Case Study

Coller Capital: An issue coming to the fore in private equity

Coller Capital is a leading international private equity firm with over US$17 billion of assets under management. Issues related to intensive farming are among the many ESG issues that the firm monitors and on which it seeks to exert influence in managing its global portfolio.

An issue coming to the fore in private equity

Coller is a major player in private equity’s secondary market, in which investors buy and sell interests in private-equity funds and asset portfolios. This means that the firm is usually one step away from the ‘coalface’ when it comes to influencing corporate ESG behaviour. Coller Capital (whose CIO is FAIRR founder Jeremy Coller) nonetheless has impressive policies and processes to ensure intensive farming ESG issues are taken into consideration by the private equity managers (General Partners, or GPs) with which the firm invests.

All along the value chain

Adam Black, Head of ESG & Sustainability at Coller Capital explains, “The vast majority of our work is done through our portfolio GPs, since they deal directly with underlying investee companies. Our aim is to ensure that GPs are considering farm animal welfare and other ESG factors wherever these are applicable to an investment.The majority of Coller’s GPs either now have an ESG policy covering animal welfare issues or are in the process of developing one. In some cases we ask GPs to sign side-letters confirming their intention to consider farm animal welfare issues, as part of an investment”.

The firm is also starting to share knowledge and contacts on ESG and sector-specific ESG issues, including factory farming, with its global network of GPs ensuring that relevant managers know about tools such as the Business Benchmark for Farm Animal Welfare (BBFAW), for example.

“Where we can influence quarterly reporting by our GPs, we ask them to report any material ESG incidents, including farm animal welfare-related ones,” adds Black.

Including it in due diligence

In addition to the firm’s investments in private equity funds, Coller Capital invests directly into portfolios of privately-owned companies. The firm works more closely and proactively with the GPs of these companies, and in these cases has more influence in managing intensive farming risks and opportunities.

“For example, farm animal welfare issues are included in the due diligence checklist of ESG, financial, and other risks that our transaction teams complete before any entity is considered for investment,” says Black. “As far as possible, we seek a bottom-up approach. My role is to build on what the transaction team discovers by asking more technical questions and completing my own searches on applicable companies. We seek to establish where there might be gaps and we expect the GP to work on these post-investment, if the transaction proceeds.”

Black also cites an example of an investment that was rejected by the firm, in large part because it included agribusinesses that were seen to be under-managing ESG impacts connected with intensive farming.

A growing issue with real impact

“Farm animal welfare issues are included in the due diligence checklist of ESG, financial, and other risks that our transaction teams complete before any entity is considered for investment”

– Adam Black, Head of ESG & Sustainability at Coller Capital

“Factory farming is not an issue that has always received adequate attention even from the most responsible investors”, argues Black. “But its potential for negative impacts – in terms of human health, environmental emissions, labour standards, and consumer resentment of poor animal welfare – is becoming a major concern to investors”. He continues, “The factory farming industry also has worrying health and safety issues, with workers consistently exposed to high-hazard farming machinery, musculoskeletal hazards and occupational health exposures – and all in the context of an industry that has high injury and fatality rates”.

“Factory farming is not an issue that has always received adequate attention even from the most responsible investors”, argues Black. “But its potential for negative impacts in terms of human health, environmental emissions, labour standards, and consumer resentment of poor animal welfare is becoming a major concern to investors”. He continues, “The factory farming industry also has worrying health and safety issues, with workers consistently exposed to high-hazard farming machinery, musculoskeletal hazards and occupational health exposures and all in the context of an industry that has high injury and fatality rates”.

Looking ahead

Black explains that Coller Capital is on a journey, and that there are several areas in which the firm believes further improvements will be possible in the management of intensive farming issues (and ESG more broadly) across its portfolio.

“I’d like to encourage more GPs to go beyond desk-based monitoring of these issues. I’d like them to ‘kick the tyres’ of their agribusiness companies out in the field, in order to get a real understanding of what the issues and opportunities might be.”

– Adam Black, Head of ESG & Sustainability at Coller Capital

“I’d like to encourage more GPs to go beyond desk-based monitoring of these issues. I’d like them to ‘kick the tyres’ of their agribusiness companies out in the field, in order to get a real understanding of what the issues and opportunities might be. Testing their standards against the BBFAW criteria, for example, could be a really good model” says Black, who also supports more collaborative shareholder engagement in this area.

“More generally”, he continues, “I think FAIRR members should work on distilling four or five ‘golden rules’ that they can apply to the factory farming universe. This approach is very common in high-hazard industries such as oil & gas or extractives, and I think investors could usefully apply learnings from these sectors to factory farms.”

More information:
http://collercapital.com