Interview with Philippe Poletti, CEO of Ardian France, Member of the Executive Committee, Head of Ardian Buyout, Chairman of the Sustainability Committee
M&A REVIEW EUROPE: Where does Ardian stand on ESG issues?
Philippe Poletti: Today, Ardian is the number one European private investment house. It is a company with wide-ranging expertise, operating from 15 offices across Europe, the Americas and Asia, and employing 700 people. Ardian is both global and local. We have strong local teams for each of our funds, which allows us to keep close to companies and managers.
As a leading Private Equity player, Ardian has a major responsibility: to create sustainable value in portfolio companies, by combining profitability with responsibility.
Our global portfolio provides us with a tremendous opportunity to support a large number of companies and entrepreneurs. We aim to sustain their long-term growth, and positively impact the economy, the environment and wider society.
M&A REVIEW EUROPE: When did Ardian start addressing these issues? How has your approach evolved?
Philippe Poletti: Ardian is an industry pioneer in ESG. As early as 2008 – the year Ardian signed the Principle for Responsilbe Investments (PRIs) – Dominique Senequier took a stance in favor of profit-sharing. We decided at this time to systematically redistribute a portion of capital gains realized on assets when we exit, this amounts up to 5% of capital gains and the equivalent of 6 months’ pay. It is our way of thanking employees for their hard work when we complete a successful deal.
Spotless Group was one of the first investments to benefit from this redistribution; the employees were surprised and frankly, quite moved.
As early as 2010, we had commissioned Indefi to audit ESG issues in each of our investments – an approach which was applied across all our funds and has paid off.
Accordingly, in the Ardian Buyout portfolio, we see 77% of companies currently use renewable energy, a stark comparison to the 54% when they were acquired by Ardian. And, on exit, 76% of companies had a code of conduct shared with employees, compared with only 43% when we acquired these investments. Our objective is 100%. But we wanted to go further.
Today, we are collectively facing a growing number of challenges. The Covid-19 crisis has both amplified and revealed many trends.
It has amplified the growth in inequality and further highlighted environmental and climate change issues. Companies have a fundamental responsibility to transform society. Our ambition at Ardian is to boost and accelerate business transformation to improve the contribution of our investments to social and environmental challenges. ESG issues were a first step. But sustainable profitability issues are rooted much deeper. Today, we must make a positive contribution to society as a whole.
Consider Prosol, Grand Frais quality fresh food retailer, in which Ardian is a shareholder. In recent years, the Group accelerated its support of farmers to help them obtain High Environmental Value certification, promoting the most environmentally friendly farming practices. With Prosol’s 100 suppliers impacted, this has the potential to create a significant impact.
M&A REVIEW EUROPE: What is your approach?
Philippe Poletti: Our tools have evolved. We developed a methodology to measure the contribution of companies on societal and environmental issues. We worked hand in hand with our partner Indefi and with Ashoka, the world’s leading network of social entrepreneurs, working to develop new business models. We have moved from monitoring businesses on these criteria to an active strategy that allows us to promote change.
We found that „traditional“ funds apply ESG methods but remain focused on business processes. They do not look at the entire value chain (upstream and downstream). Impact funds invest solely in virtuous companies that represent only a small proportion of businesses.
With this in mind, we created the Sustainable Buyout concept, moving from a traditional risk/return approach to a risk/return/impact approach. Today, managers consider a large number of non-financial issues that will ultimately contribute to profitability.
Measurement criteria is quite concrete. We can measure CO2 emissions, diversity in teams and the percentage of renewable energy used among other things. We want to ensure these criteria could be applied to a large number of companies and sectors.
Today, most companies are in need of a methodology and this guide has become important for their development. A major milestone has been reached; managers have taken these issues onboard and are now demanding that this methodology be implemented. It measures the impact of companies in a global context, taking into account both upstream and downstream activities when assessing the societal and environmental impact. The measure also allows improvement objectives to be set for the investment period.
We started applying this method to our Buyout funds and we are now deploying it to other funds.
This study is the result of two years of work, and it is an important step, but there is still much to do.
M&A REVIEW EUROPE: Is this new methodology exclusive to Ardian?
Philippe Poletti: We are extremely pleased to share and explain this study.
Our Fund of Funds team shared this methodology with interested GPs.
Given our size and presence, both in companies and funds, our potential impact is significant and therefore gives us a great responsibility.
M&A REVIEW EUROPE: How has the Covid-19 crisis impacted your activities?
Philippe Poletti: This crisis has had a major impact on our society and will continue to for some time. Unlike the global financial crisis from 2008 onwards, the market did not close. At Ardian Buyout level, we recently completed four deals and exited three companies. There is a lot of liquidity and so deals are continuing. We also see that companies which have weathered the crisis have gained even more value.
M&A REVIEW EUROPE: Has this crisis changed your industry preferences?
Philippe Poletti: We have always had a focus on long-term “key” sectors, such as healthcare or the food sector, which account for 50-60% of our investments. If we add the IT sector, we reach two-thirds of Buyout fund investments. Our goal is to support as many companies as possible in their transformation. Despite the challenges presented by the pandemic, our strategy is paying off, and we will continue with this investment approach.
M&A REVIEW EUROPE magazine: How has the crisis impacted your investments?
Philippe Poletti: We analyzed how our portfolio companies have weathered the Covid crisis. We noted that the vast majority of companies with a virtuous approach to environmental and societal issues have been fairly resilient. It is interesting to see this correlation between how companies have withstood the crisis and how they approach societal and environmental issues. It proves that the companies which understand these issues will be tomorrow’s big winners.