Enhance the ESG mindset and corporate value of portfolio companies through private equity operations
Polaris Capital Group Co., Ltd.
Yuji Kimura, President & CEO
We actively promote ESG initiatives as an industry leader
Since our establishment in 2004, we have been conducting our business with the basic philosophy that "We, Polaris, have the mission to contribute to the growth of Japanese industries by providing the best and high value added services to our clients as a fair and diligent intermediary, to become the leading firm in the buyout fund market and to achieve the happiness and fulfillment of each Polaris member." Our contribution to the sustainable development of society through our private equity business will lead to the achievement of sustainability and promotion of ESG investment in Japan.
Since companies are currently required to disclose not only financial information but also non-financial information, we have launched a sustainability website to once again share our trajectory and approach to initiatives with the outside world. As stated in our basic philosophy, we believe we should also be an industry leader in terms of sustainability in our private equity business. We understand that our duty is to proactively disclose our sustainability initiatives, make the infinite potential of private equity widely known, and foster an ESG mindset in the industry. From this perspective, we believe the launch of this sustainability website is significant.
Awareness of the ESG Mindset from a Global Perspective
Around 2012, we became aware of the importance of ESG investment initiatives. While raising investments globally through the funds we created at the time, we learned about the high level of acceptance of the ESG mindset among European investors. They make it an investment requirement that their fund managers and portfolio companies have to be committed to ESG. We learned that ESG perspectives are indispensable in establishing a global fund and in achieving growth in the global society.
Since we had a basic philosophy underpinning the concept of ESG investing since our founding, we were able to quickly take steps forward in ESG investing across the entire Group. In 2016, Polaris became a signatory to the Principles for Responsible Investment (PRI). With regard to ESG investing, in order to increase the value of portfolio companies, we are working to instill an ESG mindset from the time of investment to the time of exit (sale). In addition to the usual due diligence when making investment decisions, we also evaluate whether a company has or can foster an ESG mindset based on ESG indicators. We also decide not to invest in companies that do not meet certain criteria. Even after the investment is made, we set the ESG targets, evaluate progress quarterly, and encourage improvements as necessary.
In some cases, portfolio companies may question whether ESG costs should be incurred, or whether there is any advantage to implementing ESG initiatives. However, as we have management rights in portfolio companies, we explain the returns from ESG initiatives thoroughly and lead them to improve their corporate value.
Building a win-win-win relationship by taking responsibility until exit
Of course, we are also engaged in multifaceted ESG initiatives within our company. We consider the G (governance) in ESG to be particularly important. In addition to ensuring the effectiveness of the Board of Directors and enhancing the compliance system, as a general partner (GP) that properly manages assets entrusted to us by investors, we have also established appropriate systems in the investment decision-making process. As for S (social), we have been focusing on diversity by not only promoting female outside directors, but also hiring foreign employees and establishing a personnel system that allows employees to get promoted from assistant positions to higher level positions if they have the ability. So far, two assistants have been promoted to higher level positions. Since 2022, we have been focusing more on ESG than ever under the slogan of improving corporate value through DX and ESG.
The portfolio companies will also change as a result of ESG initiatives. Our ownership of portfolio companies lasts an average of five to six years, and during that time, they will be able to acquire a thorough understanding of ESG. We send our company and external executives to portfolio companies as officers and managers to build a governance system. During the three months or so following the investment, we formulate a strategic medium-to-long-term plan called a "100-day plan," and develop the organization, infrastructure, and regulations to achieve that plan. We also provide support using our know-how in the area of management support. We have heard from our portfolio companies that clarifying their commitment to ESG has made it easier for them to recruit human resources, and has broadened their horizons overseas, including in hiring.
At the time of exit, we carefully assess whether the potential new investors have an ESG mindset. We often receive letters of thanks from portfolio companies, saying that we exited at a good time. We receive them from companies that maintain their ESG mindset and continue to grow stably even after they have left our ownership. We are very honored to receive such letters.
Through the private equity system, we will strive to enhance the corporate value of portfolio companies while maximizing the achievement of investor intentions. This will consequently stimulate the Japanese economy, solve social issues, and improve job satisfaction. We are confident that we can build a win-win-win relationship by acting as a hub.
Spreading the ESG mindset to society as a whole
As mentioned above, ESG initiatives improve corporate value, However, it is still difficult to show that in actual figures, especially for unlisted companies. Building a system that will properly demonstrate this will be an ESG issue in the future, and it is a theme that we should tackle as an industry leader. It is our responsibility to instill ESG in our portfolio companies through our approach, initiatives, and KPIs.
As a hub that connects global investors and Japanese companies, we will continue to lead the enhancement of corporate value by incorporating ESG starting from the private equity industry, and expand the ESG mindset to society as a whole.