With operations spanning for over two decades and learnings across many business cycles, True North has invested US$3 Billion in mid-sized, India-centric businesses. The firm’s focus sectors for investments are – Financial Services, Healthcare, Consumer and Technology.
Since the inception of the firm in 1999, doing things ‘The Right Way’ has been at the heart of True North’s philosophy of conducting business and building relationships. Having always been socially and ethically responsible, True North formally embarked on its ESG journey in 2018 when it adopted a comprehensive ESG Policy that was benchmarked with national and global standards and regulations. In an exclusive interaction with The CSR Journal, Mr. Anil Choudhary, Head ESG, True North talks about ESG policy of the company.
1. What motivated True North to become a signatory of the United Nations-supported Principles for Responsible Investment (PRI)?
At True North, we have always believed in partnering with entrepreneurs and leadership teams who are on the journey to build enduring and socially responsible businesses, which create industry leading value for all stakeholders. The UN-supported Principles for Responsible Investment (UNPRI) are a natural extension of True North’s ESG philosophy and further demonstrate our ESG commitment.
2. How did True North achieve carbon neutrality since inception, and what were the main challenges that the firm faced in this regard?
Although our operations have nominal/low carbon footprint, we are still committed to carbon neutrality. We estimated the historical emissions associated with own operations till the year 2021, which included Scope 1, 2 and 3 emissions from own operations and achieved carbon neutrality since inception by investing in high-quality carbon offsets from projects that contribute significantly to multiple UN Sustainable Development Goals (The UN SDGs). Key steps in the process were as follows:
– We assessed our operations to identify material sources of direct (Scope 1) and indirect (Scope2 and Scope 3) GHG emissions to create an inventory. This was carried out by PwC, an independent third party.
– We estimated historical emissions associated with our own operations and calculated GHG emissions for the period from 1999 to 2021.
– We purchased high-quality carbon offsets with guidance from an external advisory firm. The carbon offsets were Gold Standard certified and also delivered community co-benefits and contributed towards multiple UN SDGs.
– An Independent Third-Party Assurance Provider examined our processes for the determination of carbon inventory. Further, they also verified the carbon offsets bought by us. In November 2021, we were successfully certified as a ‘Carbon Neutral Organization’.
– We have undertaken to continue to remain carbon neutral in our current operations as well.
As this exercise was carried out for the last over 20 years of our operation, it necessitated that we have all the relevant records of each item of emission source which for initial years were not very easy to find. However, the data for all the recent years was available, our external consultants developed a quantitative model triangulating investments (both number and value), number of employees and the office (s) that we occupied, to accurately estimate our direct and indirect emissions from own operations. This was then extended for estimating prior years’ emissions. To ensure full credibility to our entire carbon neutrality process, we had another third party for verification of our carbon inventory as also the offsets that we had arranged.
3. What is the Climate Risk Assessment Tool developed by True North with assistance from PwC, and how does it help partner companies transition to low-carbon pathways?
As we aim to reduce the impact of climate change and build resilience in our partner companies, we developed a Climate Risk Assessment Tool for partner companies, based on the UNPRI and TCFD framework, with assistance from PwC to understand climate risks and opportunities across our portfolio of investments. The Tool aims to measure the portfolio’s overall climate-related risk by:
Identifying and quantifying physical and transition risks from climate change specific to the business.
Assessing the type of governance structure and approach for the partner companies appropriate to their business and size to reduce risks in a time-bound manner, including reducing their carbon footprint.
4. Could you please explain how the Climate Policy developed by True North in 2022 aligns with the Paris Agreement and Task Force on Climate-related Financial Disclosures (TCFD) Framework?
As per the Paris Agreement, urgent global action is needed to hold global average temperature increase to “well below 2°C above preindustrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. In alignment with the Paris Agreement and India’s Nationally Determined Contributions, we commit to taking climate action and understand that we are strategically positioned to support the global transition to a low-carbon economy.
Our climate strategy incorporates the frameworks of the United Nations Principles for Responsible Investment (UNPRI) and adopts the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations to identify areas where we can take further action to enhance the climate resilience of our investments.
At True North, we recognise that there is a need to protect our portfolio from climate risks and, at the same time, expose them to opportunities in the shift to a low-carbon global economy. Therefore, we have developed a Phase-wise plan for the next 6 years to first build Climate consciousness amongst the partner companies and then prepare them to take definitive steps towards climate action. This includes inventorising their GHG emissions, taking targets to reduce the same while also partner companies to define a framework and evaluate exposure to climate risks and opportunities.
5. What led True North to venture into building a new investment vehicle – Private Credit – and how does the separate ESG tool launched in 2022 streamline ESG efforts for Credit deals?
