5 tips on engaging your portfolio during reporting season

1. Start the dialogue early on 

The engagement activation can look different depending on how far the portfolio company has come in their sustainability journey. By initiating a dialogue on ESG practices at a very early stage, already in the pre-investment and due diligence phase, you can set the base for creating a proper action plan before finalising the investment. Once in your portfolio, focus on preparing your investments on the steps ahead. Start a conversation about regulations that will affect them and what it will mean for them in their day-to-day operations. Make sure it is a two-way dialogue, where you also get insights on the companies’ goals and what support they need. Remember that the conversation should be continuous, and not just initiated once a year when the reporting season approaches. 

2. Set the right ambition level for your portfolio companies

Identify where your investments are on their sustainability reporting journey. This way, you can set the right ambition level for the reporting efforts. Over time, with the right tools and processes in place, you can raise the ambition level. For example, a dynamic digital solution such as Position Green’s Sustainable Investments software can be adapted as the goals expand, and will be a valuable tool for both investors and portfolio companies. 

3. Train your portfolio on the importance of ESG 

Build capacity within the portfolio company based on the current level of ESG knowledge. Try to determine where you need to start to set the stage for successful learning. It is important that everyone involved, both from the investment and portfolio side, understand the regulatory landscape. The amount of regulations and frameworks within the private markets investment sphere, such as the SFDR and the EU Taxonomy, can feel overwhelming. Providing knowledge to create confidence within the portfolio can be a real game changer, since embracing relevant regulations and frameworks can boost data availability, quality and comparability. 

With the right skill sets in place, you can move ownership of the ESG reporting into the portfolio companies to make them more self-sufficient. This allows them to connect the reporting disclosures to their daily operations. 

“By developing a cohesive approach for collecting ESG data from your investments, it will be easier to decide what to report on.”

Tony Christensen – Position Green

4. Embrace a harmonised data collection approach for improved quality

By developing a cohesive approach for collecting ESG data from your investments, it will be easier to decide what to report on. Connect metrics and questions to your portfolio companies by leveraging one of several different ESG frameworks. Establish clear goals and be sure to adopt a transparent approach, where you clearly outline how data is going to be assessed on a year-to-year basis, how you are going to provide your portfolio with valuable insights, and what the information flow will look like during the reporting period.

5. Develop processes to identify and communicate risks and opportunities

Sustainability should not be viewed as an annual reporting exercise. It is essential to support your portfolio companies’ continuously in their transformation journey by providing a clear action plan with practical guidance to mitigate risk and identify opportunities. While the ESG reporting needs to be carried out simultaneously, the action plan and reporting efforts should be viewed as two separate items.

A popular approach for assessing material risks and opportunities, that can be fed into both the action plan and to improve data quality, is using scoring systems. The method creates a consistent baseline and allows for comparison between years. If you are using scoring systems to improve the reported data and starting from scratch, benchmarks can be a good way to get started. Nevertheless, you should always consider what kind of data you are using, since benchmarks can differ depending on what source they come from, the methods and industry metrics you are using. 

Engage the board and managers in conversations about the efforts throughout the transformation journey to ensure that alignment with the action plan and consistent measurement of ESG factors are being prioritised. Invite them to deep dive into results and improvements. Be sure to provide insights and valuable suggestions on how the outcome of the reported ESG data can be used to enhance business performance. 

How can Position Green help?

For many investors, the goal is to leave your portfolio companies, or investment assets, with more tools to continue their sustainability journey once you exit compared to the beginning of the holding period. We offer a purpose-built investment software that supports general and limited partners during the entire investment cycle – from screening new investment opportunities and conducting ESG due diligence for potential investments and monitoring their portfolio while invested. Get in touch, and we will tell you more.