusion; and Responsible Technology and Cybersecurity.
Investment Monitoring through Data
Warburg Pincus collects data on several topics from our portfolio companies as a way to monitor and engage with them on sustainability issues and practices. As our portfolio scales, we also use technology tools to monitor potential portfolio company reputational risk events. Where relevant, our Sustainability Strategy, Legal, and Communications teams partner with deal teams to support management of sustainability risks.
Board Representation
Deal teams usually hold seats on the boards of our portfolio investments and are available to help address sustainability issues as they arise.
Empowering our Portfolio Companies with our Growing ESG Toolkit
To help our portfolio companies create effective and lasting sustainability programs, we aim to work collaboratively with their leadership to meet them wherever they are in their respective journeys. We strive to promote best practices, providing resources and support that best fit our portfolio companies’ overall strategy, culture, and business operations.
Based on our experience, portfolio company stakeholders – such as customers, supply chain partners, lenders, and regulators – are increasingly focused on sustainability. To support our portfolio, Warburg Pincus has a growing ESG Toolkit to help portfolio companies understand how to design and report on meaningful sustainability strategies that align with their business goals. This year, we partnered with TRC, a Warburg Pincus portfolio company, to offer a GHG Emissions Tool as part of our ESG Toolkit to help companies calculate their Scope 1, Scope 2, and Scope 3 GHG emissions.
An Expanded Toolkit for Portfolio Companies2
DE&I Microsite
In 2021, Warburg Pincus launched an online resource hub for portfolio company talent leaders to access best practices, templates, trainings, and other resources in order to develop and evolve their respective diversity programs.
For more on firm-level DE&I partnerships, see here.
Cyber Tools
We believe cyber risk is one of the most immediate threats that organizations may face today, as it has become much more than a technology issue. Cyber attacks and their implications for data security and privacy, intellectual property, and business continuity can be material ESG risks, particularly for companies using personally identifiable information (PII) and protected health information (PHI). During due diligence, Warburg Pincus seeks to assess cybersecurity and data privacy issues, as it deems appropriate, with consideration toward materiality. During ownership, Warburg Pincus aims to use its resources to help portfolio companies analyze how their technology systems and business processes interplay with their financial and operations systems and help ensure they are appropriately positioned to securely deliver on their Key Performance Indicators and business plans. We also have numerous companies in the portfolio that can provide support on various aspects of cyber as parts of their business.
At Warburg Pincus, we’ve crafted a bespoke cybersecurity framework by synergistically integrating foundational and pivotal controls derived from diverse industry standards such as ISO, CIS, NIST, and other pertinent guidelines, universally applicable across industries, sectors, and organizational scales. The Warburg Pincus framework provides pragmatic recommendations and covers different areas such as governance and management oversight, access control, wire fraud, and supply chain management.
Sustainable Procurement
We recognize the scalable impact that procurement spend can have on environmental and social outcomes. For many years, we have sought to support our portfolio companies on their journey in learning about, developing, and executing on sustainable procurement programs by driving visibility into portfolio company spend, discussing strategic opportunities and strategic initiatives into price and demand management, as well as insights into supplier diversity.
Examples of the resources we developed to support sustainable procurement at both the firm and portfolio level include:
- Energy efficiency audits and implementation aimed to increase cost savings
- Supplier diversity and procurement guides that outline best practices in establishing a substantive and sustainable supplier diversity program aligned with a company’s strategic objectives
- Data enrichment to provide further visibility of portfolio company spend
- Database tools and networks to source diverse suppliers
- Opportunities to learn from other members of the portfolio on supplier diversity best practices and success stories
Case Studies
ESG in Asia Real Estate
1 ESG goals are aspirational and not guarantees or promises that all goals will be met. On this webpage, we are not using such terms “material” or “materiality” as they are used under the securities or other laws of the U.S. or any other jurisdiction, or as they are used in the context of financial statements and financial reporting. For purposes of this website, consistent with our ESG Policy, “material” ESG issues are defined as those issues that Warburg Pincus, in its sole discretion, determines have, or have the potential to have, a direct and substantial impact on a respective company’s ability to create or preserve economic value, as well as environmental and social value for itself and its stakeholders, and/or reputational risk for Warburg Pincus.
2 The development and implementation of ESG tools, policies, and processes to support portfolio companies is not a binding component of the investment process. Readers should refer to fund documentation and marketing materials for information on binding elements of the investment strategy and decision-making process.