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Best practices for supercharging your ESG performance

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  • May 24, 2021
Best practices for supercharging your ESG performance

Five best practices for supercharging your ESG performance

In a recent webinar, Jazmyne Simon and Kylie Ford from Goby were joined by Joe Christian from Wintrust Funds Group to discuss strategies for improving ESG performance. They provided the top five best practices for improving your ESG disclosure performance and reviewed strategies for amplifying the benefits of effective ESG reporting practices. Read the transcript of the webinar below or click here to view the recording.

Jazmyne: Hello, and welcome to “Five Best Practices for Supercharging Your ESG Performance.” My name is Jazmyne Simon and I’m a Solution Architect at Goby, the ESG platform. We’re excited to collaborate with Wintrust Funds Group on this webinar. Wintrust Funds Group is a niche banking group focused on the alternative investment management industry. The groups provide commercial banking services to private investment funds, investment management companies and third-party administrators.

Let’s introduce today’s speakers. Joe Christian is a Managing Director with Wintrust Financial, a Chicago-based financial institution with 46 billion dollars in assets. Joe has been in the financial services industry since 2002 and has a range of experience including wealth management services, commercial lending and alternative investment management banking. Joe spent the first 9 years of his career at J.P. Morgan, and in 2011, joined Wintrust to launch a niche commercial banking group focused on the alternative investment management industry. The group currently has 8 dedicated team members and over 400 alternative investment manager clients across the country.

Kylie Ford is one of our Principal Consultants with over a decade of ESG management consulting and program experience. She’s an expert at bridging multiple roles and has worked with organizations of all sizes across every sector where she is focused on employee engagement, strategic business development, and process improvement. And with that, let’s get started.

Joe: Thank you Jazmyne. We appreciate it and thank you Goby team for the partnership on this very important topic and webinar. So we have a lot of our fund manager clients on the webinar with us today ranging from private equity to venture capital, real estate, private debt, and hedge fund managers. For those on the webinar who are not familiar with Wintrust or our group offerings, I’ll give you a brief overview, and let Kylie go through the content.

So Wintrust has been around since 1991, based in Chicago, as Jazmyne mentioned, 46 billion dollars in assets, more than 5,000 employees. Our core commercial community bank and retail banking units are in the Midwest, predominantly Illinois, Wisconsin, and Indiana. However, we have a number of national niche businesses like Wintrust Funds Group. So Wintrust Funds Group, more on that. So we are focused, as Jazmyne mentioned, solely on the alternative space. We have clients ranging from coast to coast, 400 investment manager clients with 1,200 underlying investment structures in those relationships. The way we structure ourselves is working very closely with third-party fund administrators. Of which we have over 40 relationships currently. In most cases, our asset manager clients are fully outsourcing fund administration to those firms including fund accounting and investor services. And we’ve created a very robust set of security controls and fraud prevention tools as the industry has come to expect over the years.

At the fund level itself, our core offerings are deposit services. So these are accounts that handle investor inflows and outflows, traditional operating accounts which are used across Alessa classes, accounts for the investment managers themselves along with commercial banking services for those firms, liquidity services. So if our client is sitting on excess cash, we have options for earning interest on those accounts through different products including traditional money market accounts, but also some higher insurance yielding products like the MaxSafe product which is Wintrust unique that provides 3.75 million dollars in FDIC insurance coverage. There’s also a program through a third-party that provides up to 125 million in FDIC insurance coverage per legal entity.

Our clients also utilize us for international services. So we have a full-service FX desk and a very robust online trading tool for heavy users of FX. And then in some selective cases, we do some lending, mainly letters of credit. And then also, the closed inside capital call facilities as well. Our core differentiators really are just the fact that we are dedicated solely to the alternative space and so we’re not working with other types of middle market clients. We also don’t require clients to use ancillary services out of the gate with us and so we’re very comfortable working with them just doing the audit services and then over time proving ourselves.

