Leaning in as a minority investor - an expert insight with Cornelia Gomez, Global Head of ESG and Sustainability at General Atlantic

With SuperInvestor coming up next month, we spoke Cornelia Gomez, Global Head of ESG and Sustainability at General Atlantic. Read on to get her expert approach to ESG at fast-growing companies and how to turn challenges into opportunities to better manage risks.

When supporting growth companies in building out their Sustainability capabilities, a minority stake should not equate to a minority impact.
As head of ESG for a global investment firm, I’ve heard a range of views on approaches to ESG in fast-growing companies, particularly in the tech space: “Growth companies don’t have the time or money to build a serious Sustainability strategy”; “tech businesses have far fewer employees, so have more limited social obligations”; “we only have one board seat – we can’t effect change”.

While each of these points are valid to some degree, they fail to capture the bigger picture – and strategic importance – of Sustainability in fast-growing organizations.

The reality is that companies may not achieve the exceptional growth, nor hit the desired valuations they planned for without addressing the most material risks to their business – many of which will also be Sustainability-related issues. Left unaddressed, material risks – such as customer data security, high employee turnover and supply chain exposure to extreme climate events – impact a company’s right to win in a market, its reputation, and may hinder efforts to attract further institutional equity investment.

Today, both founders and consumers are evolving: many are ESG natives as much as they are digital natives. Our ability to support founders and management teams in their Sustainability journey as a minority investor gives us a competitive advantage, enabling better alignment with more Sustainability-aware founders. Many are actively screening investors for their ability to support the development and expansion of firmwide ESG approaches.

There is an opportunity for growth businesses to establish an ESG-driven risk management framework prior to significant scaling initiatives. Many of the growth businesses that we partner with are at a key stage of their development and working with them at this inflection point allows ESG to be integrated alongside the development of broader corporate functions. When fully aligned with the management team, ESG can become a core pillar of value creation and protection as the business matures.

A framework for value creation and protection
Effectively executed, ESG is a strategic operational framework for value creation and value protection, under which the topics defined are inherently tied to financial materiality. As such, it is critical to instil a strategic Sustainability ambition early in the growth phase of a business.

At General Atlantic, we deploy our ESG framework across our firm, portfolio, and investment lifecycle, with a focus on climate, employee engagement, and quality of board governance. These are the areas in which we believe we can have the most impact. From our own experience, we know that a collaborative approach draws on our firm-wide capabilities – from leveraging our Value Creation capabilities on data science, pricing, or pre-investment ESG due diligence with our deal teams.

With enhanced visibility of operational risks – of external disruption or vulnerabilities, evolving regulation, stakeholder expectations, or the impact of the business on the wider environment – companies can future-proof their business to both existing and emerging headwinds more effectively.

While we deploy our ESG framework systematically across geographies, sectors, targets preownership, and portfolio companies, we acknowledge that not all companies are Sustainability leaders from day one or are meant to be category leaders – but we believe there is no lost cause and there is always a Sustainability journey a company can choose to travel on.

At this point, we see an opportunity to lean in, to work collaboratively with a company where they are, and to take the biggest strides forward in establishing ESG approaches across the business.

Establishing Sustainability as a strategic priority from day one
The concept of minority investment is premised on strategic alignment at the outset. If you are already invested, only having one board seat or an advisory role should not be prohibitive to effecting significant improvements to a company’s Sustainability strategy. The value of strong partnership, deep value creation capabilities, and a global perspective in supporting ESG improvements across a business must not be overlooked.

For example, at the start of our relationship with a company, we schedule an introduction to go over the key learnings of the due diligence, discuss the company’s level of engagement and level of ambition, and identify quick wins that can set in on the right course. This helps engage the senior management on Sustainability value creation and protection opportunities from the very outset of our ownership.

We find this to be most crucial for businesses that we are supporting to expand internationally; our global perspective on ESG risks, local regulation, resources, and best practices provides the practical guidance required for entering new markets.

Putting these challenges to management teams from day one and putting our resources to work alongside them to take action, changes the conversation on Sustainability. It turns challenges into opportunities to better manage risk.

This is where we see an opportunity to lean in as a minority investor, and partner with management teams, heads of ESG, and other investors. As we broaden our investment capabilities across GA, we will continue to think laterally about Sustainability as a core pillar of value creation, protection, and opportunity across our portfolio.

Want to get more insights from Cornelia Gomez? Secure your spot at SuperInvestor and join her session!