Given the growing demand for ESG risk management and the disparity between requirements and implementation of ESG Management Systems, FMO invited Steward Redqueen in 2008 to design an ESG toolkit tailored specifically for private equity (PE) fund managers. Over the years, FMO and Steward Redqueen have gathered feedback on how to improve and develop the toolkit based on users’ experiences and growing knowledge in ESG risk management best practices. Based on this feedback, FMO and Steward Redqueen designed and developed an updated version of the toolkit over the course of 2020, ready to go live on 26 January 2021.
The new FMO ESG toolkit is based on international standards and supports fund managers in complying with international standards and industry best practices. The toolkit has four main improvements over its predecessor:
- A web-based application
The new ESG Toolkit is a web-based application enabling a more professional look-and-feel and an improved, user-friendly interface as shown in the Figure 1. Fund managers have access to a Portfolio Dashboard with an overview of all relevant KPIs. The interface allows fund managers to easily add investments, perform ESG analysis and find relevant reference material. Additionally, information about each investment is shown in its own Investment Dashboard that contains in-depth information about the investment. The toolkit will continue to be freely available to fund managers, further strengthening FMO’s thought leadership and support of PE funds worldwide. All data entered into the toolkit remains confidential to the user in a secure online environment.
- Material E&S issues and risk management tools to further enhance E&S risk management
The ESG toolkit provides funds with the most material ESG risks for each investment in its portfolio. By entering the country and sector details of the investment, the toolkit provides users with an overview of the relevant E&S issues based on the IFC Performance Standards in the Investment Dashboard. To further guide the fund manager in its E&S risk management, risk mitigants per issue are also suggested. Finally, sector opportunities and international references relevant to the subsector are provided to meet today’s market best practices.
- Improved scoring methodology
The methodology to analyze investments on ESG criteria has been updated to be more proportionate to the varying risk level of investments in a fund’s portfolio. Based on the stage of the investment process, the user can choose to conduct a quick analysis or an in-depth analysis. In addition, the toolkit contains a corporate governance rating methodology tailored to SMEs. All ESG reviews result in an updated ESG Risk Management Score to allow for greater consistency, transparency and objectivity in performance ratings.
- The possibility to benchmark results over time
The new toolkit offers fund managers the ability to track and benchmark the ESG performance of their investments, by rating the investments’ performance in E&S, CG, and Business Integrity aspects. The portfolio and investment dashboards contain visuals to track investments over time. In addition, an ESG management benchmark feature allows fund managers to compare the ESG management score of their investees to the performance of its own investees, as well as a peer comparison of investees within the same subsector, with fully anonymized data.
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