And as Jazmyne mentioned, we have 8 on the team. The experience ranges from private fund banking, prime brokerage, custody and clearance, and fund administration so it’s a very talented team. And then also, it’s a high touch client service model. So every single client relationship has a dedicated relationship manager and client service professional with many backups in place as well. And so, with that, I’ll pass it on to Kylie.

Kylie: Thank you Joe for that overview; really interesting stuff there as well. So to talk through what the subject of this webinar is, the five best practices within ESG, and obviously there are numerous best practices, but just drilling it down into five themes. You really want to focus on these items which is for one, identify drivers behind why you’re even engaging with ESG in the first place. Who is it coming from? What kind of stakeholders are involved with your push into ESG? And we’re going to be drilling into all of these much more specifically.

Number two is to benchmark against your industry. It's really difficult to understand where you need to head if you don’t know where those around you are heading as well too. So getting an understanding of what your peers are doing, what best-in-class looks like, all these other elements that go into benchmarking is quite critical.

The third best practice is to have an understanding of what’s already in place. More than often when we get new clients here at Goby, there’s already a lot of amazing ESG actions that are being done within companies. It’s just that people don’t think to call it ESG which makes sense. ESG is very broad and encompasses many different items, many different subject areas. So it’s important that you have an understanding of how you’re operating right now with your portfolio companies, if you’re an investment, how they’re operating so that you’re able to assess what’s there before you can decide where you’re going.

The fourth best practice is to look into the materiality of different ESG topics. Not all businesses are going to be the same. And I say more often than not, ESG is completely context-dependent. There’s no one size fits all perch for everyone and there really shouldn’t be. So assess the materiality, engage stakeholders so that you’re leveraging their perspectives that are really important to be rooting your ESG action.

And then the fifth best practice is, of course, goal setting. This is what gives teeth to your ESG program and makes sure that progress continues to drive forward.

So to just think about this more specifically, “Identify the driver.” There’s kind of this idea of what level is driving the ESG interest. And about 10 years ago when I was getting my start in the industry, it was very often bottom up. There was a really interested employee or an interested department or maybe one initiative going on. And so that was kind of the ESG leader, and they were the ones kind of pushing against the rest of the company to say, “Can we do more of this?” You might have remembered. It could’ve even started with something like someone wanted to introduce an office recycling program, and they were the ones running around doing it. Less the case today, but sometimes it is the situation that it’s one department that has all the focal point on ESG. For instance, investor relations might be getting non-stop ESG questionnaires whereas elsewhere in the company, it just doesn’t seem to be that relevant or coming up as much.

Another way that drivers can happen is that you’re beginning to hear it in all different elements. You have a lot of different stakeholders buying into it. You're hearing it from the top. You're hearing it from the bottom. It’s important to prospective employees and it’s also important to the C-suite so that’s sort of what you’re seeing over on the right in that Venn diagram. But really assessing what it means to every person and where is this motivation coming from is going to tell you where you need to go and also how much information gap you might have to close in the practice of your ESG program.

So, for instance, if you’re seeing, ESG is gaining steam. There are a lot of drivers behind this. And PRI, the Principles of Responsible Investment, has grown extremely significantly in the past decade alone. And in fact, PRI just gave a webinar I think a couple weeks ago where they themselves seemed surprised by the number of new signatories. This is the kind of thing where you can see that there are sometimes drivers coming from people that are going to be a little bit higher up the supply chain. So PRI is a focused reporting initiative for investors. So therefore, you might be hearing more and more about ESG coming from investors that this is going to be used more for screening in that way. So a lot of times, when that’s where the focus is and that’s where the effort is coming from, that’s when ESG efforts are really going to begin to move. But it is critical that you understand is this internal? Is this external? If it’s only external, how do we get that buy-in so that we can level set and make sure that we’re making everyone happy.

