Why investors want to see social purpose on board agendas

A company’s purpose is important because we don’t buy from companies – or invest in them, if you’re ECI – in isolation. We all have a responsibility to the world in which we live and operate in, and we want to see a positive impact from the way we work, the companies we invest in, and support.  

That motivation is only growing across all stakeholders who are increasingly aligned on the importance and value of ESG.

Investors are one such stakeholder, with 88% now monitoring ESG KPIs to inform investment making decisions. 

Another is employees, with Glassdoor stating that 79% of prospects would consider a company’s mission and purpose before applying, and HP finding that 61% of employees think sustainability is mandatory and 46% say they would only work for companies with sustainable business practices. 

Lastly customers of the future are likely to place much more emphasis on a company’s values and its approach to ESG and sustainability, when making a purchasing decision. EY’s Future Consumer Index showed that 73% of consumers believe brands have a responsibility to make a positive change in the world. The pandemic only accelerated this trend, exposing the fragility of our environment and society and making people reassess their own values, and those of the companies they buy from.  That is demonstrated by research from the World Economic Forum indicating that purpose-driven businesses are now seeing faster rates of recovery from Covid-19.  

Investing and purpose 

ECI are responsible investors, looking to invest in businesses with a proactive approach to managing their ESG impact and delivering positive change, and we look to support them in making further improvements during our investment. 

For nearly a decade now, we have been assessing new investments against a framework that looks at factors such as environmental and social impact, and diversity and inclusion, in the same way we look at things like financial performance. We do this not only because we believe that ESG is a really important area but also because these subjects go to the heart of the growth potential and resilience of an investment.

It’s why, for example, there are certain sectors that we simply don’t invest in and certain ones that we get really excited about. If a market is not sustainable or a business not future proofed, then it won’t deliver long term growth. If a company doesn’t prioritise its employees and company culture, then it won’t be able to retain and hire the best talent, and fundamentally won’t be able to achieve market beating results. The more we can help companies to clarify and progress their purpose and sustainability, the more resilient that business will become and the more potential it will have. 

Because we believe there is a correlation between purpose and success, we take this into account when thinking through investment theses. It’s one of the reasons we have and continue to be such active investors in Tech for Good – companies whose business models have an impact on society or environment. For example Tusker, the UK’s leading car benefit scheme provider, is a member of the EV100 pledge to work towards a completely electric fleet by 2030 and is helping companies go green, with 80% of new orders being for electric cars.  Another example is CPOMS, a SaaS provider which helps schools manage safeguarding, wellbeing and pastoral issues for children, freeing up time staff at schools to focus on teaching, and leading to better outcomes for children. And more recently, Mobysoft which provides predictive software solutions for the social housing sector, helping to reduce income officer workload and ensuring tenants are receiving the support they need, which reduces evictions, ultimately keeping tenants in their homes avoiding negative outcomes such as homelessness. 

It’s also why we look for businesses that put a premium on doing the right thing for their employees and customers. A great example as to how this translates to success is Travel Chapter, who made it a key mission during the pandemic to treat owners and customers fairly. Similarly, teleradiology business 4ways supported its NHS clients during Covid-19 by allowing their radiologists to report Covid-19 activity from home for free by providing computer equipment, helping to support the NHS and the country through the darkest hours of the pandemic. 

Portfolio and purpose 

Once we’ve invested in a company we track and use these ESG metrics to promote initiatives to management teams, encouraging them to make progress, just as we do against financial metrics. ESG bi-annual reporting and annual external reviews help us to underscore where there are opportunities to improve within the companies we partner with, and to share best practice across our portfolio, highlighting key initiatives that can be leveraged across teams.  

For example, MPM recognised that sustainability was key to the success of its premium pet food brands. Customers bought MPM’s products as they wanted premium food which had been responsibly sourced. During our investment period we supported several of MPM’s ESG initiatives which ultimately culminated in the business achieving B-Corp status. Or holiday rental marketplace, Travel Chapter, who have launched partnerships with conservation charities to help preserve and regenerate the UK’s natural environment. 

ECI’s People and Culture Toolkit is a repository of tools and experience that we encourage our management teams to take advantage of to continually improve company culture and staff engagement. This might include ensuring engagement is tracked through employee surveys, establishing Inclusion and Diversity policies, or improving internal communications. We believe the importance of people and culture is often overlooked in private equity, but our experience has taught us that highly engaged teams outperform. We take the same approach within ECI, tracking employee engagement, developing our own I&D policy and seeking feedback on how we can continually improve company culture and collaboration. We also have an ESG Committee who meet monthly to share learnings across the portfolio and promote sustainability, diversity, inclusion and wellbeing.

How does this impact a company’s future? 

Ultimately, unless companies consider, articulate, and demonstrate purpose as part of their overall strategy, it will impact on their growth, both short-term and long-term. For example, a short-term loss to ensure you do the right thing by customers in a crisis, in the long-term is likely to increase retention and referrals, and future-proof your business. Transitioning to a purpose-led model where the business is centered around a common set of values that benefit society and guide business decisions, will make businesses far more resilient and sustainable with values all stakeholders are aligned behind. 

And the role of Boards, and investors such as ECI, will be to ensure that purpose and objectives are kept high on the agenda, monitor how companies are performing against those and help drive and support further change and improvement for the long-term.

About the author

Laura Morrill

"I joined ECI’s Investment Team in 2018, following five years in corporate finance at PwC. In my role I get to work with high-growth, market leading businesses throughout their investment journey from pre-deal all the way through to exit."

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