Measuring success in ESG across our portfolio

As well as being ranked as the most active investor in ambitious businesses across the UK and Ireland, BGF has recently been recognised one of the top 10 impact investors in businesses with ESG positive signals. In this article, Roshni Bandesha, Head of ESG at BGF, explains how a partnership approach to measurement is boosting ESG scores and driving value creation across our portfolio:

At the core of how BGF supports the growth of portfolio companies is our ability to help drive better ESG performance, from the perspectives of value creation and pursuing growth the right way. We believe that both of these factors are at the heart of what it means to be a responsible business.

Management teams across our portfolio don’t come to us for top-down answers, but to work with them as a partner that understands what is right for their business. One of the ways we help to bring these answers to the surface is through an annual ESG benchmarking project, facilitated through an independent third party.

Whilst the results of the survey are specific to each business, our scale makes it efficient and effective to run the project on behalf of portfolio companies. Of most value to management teams, is the ability to contextualise their results, by benchmarking with other similar sized businesses in their sector.

Over the past month, we have been sharing these ESG insights with management teams to provide a clear view on the year-on-year progress being made around key ESG value creation drivers. Critically, these are now Board-level conversations.

Across our portfolio, ESG scores have improved by 19% year-on-year for the cohort of 189 companies that took part. Breaking this down into separate E, S, and G metrics, we’ve seen social scores increase by 17% between 2021 and 2022, and governance scores increase by 15% in the same period. Sustainability initiatives are also driving notable progress, with a 26% uptick in environmental scores.

In 2022, 45% more companies measured greenhouse gas (GHG) emissions, compared to 2021. There has also been a 36% increase in companies setting environmental and Net Zero targets, including the reduction of emissions, energy usage, and waste generation.

On the social front, nearly three-quarters (74%) of portfolio companies are measuring and monitoring gender diversity across all employees, representing a 21% jump in companies doing so. This shows that measuring diversity is no longer a ‘good-to-have’ and has moved towards becoming the norm.

And on the CSR front, nearly half (48%) of the companies surveyed are engaging in charitable activities, and have collectively provided £1.6m to charitable organisations, while giving thousands of hours of volunteering time.

I always seek to remind management teams that one of the most important steps to improving ESG performance is recognising that it’s a constant process of growth, evolution, and learning. Our intention is that by helping businesses to pinpoint actionable areas of improvement, we can move forward in both practical and meaningful ways.

We will be exploring ESG value creation drivers at our annual ESG Day, taking place in Birmingham in May. Feedback from attendees at last year’s ESG Day indicated that the event was highly valued, with a net promoter score of 83 out of 100. We know the incredible impact of creating an ecosystem where SMEs can come together and share best practice and we look forward to communicating more insights from events such as this, as we continue forward on our collective good growth journeys.

Portfolio progress: Pharmacy2U

BGF has been a long-term investment partner to Pharmacy2U, having provided £17 million to the online pharmacy business since 2016, to support its continued growth as the UK’s largest online pharmacy. In 2018, private equity firm G Square became a majority shareholder, after leading a £40 million funding round into the business. We stayed on as a minority shareholder, and have been supporting Pharmacy2U in developing its ESG strategy since 2022.

Over the past two years, the company has seen a steady improvement in its ESG performance, with a notable 40% increase in its environmental score, measured as part of BGF’s annual ESG assessment. This progress was initiated by a materiality assessment that identified energy efficiency, talent attraction and development, and consumer care as key areas for action in the business.

Following the materiality assessment, Pharmacy2U set specific targets in these areas and incorporated the findings of the assessment into its annual financial reporting, aligning with high governance standards. Since then, the company has taken steps to enhance transparency and accountability in its ESG efforts, including the publication of its ESG policy and first annual ESG statement on its website.

Now, the business is focused on establishing an ESG Committee to refresh its ESG strategy, update its targets, and identify further actions. These actions demonstrate Pharmacy2U’s commitment to embedding ESG principles within its operations. By doing so, the company seeks to not only improve its environmental and social impact, but also to strengthen its market position and brand through responsible business practices.