The second-best practice to look at, I had mentioned benchmarking. So where do you stand and what are your peers doing? And a lot of times people will kind of think to the conversations they’ve had or if they’re in industry trade groups, how things are mentioned. And a lot of times, it’s looking around the room and just, “Okay. Well, what’s everyone else doing and what’s everyone else saying?” But you’d be surprised how much information is publicly available particularly on people’s websites. Just how are they talking about this? Is anything marketed? It’s important to know if you’re the only one considering something. It’s not to say that you shouldn’t consider it, but if you’re ahead rather than behind in terms of what you’re publicly making available, it's also important because investors are going to be looking at what’s publicly available on your website too. So that’s a really powerful tool to just judge how robust someone’s ESG thinking is or how important it is. Is there a link from the main page or do you have to go through a convoluted tunnel on the website, and five clicks later, you finally find something that’s tangentially related to ESG?

So peers, competitors, they’re always really important to look at, but it’s equally important to look at who’s leading the industry and where the industry is headed. What does best in class look like? What do the really big companies with all the resources behind them have in place? And what do your investors have in place that might indicate where you might need to head in terms of disclosures?

Of course, the conversations being had also matter. You’re probably hearing a lot more about social ESG these days, but sometimes that’s just all completely channeled into diversity and inclusion. Are there broader conversations happening? Are people considering community impact? What about health and safety? Are people mentioning that in the context of ESG? Or are health and safety and cyber security still kind of thought of as its own thing even though they are very intricately tied into E, S, and G practices? So just understanding what the maturity of thought is.

Another thing to pay attention to is specifically what people are talking about when they’re performing or what they’re participating in. What reporting frameworks are being mentioned? We’ve listed out quite a few and it’s important to note that some are voluntary reporting frameworks. PRI even is a set of guiding principles that you voluntarily agree to align with as a signatory, but then there’s a reporting component as well. And then, there are also guidance frameworks. Things like SASB, things like TCFD where you might hear that companies are requiring disclosures along these frameworks, but it’s not reporting and it’s not public in the same type of way. There's also, of course, the third-party aggregates. Whether it’s ISS, Sustainalytics, the ones that give you an ESG grade whether or not you’re participating or not, but it is important to understand what your industry is talking about specifically and what your peers are participating in. If everyone else around you is doing CDP, chances are climate risk and carbon emissions are very material to your industry and that might be something to investigate. Similarly, if you’re in real estate, I’m sure you’ve been hearing about GRESB, and you might want to consider if participation is the right avenue for you.

Once you have a sense of okay, here’s where we are, here’s where we’re situated and we kind of understand why we need to be focused on ESG, you need to know what your baseline is. What have you done already? And yes, some of that baseline, I have an engineering background, so I like numbers and of course some of that’s going to involve things like what are our kilowatt hours of energy usage that we have. That’s certainly an element of it and data is a huge dimension of just wrapping your arms around ESG, but it’s also a baseline of just what’s in place from a policy perspective. Or if we are a private equity firm, what’s in place with our portfolio companies? How far along are they in ESG thought? We actually have worked with a number of clients that thought, “You know what? Our portfolio companies definitely don’t have much in place with ESG. It just hasn’t been a focal point.” But then after engaging, and after talking, and after collecting documentation, that turned out to really not be the case. There is much more of a spectrum, and they were able to leverage best practices from those that had really good policies in place to those that might have been a little bit more lagging.

Baseline also includes collecting data that can be a little bit difficult to come by sometimes. Diversity and inclusion data, for instance, is increasingly being expected to be disclosed upon, and that’s a good thing. You want to make sure that recruitment is equitable. You want to make sure that as people receive promotions that that’s a fair practice too, but sometimes, especially for smaller companies, there’s going to be some resistance. So understanding where you are, getting a baseline, and then also making sure that you’re looking into the avenues you need to look into.

So within the data, once you’re collecting this baseline, I mean it would be great if you could compare it instantly against everyone within your industry if everyone agreed to the same set of disclosures. And that’s largely what people are trying to do with some of these reporting frameworks like GRESB which is inherently a benchmarking platform, but you do have to understand that there are different elements and different ways to look at data. You can look at it through the market lens, you can look at it by how an industry is performing, how an asset class is performing, whatever it might be, but, for instance, let’s say you’re collecting data within portfolio companies that are in different sectors. The data availability is going to be wildly different. The energy intensity, if we can drill down on energy data for a second, that’s going to be wildly different. So it’s not just that ESG is context-dependent for you, ESG data is context-dependent for you and how you interpret it is going to matter a lot.

