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Growing and implementing a strategic and aligned sustainability program throughout a big firm is tough sufficient. However whenever you’re a holding firm — with dozens of wholly or partially owned subsidiaries beneath one umbrella — making a profitable ESG technique turns into much more difficult and complicated. Complicating issues additional, these portfolios are sometimes geographically distributed and face differing regulatory or cultural expectations concerning sustainability efficiency, objectives and disclosures.
Corporations similar to Microsoft, Costco and Switzerland-based Companions Group handle giant portfolios of smaller firms that function in lots of sectors. Costco, for instance, has 31 subsidiaries and operates 905 warehouses worldwide. To streamline its sustainability efforts, Costco has applied the STAR (Sustainability Technical Help Evaluate) program, which helps warehouses handle compliance, vitality, water, waste and emissions.
Then again, Companions Group, a world non-public markets agency, has an overarching sustainability technique however delegates operational management of its sustainability efforts to native “champions” answerable for guaranteeing sustainability processes and initiatives are tailor-made to every enterprise unit.
From our work advising holding firms, we’ve recognized three points that, if nicely thought by way of and applied, can result in extra profitable sustainability methods and outcomes.
Perceive the pressures companies face
Similar to any enterprise, holding firms face inside and out of doors pressures on enterprise operations that inevitably affect ESG technique. If something, holding firms could face extra stress merely due to how giant and numerous they’re. Portfolio firms within the software program sector have basically completely different points to take care of from manufacturing or healthcare firms.
Holding firms should take into account the inputs and views of a variety of stakeholders, who can exert stress to behave in a sure manner or deal with their particular pursuits. They have to decipher what pressures require a corporate-wide response and that are concentrated on the portfolio firm degree and might merely be addressed there.
For instance, one European-based holding firm we work with leaves ESG methods to its portfolio firms and doesn’t try and develop a coherent corporate-level method. Operationally, this implies there’s no general steerage on priorities similar to objective setting from the dad or mum firm, which solely requests for efficiency (similar to GHG emissions) information. In different cases, the dad or mum firm will present particular instructions for its portfolio corporations to help an general top-down technique.
Analyze management kinds and tradition
How a holding firm manages its portfolio firms is one other main issue to contemplate. Whether or not the corporate makes use of a hands-off or hands-on method will have an effect on how sustainability efficiency is addressed.
Take the instance of two multinational holding firms. One has a hands-off method, the place company management on the holding firm prefers to let the portfolio firms have a large diploma of autonomy in day-to-day actions. On this “bottom-up” method, every portfolio firm is answerable for designing and implementing its personal approaches to ESG points to mirror its sector and the inner and exterior pressures it could be dealing with.
This may occasionally imply that every portfolio firm is answerable for figuring out its personal materials points, information assortment efforts and producing its personal ESG reviews. Distinction that with holding firms concerned in a “top-down” method, by which the holding firm has clear priorities for general ESG technique and expects its portfolio firms to operationalize these priorities. This could imply all its portfolio firms have a typical method to materiality (if not the identical listing of fabric matters), information assortment, reporting and disclosure.
In both occasion, setting and clearly speaking expectations and delineating duties between the company degree and the portfolio degree is necessary.
Align and gather information
It’s not unusual for corporations in a holding firm’s portfolio to have unbiased information programs that aren’t aligned and don’t talk with each other. This could make aggregating disparate information units tough, as every portfolio firm could use completely different strategies of amassing information or measure completely different sorts of knowledge altogether.
The holding firm wants to find out what particular sustainability challenges its portfolio corporations are dealing with and whether or not information assortment on the subsidiary degree or your complete holding firm is the most effective technique.
For instance, a tech holding firm that makes use of a bottom-up method to collect sustainability information for every of its portfolio firms asks every of its roughly 25 portfolio firms to handle their very own ESG information assortment independently after which report again to holding firm high administration. This offers extra localized operational freedom however can lead to disparate datasets which can be tough to compile and examine throughout your complete portfolio.
One other multinational firm with a portfolio centered on manufacturing industrial tools takes the top-down method, with an aligned set of fabric points and datasets that it requests from its subsidiary corporations. The holding firm gives coaching classes to its portfolio firms to reinforce information high quality and has an govt in command of every portfolio firm who helps the annual information assortment course of. Which means that information is extra simply centralized and cohesive throughout all firms, due to the holding firm’s management coordinated effort.
When doubtful, concentrate on the enterprise case
The explanations holding firms develop ESG methods range — prospects, buyers and market pressures all play a job. Regardless of the explanation, the influence of a robust ESG technique is what stays fixed. If a holding firm will get its sustainability technique proper, it turns into integral to its general enterprise technique. It offers a lens for efficiency evaluations for portfolio firms and future acquisitions, making a baseline and measurement for future success.