True North’s experience and strength in building businesses in the mid-market segment and also the increasing demand for debt capital coupled with a favourable regulatory environment helped us in establishing the credit business. This also serves the purpose of offering alternative and flexible capital solutions to well-governed, underserved mid-market companies. Credit investments are quite different vis-à-vis equity investments inasmuch as the duration and value of such investments are lower and also influence to work with the management/founders is limited. In order, however, to ensure that all our investments are made within our responsible investment commitment, we have developed a customised industry-leading ESG Tool for Private Credit to proactively evaluate any ESG risks and accordingly build those considerations in evaluating opportunities. The Tool is so designed that higher perceived ESG risk, depending on the sector, collateral, value etc, necessitates increased scrutiny.
6. How has True North’s focus on ESG impacted its investment decisions, and have there been any notable success stories in this regard?
We apply our ESG integration approach throughout the deal lifecycle, from deal sourcing to exit. In our two-step ESG due diligence process following check with the Exclusion List (this is a list of activities that True North does not invest in).
All potential opportunities are first assessed for ESG risks to arrive at the risk categorisation. A detailed ESG due diligence basis the risk categorisation and influence is then carried out. Findings of the ESG due diligence help craft an action plan for the potential partner companies.
As active owners, we believe in managing and improving our partner companies’ ESG performance during and beyond our ownership period. For this purpose, we have developed an ESG Assessment Framework comprising 35+ ESG themes, 130+ questions and criteria and 30+ performance indicators to assess systematically, monitor and engage with our partner companies.
7. What measures has True North taken to ensure that its focus sectors for investments – Financial Services, Healthcare, Consumer and Technology – are aligned with its ESG philosophy?
We have developed sectoral guidance notes to guide our investment and business management processes in embedding ESG & CC aspects in our partner companies across our focus sectors. These guidance documents help us to accommodate sector-specific subtleties for deciding material ESG issues, critical KPIs, risks and opportunities while enabling us to understand ESG & CC-related best practices and integrate these into our partner companies’ businesses.
Our ESG Assessment framework also provides sectoral differentiation in terms of the relevance of ESG aspects and questions applicable for each sector and weightage given to each aspect for different sectors. For bringing in this differentiation, globally accepted frameworks such as DJSI, SASB, etc., have been considered. This approach ensures that each company is assessed for ESG maturity in an appropriate manner with broader sector-specific material issues as the basis of assessment.
8. Could you please share some examples of the social and ethical responsibilities that True North has upheld over the years?
The Right Way is at the heart of True North’s philosophy of conducting business and relationships. Our strong ethical values and commitment lay the foundation of doing well by doing right. This notion dictates our purpose and help us align with the core principles of Environment, Social and Governance.
For making investment decisions, as also during the ownership phase, we lay emphasis on exceptionally high standards of Governance, Business Ethics and Integrity. We also focus on creating awareness and training on such aspects. More than 70% of the companies in our portfolio are ‘Great Place to Work’ certified organisations.
We invest in communities by partnering with community impact organisations through targeted and meaningful interventions to drive lasting positive impact. Whilst we directly invest in social programs through The True North Foundation, we encourage and support our partner companies to do the same through their CSR interventions.
9. How has True North’s ESG journey influenced its relationships with stakeholders such as investors, partner companies, and regulators?
We have started to see an increased appreciation of the ESG & climate change efforts of True North in our partner companies. As we aim to collaborate with our partner companies in building the foundation of their ESG and CC journey, which helps them beyond our ownership period, our various efforts, including capacity-building sessions for helping them charter this course, are also seen very positively by our partner companies. So far as the investors and regulators are concerned, we do not have any tangible testimonies, but we believe that our work in ESG and climate change is being recognised and appreciated widely.
10. What are True North’s future plans with respect to ESG, and how does it see the ESG landscape evolving in the Indian private equity industry?
We at True North aim to bring all our investments under the Responsible Investment umbrella. This means that all our Equity and Credit investments have certain ESG & climate action-related strategies and practices in place. We have listed a set of minimum ESG requirements for our partner companies.
We believe that increasing the integration of ESG will gather momentum amongst the Private Equity players. As the investors in Indian Private Equity (LPs), more particularly the entities from geographies such as Europe, North America, South-East Asia, Australia, etc., are seeking ESG adoption and UNPRI membership from their investees, we expect to see more traction in ESG adoption and integration. Also, with the focus on responsible business conduct with the adoption of National Guidelines for Responsible Business Conduct by MCA, Government of India and SEBI mandating Business Responsibility and Sustainability Reporting, we shall see similar expectations from unlisted mid-market companies, most of which may be in the MSME sector.