So it’s just important to keep all of this in mind. Sometimes data is going to be different based on the age of your fund or which fund it was, just when it was raised, and its composition. Certainly, the time period of performance. I think we all know that 2020 might be a bit of an anomaly when it comes to a lot of data so it’s keeping all these things in mind. You never want to be collecting data just to say you’re collecting data. It needs to help you in some way. Make a case even if that case is just, “Hey, our collection methods need to be a little bit more complete.” That’s okay too. There's no right or wrong way to go about beginning data collection.

And continuing on that thought too, it’s really important that you have a timeline in particular for setting these baselines and tracking progress. One of the things we do with our ESG software for private equity is that we have a survey and platform system where we’re able to have portfolio companies complete a questionnaire collected along those dimensions and we understand and evaluate how robust they are in their ESG program and how mature they are in that ESG thought. This is something that’s conducted on an annual basis because data gaps usually close over time. You can work with portfolio companies to be able to provide you more. You can fine tune, you can track trend data.

So it’s really important that you have an understanding of the cadence of the data that you need. It's not going to be helpful to you to be collecting ESG data in most dimensions every single week from every single portfolio company. That’s far too much to actually be able to do much and analyze with the exception of a few industries. Instead, really think through what progress needs to be made in terms of availability and what you’re planning on doing in terms of analysis. Set those clear baselines for when you need to have data completeness and how you want to move forward with maybe distributing any kind of survey mechanism that you’re utilizing.

So thus far, we’ve been talking pretty high-level. Why are you doing ESG? Who else is doing ESG and what does that look like? And what has already been done? So we’re covering the three of the W’s, but maybe the most important element of this is what’s important to me in the first place. Materiality. Not every ESG topic is going to matter as much and is definitely not going to impact the bottom-line as much as others depending on what industry you’re in. So materiality is a way of engaging stakeholders so that you’re talking to the people who will actually be impacted by your ESG action or whose ESG action you will be impacted by, for instance, portfolio companies. So it’s a matter of just making sure you’re understanding the different perspectives on ESG, where difficulties lie, where risks lie and then assessing materiality from there.

So why focus on materiality? There are a lot of reasons. As I have been saying, it’s an exercise in stakeholder engagement. Through these conversations about what’s important, you're going to have more alignment, and you’re going to have more understanding of the data availability. There's also going to be a degree of framework alignment. We joke a lot about the alphabet soup of the frameworks, and you would see in the slide earlier that showed all the different disclosure options that are out there. Which ones are important to you? That’s a really critical question to answer because you don’t want to just be participating in one for the sake of participating in one.

And then, of course, this is going to also feed into the fifth best practice which is target setting. Why set targets in an area that’s not going to impact you that much? You want to make sure that you’re tracking what you need to be tracking and that your strategy is rooted in mitigating ESG risk. Truly, ESG is a risk management tool. It’s just it’s the risk that lives a little bit further at term and a lot of the risks are external to our financial systems right now. That's why we bring it in like this, and materiality is a crucial way to focus on the risks that are most likely to impact you.

So who do you involve and when, when you’re identifying materiality? Well, really the most important thing is that you have your leadership as a part of this strategy as well as any ESG leadership that has been designated within the company. You can have a sense of where the ship needs to be going, but unless the captain is also on board with that plan, it’s not going to happen. Then, from there, you would want to really introduce key stakeholder groups. This could be internal, this could be external, but just getting by and looking across the organization. So when you’re beginning to think of topics to be drafting, that’s when you’re going to broaden your stakeholder engagement. And then, of course, when you have general goals to align with the rest of the organization, that’s when it’s going to become disseminated out. So ESG can be a staged process, but getting the most perspectives at the beginning just so that you’re going to be on the right path that you understand where it needs to happen, that's what you’re after with materiality,

And, of course, materiality is also a way to align what is important versus what is likely to be impactful. This is a sample materiality matrix. You have probably seen other elements of it, but just the idea that you’re surveying how these topics are likely to impact your performance while also what is crucial to stakeholders. What's something that they consider really important even if it might not be impactful? I give usually very trite examples in this case, but let’s say you find out that your team members really, really care about a good, strong work-life balance. Even though that might not rank very high when you have things that you’re considering such as carbon emissions and new-coming regulations, it’s important to have that because then that helps with employee retention and employee morale and productivity and so many other dimensions of it. So that might be something that you consider and that you set stronger social policies to enable that kind of balance.

