Agile & comprehensive ESG management system

Give a brief overview of your innovative approach to ESG incorporation, its coverage within your firm and why you decided to undertake this approach. 

Three principles guide Abris in its approach to ESG incorporation:  

First, to obtain objective and measurable results that allow Abris to minimise ESG risk, and build the value of portfolio companies. Measurable results enable: 

• The Deal Team and the ESG Team to make appropriate decisions. 
• The limited partners to analyse Abris’s ESG practices. 
• And potential investors to assess the value built in the company, thanks to ESG, on the basis of objective indicators. 

Second, to ensure a comprehensive assessment of ESG threats and opportunities. 

Third, to be flexible enough to take into account new ESG trends and challenges, as well as stakeholder expectations, without compromising any elements of objectivity and comparability of measurable data. 

Abris’s approach is innovative because: 

• It has created a measurable methodology for risk assessment in each ESG area. It assesses the ESG risk by defining the probability of an event occurring, and then estimating the impact on the company’s EBITDA.
• It has developed a comprehensive ESG analytical tool consisting of nearly 500 measures, based on recognised international standards and knowledge of local risks. 
• If LPs’ requirements change, the system is flexible enough to incorporate new ESG areas to the analysis. It can also adapt to new approaches in such areas as: climate change, diversity and inclusion, corporate governance or cyber security. 

Abris has created a proprietary ESG Scoring Application that comprises five modules: 

1. Diagnostic module – gives a comprehensive ESG review of the company. 
2. Analytical module – shows whether the ESG projects being implemented impact the portfolio company’s KPIs. 
3. Management module – tracks progress and creates action plans. 
4. Cooperation module – allows for cooperation between the ESG Team, Deal Team and ESG Coordinators in portfolio companies. 
5. Presentation module – allows for transparent data presentation. 

This ESG scoring systems means that: 

• The Investment Committee has measurable, transparent and generic ESG information 
• The Deal Teams can better supervise the investment 
• The ESG Team has full documentation in one place 
• Portfolio companies can analyse their status and supplement documentation. 

How does this approach stand out in the market? Why is it unique? 

Most available tools have a minimum common area for companies from different industries, which is then expanded by industry-specific modules. This approach hinders comparability and is not ideal for private equity funds, which tend to have investments dispersed across multiple industries.  

Abris carries out the same comprehensive analysis of each company, identifying the material ESG aspects for each company, but regardless of the industry in which it operates. Thanks to this approach, the firm’s investment professionals are less likely to overlook any significant ESG risk. At the same time, Abris maintains comparability. 

Abris’s approach stands out because:  

• It covers the entire investment process and the most important ESG areas, with nearly 500 carefully selected measures.  
• This is the first tool of its type that has been developed for Central Europe. 
• It is easy to use, and with several levels of detail adapted to the recipient. 
• It presents clear information that expressly indicates the potential financial losses that may be incurred if the identified ESG risk materialises 
• Abris’s approach requires the involvement of the Deal Team, the ESG Team, and portfolio companies, which increases the efficiency of work in the area of ESG. 

Give a practical example of how you have applied your approach to an investment (security/issuer/sector/asset class/portfolio), including any challenges faced and how you adapted to them. 

At the beginning of 2019, the ESG Team visited each portfolio company and carried out 250 interviews with the people responsible for all elements of ESG. Based on these visits and document analyses, a risk map was devised and the ESG management level was determined in each company. The ESG Team, together with the Deal Team and the management board of the company, prepared ESG action plans for the whole year. The plans were put on the IT platform. At least once per quarter, ESG calls were arranged to discuss the project status and incidents. In total in 2019, approximately 90 calls were held. 

Thanks to the risk analysis, Abris now knows which ESG areas entail the greatest risk for the whole fund. The ESG Team can prepare actions supporting all companies in minimising the specific risk.  

Such risks include, for example, machinery safety compliance. The ESG Team organized a training course on this issue for companies and recommended an audit in each production company, plus the adaptation of machinery to the minimum safety requirements.  

Corruption was another ESG risk, and so the ESG Team put together an anticorruption and whistleblowing programme in each company. In one of the companies, high risk of violation of human rights was identified, which led to an action plan being put in place.  

What were the outcomes of this initiative for the investment and how have you measured its success? What have you learned from this approach that can be applied more broadly? 

ESG is not well understood within companies in Central Europe and is not linked to building company value. 

The Agile and Comprehensive ESG Management System, through the breadth and precision of the analysis, and the required involvement of senior and middle management in portfolio companies, plays an educational role, building awareness about ESG threats and opportunities.  

Thanks to Abris’s risk analysis method, and visualisation of results, it’s possible to identify which ESG risk may have the greatest impact on the company’s EBITDA. Linking ESG with EBITDA allows Abris to estimate the financial impact of ESG both for the Deal Team and for the company managers. In addition, adding historical data has already made it possible to prepare a comparative analysis. The approach is repeated regularly every year, and with each new investment. 

Abris measures its success in the following ways: 

• Mitigation of ESG risks: both the financial impact of the risks and the reduction in the probability of them occurring.  
• Increasing the level of the companies’ management of individual ESG areas, divided into 10 sections and more than 40 specific subsections. 
• Improvement of the adopted KPIs thanks to ESG initiatives. 
• The level of execution of annual ESG plans of companies. 
• The level of execution of ESG exit plans. 

One of the key lessons learned, which Abris has also addressed in its approach, was finding a method which would make it possible to implement such an extensive analysis with limited time commitment from the Deal Team and company managers.  

To solve this, we incorporated the analysis into a user-friendly IT tool, making it possible to speed up the diagnosis, quickly draw conclusions and make decisions based on the data, and easily monitor progress. 

The challenge in ESG projects is to link ESG factors with financial indicators (including CAPEX) in order to manage the investment even better. In the future, we plan to link selected ESG indicators with the line items in the financial statements, making it possible to assess the risks in even more detail and estimate the investment value more accurately.