Last week I participated in the ACG event – a forum for people who fund the ‘middle market’. Attendees are typically VCs, banks, investment agencies, family offices, private equity – in short anyone who has a few million to give, lend, or invest in mid-sized firms.
One of the most interesting sessions was on ESG (environmental, social and governance) policies.
Legislation provides the minimum requirements in these areas but social pressure and potential legal issues are driving rapid adoption by the finance industry. Lenders used to be primarily reactive – “Does your CFO have a record of embezzlement? Is your office built on an old gas station site? etc. But now, they are becoming much more proactive.
You may not have a very diverse leadership team. You may not know your carbon footprint. You may not have a capable board of directors or advisory board. But – don’t be surprised if your lenders ask you about these things when you go to extend, expand, or renew your financing.
While many of these people are keen to live the Planet, People, Profit mantra, they are driven, nay obligated, to ask you about these things to avoid legal repercussions if things go sideways. It’s nice to see the capitalistic system really work to improve the planet.
So what is ESG, and what are the questions you may get asked? The BDC’s template for its limited partners (people who manage its loans) includes a variety of ESG items. I have drawn from that list to create this summary. This would make a great conversation at your next board or executive meeting.
So do it for the bank. Or do it for the planet, your children, or your company. Either way, it’s time to take ESG seriously.
Here is an ESG check list to start you off. How many can you say ‘yes’ to?
They also want to know if there are any of these skeletons in your closet:
Want to download the BDC ESG Tool? It’s here.