The fifth and, in my mind, most critical element of ESG programs is goal setting. I’ve been the boots on the ground for a lot of organizations within sustainability. And unless you have teeth, unless you’re measuring progress, unless you’re holding people’s feet to the fire, things can very often fall off the table. So not all goals are going to look the same. And a lot of times, there’s this tendency in ESG to think, “Okay, I need to reduce my energy reduction by X percent over 10 years ago,” or whatever it might be. And those are important goals especially for some sectors, but there are also qualitative goals that you can measure. One element might just be set broad deliverables for your ESG program in a given year and at the end of the year, evaluate whether those deliverables came to be.

Maybe, just very generally speaking, you had the mission to create a responsible investment policy. Did that happen? Did it cover? Was it actionable? Things like that. It's okay to be assessing things on a more qualitative basis as long as what you’re assessing is continual ESG progress. It's also really important to revisit these goals on a regular basis. Annual is great for some goals. You might want to even do quarterly for others especially if it’s a question of are we moving forward in this ESG program or not. So it’s really important that you’re revisiting it and that you have a formalized method to revisit it. For instance, in a committee possibly. Let’s say you’re a private investment firm, you might put a lot on your investment committee to make sure that ESG is being integrated into the process and into due diligence. So as long as you set a cadence and you formalize it in some way, that’s going to be really critical.

There are also going to be internal goals versus external goals. So the goals that you’re driving just for your own internal performance and the goals that you’ll be keeping versus external goals where you’re engaging with other stakeholders. It might be the case that an external goal is actually handed to you from an investor in some way or maybe you’re passing something on to a portfolio company. It's also you need to think about, “Are we communicating these goals internally versus externally?” You’re probably not going to be posting on your website, “We have the goal to write this policy in this year.” But if you come up with a CO2 reduction target, that is the kind of thing that would be externally communicated. So it’s important to keep in mind that there are different goals for different contexts. And as long as you’re revisiting it and you’re measuring the progress, you’ll be in really good shape.

You also want to think about difference in timeline for goals. There are, of course, short, middle and long-term, but you also very loosely want to think about creating goals. Here at Goby, we like to go with a three-year roadmap. We think it’s the best way to form a foundation, and a lot of the goals in the first year can be more qualitative in nature, more conceptual, more getting the foundation in place to then put goals in place that are quantitative in nature that you’re able to do an analysis. For instance, if we’re working with a real estate firm, the first goal we might have is just get two years of historical data for energy and water across the portfolio. And then the second year would be analyze, see where the highest intensity is. Set some goals for energy efficiency reduction measures in buildings that are deemed the most energy intensive. The third year, you might then look at okay, what’s a broader portfolio goal we can set. We want to say that we’re going to reduce by x percent in the next 10 years, what’s a reasonable way to get at that? Goals can build off of each other and everything in ESG is always an iterative process where more and more and more comes as you go along.

So really thinking through, you might have an understanding once you identify your drivers, once you talk to stakeholders. Hey, we need to set this goal. We need to get to a net zero place. We need to have the ability to be reporting on diversity and inclusion data across all our portfolio companies. Whatever it might be, that doesn’t mean you’re going to be able to get it in year one, and that’s okay. Sometimes it’s a matter of backing up, putting it on the timeline what processes do we need to put in place so that we can get to a place where in three years we’re reporting on this goal. And often, that’s going to point to more stakeholder engagement as well too. So this was just very broadly the overview of the five best practices that we have. And with that, I think we’ll be able to have some time for questions as well.

