The private equity funds in FII's portfolio are managed by external management companies. The funds have a number of other investors. When making an investment decision to a fund, FII takes a stance on the management company's approach to responsible investment and corporate responsibility issues. In addition to responsible investment, FII also examines responsibility issues in the management company's own corporate activities. FII specifies its responsible investment principles in contract documentation.
FII keeps in regular contact with the funds in its portfolio, maintaining a dialogue with them about responsible investment. Active liaising produces a good understanding of the level of responsibility in the fund's operations, and an overview of possibly challenging investments in a fund’s portfolio. It also allows support to be given in any areas found to need development. Such dialogue ensures that a management company is aware of FII's responsible investment policy and endeavours to follow it. Development of a management company's corporate responsibility and of its responsible investment policies is monitored during the fund’s term of operation, and active dialogue enhances both parties’ knowledge.
Entrenched corporate responsibility practices
Finnish Industry Investment conducted the previous year a questionnaire survey of the management companies of the investment funds in its portfolio. The results confirm the current estimation that the awareness and development of responsible investment are on a sound footing in these companies. Most of the respondents have published their principles and practices with regard to responsible investment and corporate responsibility.
FII continued its dialogue about responsible investment with management companies throughout 2014. The long-term objective is thus to further entrench the principles and practices of responsible investment at the level of both management companies and individual portfolio companies.
In the following, Investment Director Riitta Jääskeläinen describes corporate responsibility from the viewpoint of FII's Fund Investment team:
What special features are associated with the corporate responsibility of fund management companies?
For fund management companies, corporate responsibility has two components – responsibility in the company’s own operations, and responsibility in its investment activities. The latter focuses on the recipients of portfolio companies’ investments. In the case of management companies’ internal corporate responsibility, the responsibility issues relate to the operations of small, specialist organisations. Responsible investment, on the other hand, focuses mainly on issues such as investment screening, management, ownership steering, development and exiting, which are similar to those that FII addresses in its own operations.
What benefits or opportunities will management companies gain from developing their corporate responsibility?
Investment aims at producing a return, and responsible investment contributes to achieving this goal. At its best, responsible operation is a competitive advantage for a portfolio company and a source of innovation. It also reduces the investor’s risk. Good return expectations are maximised when other environmental, social and governance (ESG) issues are addressed, in addition to conventional financial reporting.
How would you describe corporate responsibility in Finnish fund management companies?
Finnish fund management companies are often more advanced in ESG matters than their foreign peers. There is much that still needs to be addressed, however – in particular, how corporate responsibility aspects can be exploited in portfolio companies as a factor creating business opportunities, and not simply for managing risk.
Prospects for the corporate responsibility and responsible investment of management companies
During 2014, each of FII’s fund management companies made progress in applying responsible investment principles to their operations, and portfolio company managers gave corporate responsibility issues even more priority on their agendas. In almost all management companies responsible investment procedures are becoming entrenched as a continuous element in the investment process as well as in developing and adding value to portfolio companies.