Interview with Olav Osland Vik-Mo at Norvestor – recently awarded “Best Sustainable Equity Investor Nordics”

Congratulations on the award and your achievements! It is inspiring to see how central sustainability has become within Private Equity and the financial markets. What do you see as the key drivers for this development?

Over the past years we have seen a clear development when it comes to attention and commitment to sustainability. Not only from investors and ourselves, but also from the portfolio companies we partner with and their stakeholders. Higher public awareness around climate change is only one, albeit important trigger. Sustainability is also about social and governance factors – a “license to operate” founded on a higher awareness to do the right things and to contribute to a more fair business environment.

How has Norvestor approached this?

Norvestor has invested considerable resources in ESG for many years – working diligently to establish best practices on social factors such as safety, health and well-being of employees, putting in place a comprehensive framework for good corporate governance that also encompass anti-money laundering and zero tolerance for corruption, and we have extensive processes addressing local as well as global environmental challenges and issues.

Why is the focus on ESG and sustainability in the finance sector increasing now?

In recent years we have seen some inspiring success stories of “green” companies with innovative solutions for sustainable economic growth and reductions in carbon footprints. These have been attractive investments, but also very inspiring stories. Being a part of this – promoting new technologies that can improve people’s lives and reduce the carbon footprint – is a very powerful concept, as is the idea of making good money while doing good. It touches people’s hearts and minds.

Yes, agree – the success of some of the companies with sustainability built into their core is inspiring. Is there also another side to to the ESG focus?

There have also been some prominent cases – fortunately not within our portfolio – showing the risks related to poor governance and other ESG-related risks: shortcomings in regulatory compliance, corruption cases and illegitimate treatment of personal data. So today you have a lot more visibility of the global climate challenges and ESG risks in your news feed and in the political debate. It’s not just theoretical or predictions of the future, it’s happening, it’s here and now. This creates demand for investment managers that leverage ESG to source long term profitable investments. The very nature of private equity, with a long investment horizon, a partnership between management and the owner, a focused portfolio, makes ESG factors especially important.

From an investment perspective – how do you include sustainability in your criteria?

Sustainability aspects are fully integrated into our investment process. We look for companies that have a sustainable business model, and our investment process includes using a third-party specialist to conduct ESG due diligence. Such due diligence covers general topics, but also relevant company and sector-specific topics, and we carry out analysis of where the company stands with respect to UN Sustainable Development Goals.

In addition to negative screening, we are looking for companies that can benefit from and/or contribute to the green transition and to other sustainability-related goals more broadly. We also look for companies with management teams that mirror our ambitions within sustainability.

What key sustainability aspects are you looking for?

There are some themes that we find particularly interesting and where we prioritise resources for deal search. This includes circular economy business models, products and services reducing business-to-business clients’ carbon footprint, transition to renewable energy, and clean oceans.

How do you see the link between sustainability and company valuations?

As we see it ESG drives investment returns in several ways. The first is risk. ESG-screening and related processes mitigate climate related risks, reputational risk and risks related to regulatory compliance, bribery, anti-money laundering, fraud and cyber attacks. Companies with best practice risk mitigation command a premium.

Further, most companies Norvestor invests in will benefit from the green transition or other sustainability-related drivers. As investment managers, we are in a unique position to influence a portfolio company’s strategy and positioning the company for sustainability-related growth drivers. A demonstrated track record within ESG and a “future proof” green business model is increasingly important commercially with respect to winning and retaining customers, in attraction of new employees, and in M&A as well.

What are your thoughts on the new EU taxonomy?

This type of regulation is a step in the right direction with respect to sustainable economic development. We welcome the transparency this provides, and we see this as a potential benefit for investment managers with high ambitions for contributing to the climate shift. We also see this as positive for our portfolio companies and their commercial development.

Finally, what would be your advice to owners and management of companies that would like to work with sustainability while creating shareholder value?

When it comes to what we can contribute with and how we best go about to do that, the starting point each of us has is very different.  There are still some general and overarching principles. One is to anchor the sustainability work at the highest level in the company.  The “tone from the top” is vital for creating a sustainability culture, being concrete and honest and willing to invest for the long term. Further, all companies should establish a process for continuous review of progress and set and renew short- and long-term targets. Why not set some ambitious goals for the next 12 months and targets for where the company aims to be in 5 and 10 years?

Thank you very much for an insightful interview – we look forward to following you and your portfolio companies going forward!