Jazmyne: So we do have a few questions so I will start with the first one. “So you talked about benchmarking within the industry, how is this done and how do I know what my peers are doing?”

Kylie: Yeah, I mean that’s a good question because there is not always going to be these published documents of here is exactly what we’re doing, we’re all using the same metrics to be evaluating performance, right? So a lot of times benchmarking efforts might start out in a more qualitative realm. Now, if you’re in an industry, let’s say you're in real estate, there are some benchmarking frameworks that exist like GRESB. Not everyone’s so lucky in that, but the first thing that you really want to look at is just what is published that’s publicly made available. Pretend you’re an investor and you’re looking at your website as well as your competitor’s website and you’re really concerned about ESG when you’re making this investment. Who makes the best case for themselves and why? Is there something that you don’t think you’re communicating that you know you do, but you just don’t have the information to pulled together in one way?

And it’s okay if that begins qualitatively. What you’re going to find is as your industry moves and becomes a little bit more mature in its ESG so will what you’re able to benchmark. You're going to be able to see that more and more. Let’s say your peers are publishing their carbon footprint, your peers are publishing very detailed statistics on board diversity. That's the kind of thing that you’ll take note of and say, “Oh, wow. That might be something that we need to put out there as well too,” but don’t be afraid to make qualitative comparisons. It's okay to say, “Well, this is what I've been hearing, and this is what I’ve been seeing” because it’s still better than nothing.

Jazmyne: Yeah. That definitely makes sense. So we’ll move to the next question that kind of piggybacks off of that. “What does best-in-class look like? Best practices to find examples for best-in-class?”

Kylie: It’s really difficult. I mean a lot of times the best practices for finding best-in-class is a matter of finding who is biggest in this space. So if you’re in the investment world, you’re going to be looking at the BlackRocks of the world understanding they’re not going to be in your exact same position in any way, but what metrics are important to them, what are they leveraging, what frameworks are being utilized that are gaining a lot of steam. That's very often going to be the way that you start with it. So for that reason, there’s no right or wrong way for what best-in-class is, but there are going to be names that are going to be more influential coming up that you’ll be seeing. And it’s a matter of just making sure that you’re really embedding yourselves in these conversations.

So I like to start with the bigger companies. I also like to start with a lot of consumer-facing companies too. For instance, if anyone knows Fat Tire Beer, they have an amazing ESG program and really detailed information because that’s a draw to customers. They even went through an entire process of what beer could we create in a climate-ravaged environment, and it was a very interesting case study that used science-based targets, that used proper CO2 methodology, but just understanding the realm of what’s possible. A lot of times it’s consumer goods that are really leading that as a driver to increase engagement as well as of course the really big players in the market.

Jazmyne: Yeah. So we have another question. So it says, “In our presentation, you said that ESG is a form of risk management. Can you elaborate on that?”

Kylie: Part of it might be that when I used to get these jobs, I was stuck in the risk management department and that was the end of it, but yeah. ESG, Environmental, Social, Governance, it’s the way that your company, your organization touches the world; both the physical world and the social world as well as the policies and practices that you have to support what you’re doing. So when we say it’s risk management, think of this as health and safety, for instance.

We know now that proper health and safety practices are just good business management. It reduces risk, it reduces impact on employees in negative ways and that your financial outcomes will be better. Right now, in ESG, we don’t have the lens to fully understand the scope of the financial impacts, but what we do know is that there are real risks out there. Look at 2020 with the pandemic for instance. Companies that had already really thought through ESG programming and had things like a business continuity plan in place that had strong policies to be able to have flexibility, there were more situated to pivot into this new situation than other companies.

And a lot of times, the thing is the risks that exist for ESG, they’re going to be longer term. They’re kind of going to be in the peripheral. Maybe you’re investing in a building that’s in a flood plain and logically you know there’s going to be a 50-year event that will come up so often and it might not seem like it’s here and now, but it’s going to become a lot more material especially as we have more and more extreme weather patterns that are coming up. So that’s really what we mean as a risk management lens. It's highlighting something that you’re not seeing right now on your financial metrics just because we don’t have the literacy there yet in place, but it’s arming you for that long-term risk that’s becoming more and more immediate.

