Our Responsible Investment Approach
Investing responsibly
Embedding ESG into our investment process
At Hg, our purpose is to improve the future of millions of investors by building sustainable businesses for tomorrow. We are dedicated to being a responsible investor and taking an active role in how our portfolio companies manage ESG risks and opportunities. ESG topics are embedded into the investment process, from screening to exit:
Deal screening
Avoiding
- Forced labour
- Pornography
- Mining
- Illegal activity
- Arms
- Banned products & activities
- Tobacco & alcohol
- Sanctioned products
- Manufacture of coal
- Cryptocurrency
- Exploitative behaviour
Due diligence
- ESG DD red-flag review
- Cybersecurity DD
- Legal DD
Onboarding
- Cybersecurity assessment
- ESG diagnostics
- Legal review and post-investment remediation
- Climate change risk assessment
- Data privacy review
VCD & Active Onwnership
- Annual ESG and cybersecurity diagnostics
- Cyber programme enhancement
- Kick-start materials, tool kits and proven practices
- Legal teach-in sessions
VDD & exit
- Realisation committee
- Performance reviews
- Exit readiness and preparation
Communication & Engagement
Forums, webinars, HIVE online community, affiliate networks and public reporting
Our Portfolio ESG Diagnostic
At Hg, we believe that financial and ESG performance are interconnected, and we are committed to driving improvements in our portfolio across the most material ESG topics. To this end, in 2017 we developed a bespoke ESG Framework centred around key ESG focus areas for software and service companies. Hg’s Sustainable Business Framework was developed off the back of extensive research, including interviews, benchmarking and external standards and forms the basis of Hg’s ESG diagnostic. The ESG diagnostic is completed with portfolio companies during onboarding and annually thereafter.
Hg reviews the Sustainable Business Framework on an annual basis to reflect key ESG trends, regulations, opportunities and risks. With ESG continuing to be such a prominent topic for businesses and regulators, our 2022 review resulted in an increased number of questions, including questions relating to the SFDR Principal Adverse Impacts (PAIs), ESG DCI, SASB Standard and ILPA’s Diversity in Action initiative. Our 2022 assessment was the most comprehensive assessment so far, covering 188 questions across three areas.
Overview of portfolio performance in 2023
Our ESG diagnostic process
which is based on our Sustainable Business Framework, is a collaborative process starting with an initial introduction session followed by a self-assessment. The ESG diagnostic is led by Hg’s ESG team, who works together with key individuals, such as the Chief Human Resource officers and Chief Compliance officers, as well as dedicated ESG professionals, from the portfolio companies.
Each portfolio company responds to over 200 questions and gets a score from 0-10 to benchmark their performance across the Hg portfolio. An output report, which is shared with the company’s Board, outlines the results alongside some key actions for the next 12 months.
The diagnostic is conducted at least annually, and improvements are made year on year. Hg offers hands-on support to portfolio companies to drive progress on their ESG improvement plans i.e., by sharing templates, toolkits and hosting online webinars as well as in-person forums.
As part of the annual ESG diagnostic concluded in early 2024 (based on data for calendar year 2023), we assessed 41 portfolio companies, 2 of which were new to the Hg portfolio.
We saw the average ESG score increase by 6% which demonstrates our portfolio companies have taken action to improve their ESG performance. Only four portfolio companies’ ESG score decreased from last year, mostly due to our updated diagnostic criteria and scoring methodology with 22 new questions and a stronger focus on data protection, AI and climate change commitments.
The ESG diagnostic defines what ESG means to software and services businesses, providing direction to our portfolio companies whilst also bringing ESG to attention of the Board. The support we provide to our portfolio companies is having a positive impact, driving actions and improving the ESG performance across our businesses. For some key performance metrics and 2023 numbers from across the portfolio please see appendix.
For more information on our portfolio and case studies please read our full report here
