ESG Imperative: The Pollen Street Philosophy
Alison Collins from Pollen Street Capital, an investor in Aryza, shares insights into how their investment strategy reflects a deep commitment to ESG principles.
Pollen Street Capital, one of Aryza’s investors, places great importance on meeting ESG criteria, emphasizing the accuracy of these standards and backing them up with figures. As Head of ESG, Alison Collins is responsible for this focus area at Pollen Street. In this interview, she talks about ESG assessments in the investment process, targets at company and product level, and why the complicated set of rules is not just a chore, but also offers many advantages.
Alison, ESG is a complex task with many variables. , how do you at Pollen Street measure the compliance of all portfolio companies, including Aryza?
Alison Collins: ESG is a key tool in our due diligence. Before any potential investment, we take a high-level view of the company we are looking at: Are there any warning signs and therefore potential risks? Is the Governance up to our standards? We also consider whether the products and services of the company we want to invest in have a positive impact. In the case of Aryza, for example, this would be financial inclusion and supporting the improvement of an individual’s financial position.
And in the further course of the investment?
Alison Collins: ESG has two facets: the operational part, which concerns the company's own efforts, such as how the company treats its employees, its environmental initiatives, and its governance. Then, there is the supply side, which focuses on what the company does in the context of its products and services, i.e. affordable housing, or financial inclusion. To analyse both areas, we have developed a detailed questionnaire with a qualitative and a quantitative approach. Based on this questionnaire, we can say: OK, this is the status quo, how and where can we as Pollen Street support the company. On an ongoing basis, we collect data points to measure progress which are then used as part of our proprietary ESG scoring mechanism, which we can then use to disclose in our ESG report and to our investors.
How has your approach regarding ESG changed over the past few years?
Alison Collins: Pollen Street has always operated with a strong sustainability ethos, but with the growing focus from investors and the wider industry we have strengthened our ESG and processes over the past few years. We joined the PRI in 2019, which kickstarted the formal programmatic approach we now have, as well as our approach to communications and reporting. We have been publishing an annual ESG report since 2019.
Which is particularly difficult to achieve: the Governance, the Social, or the Environmental aspect?"
Alison Collins: We primarily focus our investments on companies within the financial services sector, where challenges like environmental pollution or human rights issues are less prevalent. However, from both regulatory and public perspectives, the "E" gets a lot of focus. Our key objectives include measurement of carbon emissions, establishing a process for reducing carbon dioxide emissions.
Our job as Pollen Street is to help our portfolio companies to be better businesses.
The G and S are particularly important for financial service providers?
Alison Collins: Exactly, the 'G' in ESG refers to areas such as corporate governance, risk management, policy coverage, transparency, robust reporting, and effective management methods. The 'S' encompasses aspects like good employment practices, talent development, employee engagement, diversity and inclusion, training, and customer management. Consumer Duty, and therefore the fair treatment of customers, has been a key topic for us in recent years. However, it is particularly important that the companies we invest in are willing to improve their ESG score in the future and optimise their products and services so that they have a positive impact. Because ESG is at the heart of everything that we do. We believe that ESG helps create better, faster-growing businesses.
Is ESG ever truly concluded?
Alison Collins: As we are constantly expanding our portfolio, there are differences in the ESG maturity of the companies we invest in. The companies that have been added most recently are usually the ones that have the most work to do. However, they can learn from us (Pollen Street), but also from our portfolio companies. Improvement therefore often occurs quickly. Of course, our scoring also ensures healthy competition among CEOs to make efforts to implement ESG well.
Does ESG also offer advantages?
Alison Collins: ESG has become massively important to various stakeholders: Investors, customers, and employees. Companies can leverage ESG to set themselves apart from competitors, which is particularly relevant for marketing and communication strategies. That's why we collect a lot of data, and our portfolio companies collect data for their own reports. Potential customers are keen to understand the efforts a company is making as part of their own due diligence. For instance, the Aryza Group helps many SMEs in achieving their ESG goals. Our job as Pollen Street is to help our portfolio companies to be better businesses. A beneficial by-product of ESG initiatives is the natural development of a better company culture and management practicesleading to sustainable growth. Additionally, understanding the regulatory landscape is crucial.
So ESG does help with performance?
Alison Collins: Yes, companies with well-organized governance tend to perform better due to better oversight and increased transparency from management. If these companies also provide products and services that have a positive impact while simultaneously ensuring revenue and profitability, it results in an incredibly sustainable, better-performing business.
Sustainable growth, a positive corporate culture - what does that look like in practice?
Alison Collins: The digital transformation is assisting in increasing efficiency, e.g. in efforts to reduce waste. Examining sustainability in supply chains and sourcing across the entire value chain is also very important. Additionally, adopting a 'people first' approach, which includes diversity, equality, inclusion, fostering a positive culture, and engaging talent, is crucial. Today's customers expect all these aspects to be ensured. ESG not only helps in generating customer interest but also plays a key role in customer retention.
One of Pollen Street's ESG targets is to achieve 25% female representation on the boards of its portfolio companies by 2025, and to include at least one individual from an ethnic minority by 2026 …
Alison Collins: Approximately 50% of our portfolio's workforce is female, and we believe this diversity should be a foundation to improve the dynamics in management structures over time. The challenge lies in implementing development and promotion programs that actively work towards these goals, especially in the financial services sector. This progress is incremental, occurring step by step. Therefore, it's crucial to continuously monitor the data to ensure ongoing progress.
Pollen Street's ESG report states another goal: "Financial Inclusion - Loans and other financial products made available to a broader audience." What components does this goal include?
Alison Collins: One example involves consumers outside the mainstream who face challenges in opening a bank account or obtaining a loan; a similar issue is faced by some SMEs. We assist these individuals and companies by providing alternative sources of finance. Aryza is particularly active in this domain. Another important focus is financial education. We aim to educate people from a young age about financial concepts such as credit cards, mortgage loans, how to improve their credit scores, and thereby their creditworthiness. For example, Tandem, a company in our portfolio, works hard to improve and extend financial education.
Customers and the public also pay attention to greenwashing, an issue that you have to keep an eye on?
Alison Collins: Of course, we are monitoring this very closely. However, in our field, i.e. financial services, it is particularly important to be able to fulfil performance promises. When we make claims, we must ensure that we can substantiate them. For this reason, having accurate and complete data sets is essential for us, and making sure that we take heed of the evolving regulations surrounding this area
Pollen Street is an independent private capital asset manager. Established in 2013, the firm has built deep capability across the financial and business services sector aligned with mega-trends shaping the future of the industry. Pollen Street manages AUM across private equity and credit strategies on behalf of investors including leading public and corporate pension funds, insurance companies, sovereign wealth funds, endowments and foundations, asset managers, banks, and family offices from around the world. Pollen Street has a team of over 80 professionals with offices in London and the US.