Jazmyne: Yeah, that makes sense. So our next question is, “Diversity and inclusion is becoming a hot topic.” Rightfully so. “How do I know which approach is best for my company?”

Kylie: Yeah. I mean this is an area where it’s never going to be a one size fits all because you never want to sacrifice authenticity either. So it can be, I guess, tricky especially for some people to approach. When you look around, you think, “Wow! Our management is not diverse, and we want to improve this so how can we start?” I think that there’s a few different ways to just understand what the right approach is. For one, do benchmark because it’s important to know what the conversations are, but really look at the recruitment stage and make sure that you’re having just equity in your process of who you’re interviewing and who you’re bringing into the room. I think at this point, it’s pretty well known that diversity in thought among the company is a good thing for diversity in outcomes.

So the other element you want to look at is attrition, particularly as things get to a higher level. When you’re getting into your promotions, make sure again that you are considering a diverse candidate pool for those promotions. And if you’re not able to, question why. It's worth conducting really thorough exit interviews. Is there something more you could be doing? A lot of times, a blanket statement on a website saying, “We’re in favor of diversity and inclusion,” is not going to be felt unless it’s practiced in some way. So I think part of it is just having the hard conversations. The other part is making sure you’re doing your due diligence to just increase your processes and get out within other communities. Maybe recruit at different colleges that you hadn’t been recruiting at before; all kinds of elements like that.

Jazmyne: Yeah, those are all interesting points. Yeah, I think that authenticity is definitely like a big thing. The next question that we have, “How can I make sure my ESG actions are not perceived as greenwashing?”

Kylie: Yes. I think this is going to be a big focal point, particularly with the SEC forming its ESG committee saying that we’re really going to be cracking down on greenwashing. And a lot of that is going to be oriented in both materiality and in goal setting. So you can kind of mitigate a lot of greenwashing right way, but understanding what areas of ESG have the most significant impact on you. If you’re trying to make a lot of efforts and just saying, “Oh, we’re doing all these great volunteerism efforts,” but you're ignoring this giant carbon footprint and you’re in manufacturing then clearly that’s not going to be really walking the walk that needs to be at the moment.

I think the main key is to just orient in, “Where are our impacts?” And I think a lot of times actually companies are just scared that we need to do this, we need to show all this progress when really the best thing they can be doing is getting the baseline and collecting data, particularly a private equity. You need to make sure you know what your portfolio companies are doing more so than anyone cares that you’re personally offsetting carbon for your office electricity use, which is also a nice thing to do, but the real meat of what’s going on and the real meat of your impact is, of course, through your portfolio companies and through your Scope 3 emissions.

The other element is going to be goal setting, and really trying to look to bring in quantitative elements. I was saying qualitative goals are quite important, but ultimately you want to be leading to a place where you’re able to set quantitative goals. If you’re in private equity, that might be a matter of setting a goal that says we are not investing in a company that has this criterion or doesn’t meet this criterion within ESG or we will make sure that any company we invest in improves its carbon footprint by x percent through the duration of our ownership. So you’re going to lead to that point, but having really specific metrics aligning your goals to frameworks, especially things like the sustainable development goals, that can be a way to show that there is real teeth behind there, that there’s a thought process behind there.

And then in the case of, of course, risk of being perceived as greenwashing, that’s also comes back to authenticity. Making sure that there is buy-in on these goals and on these actions from all levels of management, that you’re talking about this every day, and that people understand what your goals are so it’s not just blurbs on a website.

Jazmyne: Yeah. Authenticity seems to be a big theme here.

Kylie: Always is.

Jazmyne: But these questions are getting asked just to avoid greenwashing so that’s awesome. So our next question, “In-house versus outsourcing, can you give me a breakdown of the pros and cons?”

