Since its creation in 2005, Meridiam has put ESG at the heart of its investment process, operationally and concretely. Since September 2019, we have also adopted the statutes of a mission-driven organization*. We’ve made this choice for reasons of both coherence and efficiency: being a mission-driven company reinforces our alignment with our LPs.
Embedding that we are a mission-driven company into our statutes enables us to go one step further. It reinforces the alignment with our LPs via the commitment that we are making to them to deliver both financial dividends and non-financial impact in the way that our investment firm operates.
Our view was that a simple mission statement was not enough, but rather that we had to follow through with the full exercise. The mission that we’ve chosen is an extension of the framework of United Nations Sustainable Development Goals (SDGs) and our sustainability strategy is based on 5 target pillars :
– Deliver resilient infrastructure and develop sustainable cities (SDG 9 and SDG 11)
– Accelerate energy transition (SDG 7)
– Avoid and reduce emissions (SDG 13)
– Promote good work conditions, inclusion, diversity and gender equality (SDG 5, SDG 8 and SDG 17)
– Protect and enhance biodiversity (SDG 14 and SDG 15)
The depth of this commitment clearly illustrates that we ’ve resolutely sought to go beyond the basic climate change conversation which often overlooks solutions that also address the important issues of sustainable development.
The transition to a mission-driven business is a natural evolution for our team and it has changed the way we all participate in the alignment of interests with our investors. Concretely, all of our team members have been assigned operational objectives, one of which is that of impact. Their remuneration will, as such, be partially indexed on this new element. But we also wanted to integrate changes on the carried interest in the terms and conditions of our next funds. For clarity, the carried interest will be articulated around a ‘bonus/malus’ system that tracks how well we fully or partially achieve the non-financial, social and environmental dividends in our portfolio.
Since its inception fifteen years ago, Meridiam has applied high level ESG standards in its investments. That said, it is true that ‘the mission’ and the objectives adopted by the management company must be articulated throughout the portfolio. In sum, we’ve now completed our ESG plans with our impact plans. For example, we’ve invested in the development of a data platform that allows our different portfolio companies to provide operational results to the center. Our central asset management hub’s remit includes following the communication of this data closely to verify its solidity. Once they are aggregated and consolidated, this information is transmitted to our Mission Committee that includes two external members. There will also naturally be an exchange with the certification organizations ** .
On a broader level, I’m convinced that it is possible to have ‘impact’ through all and any kind of business that chooses this path. It will even become essential and even a priority when this sanitary crisis ends and that we will collectively think about economic recovery plans. Admittedly impact investing can be summed up as philanthropy in some cases. Our objective is to contribute to the evolution of business models that have a purposeful trajectory on the social and environmental front. This ambition isn’t limited to a singular type of asset.
The LPs who have supported us from the very beginning precisely because of our focus on ESG have naturally welcomed the announcement positively. Other investors may have initially been more sceptical, primarily questioning the overhead that could accompany this step! I’m pleased to confirm that, with the exception of the cost to build the platform I’ve described here, there is no substantial incremental cost to this new governance and its processes- and, in any event, not if we compare this with the costs of compliance imposed on all investment management firms!
For close to two decades, we’ve demonstrated our capacity to generate financial and non-financial performance . In strengthening our engagement today, we are only reinforcing this dynamic. The reality is that all of these LPs, regardless of their origin or category, are currently feeling pressure from governments, regulators, and civil society, to modify their strategy, particularly- but not only!- on the climate change front. It’s our hope that Meridiam, and all of the business managers that follow the same path, form a ‘label of quality’ for the LPs, very much aligned with our collective objectives in creating LTIIA, taken those an important, forward-looking step further.
*under French Law
** cf previous Blog-Oct 2019: The UN-SDGs and Meridiam’s impact-oriented business approach