Kylie: Yeah. So pros and cons are going to be context-dependent. I frustrate everyone by saying everything about ESG is context-dependent, but the truth is a lot of times you’re not going to have the in-house expertise or enough work to necessitate in-house expertise at the very beginning. This is in the case probably of wondering, “Do we get ourselves an ESG director? Someone to formally lead it internally?” I think ultimately that is a great way to make sure that there is accountability that things are being driven forward, but it’s also okay to start with external expertise just to get you going.

It's also, I think, really crucial to have external eyes even if you have someone in-house who specializes in this just so that you can have the check. Is what we’re doing aligned with industry standards? Someone who is external is probably going to have a lot more insight because this is all they’re doing day in and day out. I'm thinking about us in particular, Jazmyne, but at Goby, we’re almost forced to be benchmarking every day in the industries that we’re involved with.

So if you wanted me to break it down into pros and cons, outsourcing pros are that you have expertise, it’s going to aligned to best-in-class practices, you have an understanding and you also just have someone dedicated to really assessing your processes with the scrutiny that someone internally might not be able to do. The cons, of course, are going to be you can’t count on someone external to be delivering on this. You do need ownership of the program internally. And that doesn’t need to start with an ESG director of some kind or an officer that you appoint. It could just start with a committee that owns this process, and making sure that things are being driven forward, but, ultimately, you do want to make sure that these responsibilities are properly articulated and that you're not adding something on to the plate of someone who doesn’t possibly have the time or the capacity to be measuring up to this.

Jazmyne: Yeah, that makes sense. I think it’s also important to have someone who knows your business. So our next question is, “What are best practices to lead to ESG conversations with LPs?”

Kylie: Usually, it’s the LPs that are soliciting the ESG conversations so I'm not sure how much difficulty there is, but really, I would just recommend reaching out and saying, “Who’s the best contact to talk to about ESG?” And setting up just a candid hour talking through, “Here’s what we’re looking at. Here’s what we want to be considering. What do you need from us? What can we do to help you?” It's going to be a mutually beneficial thing. Whether you are the LP, whether you’re a private investor in private equity talking to your own portfolio companies, it’s mutually beneficial because it’s a risk management exercise for everyone. So if an LP has ESG expectations of you, it’s because they’re mitigating their own risk, right? And therefore, that’s your risk that they’re looking to mitigate because you’re the investment in this case and then that passes on down to the portfolio companies.

So I think the main thing is just have clarity of where they want to be headed, what they’re looking for. Oftentimes, you might get asked information, but people don’t know what to do with that information yet, and that’s okay. But what’s the drive for behind why they’re asking as well too? Understanding not just your driver, but their drivers, and just really being candid in terms of what your capacity is now and how you’d like to build it up. I don’t think you ever lose by having honest conversations saying, “You know what? We want to be better than we are, and we need help.” And LPs are there to provide guidance and support in that case just as you’re there for portfolio companies to be doing the same.

Jazmyne: Right. Yeah, that makes sense, I think. And like M&A and leverage buyouts, due diligence is really big and ESG definitely needs to be a big part of that, so the conversation has to be had so those were good points. So our next question, “How do I schedule calls? Since so many things are company-specific, I want to continue the conversation offline.”

Kylie: Well, with Goby, we always have our contact information online and we’re more than happy to set up a call. A lot of times we’re even just talking through what do you need, how can we best align rather than having any kind of solution in mind. So definitely visit our website as well too and make sure to contact us. Here's our personal contact information as well if you’d like to reach out. Joe certainly is going to be available too if what you were hearing about Wintrust resonates. So feel free to shoot us an email, feel free to visit the Goby company website too or Wintrust. And we always love to have conversations. My favorite part of the job is having conversations with new or prospective clients just to hear what people need and where things are at.

Jazmyne: Yeah, definitely. Our website is fun, so I mean just going for fun is also super helpful. So that seems to be all the questions we have. Does Joe or Kylie have anything else they want to add here at the end?

Joe: No but thank you so much for your time. We appreciate it, everybody.

Kylie: Absolutely. The last little thing I will leave you with is like most other elements, don’t let perfect be the enemy of good with ESG. It is a continual process that we’re all improving on. So these five best practices, they’re good ways to kind of get you started, but don’t be afraid to do something.

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