In a recent blog article, I looked back on ten years of ESG reporting, examining how Wavelaunch’s approach to ESG disclosure has changed and expanded over time. Despite the fact that we have achieved substantial progress in that period, we recognize that there is always space for improvement and greater openness in our work for our investors, partners, shareholders, and other stakeholders. This is why we are glad to release our first Climate Action Report today, which outlines our climate action strategy in accordance with the Task Force on Climate-related Financial Disclosures’ recommendations (TCFD).
We have a critical role to play as investors in assisting the global transition to a low-carbon economy. I feel that private equity investors, in particular, may be quite beneficial throughout this shift.
First, as we’ve seen from our over a decade of engagement on portfolio company environmental initiatives, the private equity model is well-suited to engaging with firms in support of ESG advancement. Our operational experts and ESG-related resources are frequently used to assist our portfolio firms in developing, shaping, and improving their climate-focused strategy. Portfolio companies, as we’ve discovered over the years, may greatly benefit from learning from one another, and we can play a crucial role in connecting the dots and facilitating knowledge transfer. And, perhaps most crucially, we have the opportunity to focus on these activities and analyze long-term success because of our average investment hold time.
For example, in 2008, we joined with the Environmental Defence Fund to develop our Green Portfolio Program, which supported operational improvement programs that resulted in significant environmental and business advantages. In 2020, we established our Climate Action Education Series to give information, professional guidance, and resources to portfolio firms to help them understand and manage climate risk. Climate risk assessment, greenhouse gas emissions monitoring, and carbon offsets were among the topics covered in this program. Our report contains further information on these efforts as well as additional instances.
Second, we can put money into climate action. At Wavelaunch, we achieve this in part through our Global Impact Fund, which invests in companies that provide answers to major global concerns across four thematic areas, including climate action and sustainable living. We are investing in firms whose goods and services help manage environmental impacts and climate adaptation and/or mitigation, as well as those that help with the energy transition, as part of our approach. Our infrastructure business is another way we contribute to climate action. Over the last ten years, our infrastructure business has been an active investor in renewables, and as of June 30, 2021, we had invested over $3.5 billion in renewable assets, such as solar and wind, with a total capacity of more than 13 GW.
Finally, Wavelaunch is committed to investing in a just energy transition, one that promotes the transition to a clean energy future while also acknowledging the continuing necessity of supplying the conventional energy required for global well-being and economic progress. We believe that by being a responsible operator, we can create better outcomes because conventional energy assets will continue to be part of the transformation. This entails working directly with our portfolio companies to help them understand their exposure to ESG issues, such as climate change risks and opportunities, as well as assisting them in implementing ESG strategies, such as implementing projects to better monitor and reduce GHG emissions and identifying renewable energy transition opportunities.
We still have a lot of work to do. Looking ahead, we’ll keep working to better integrate climate factors into our investment process, improve our understanding of how climate issues affect portfolio companies, and learn from the development of decarbonization targets that we’ve begun to include in some of our funds. We’re also doing a lot of research to see what a credible, firm-wide commitment to net-zero by 2050 would imply for Wavelaunch as a company, including examining the implications for each strategy and asset class. We hope to have additional information to share with you soon.
Reflections from a Wavelaunch Private Equity Analyst:
Q1. Why did you decide to concentrate on the Industrials sector?
I wasn’t sure what area I wanted to focus on at first, looking back. That, I believe, was also the case for many of my friends. I wanted to be as open-minded as possible.
In a job where you’re constantly collaborating with others, I believe the people you select to work with are sometimes more important than the industry. It just resonated for me as I met people in the Industrials team. Their investment strategy and culture appealed to me. They were firm believers in apprenticeship and dedicated to investing time in the training and development of team members. They also appeared to be pleasant individuals. They’ve become some of my closest mentors in the four years I’ve worked with Wavelaunch.
Fortunately for me, I believe Industrials were a good match for my interests. The team’s operational focus and rigor impressed me. We spend a lot of time thinking about salesforce effectiveness, lean manufacturing, supply chain, channel management, employee ownership, and other aspects of value generation. We’ve had teammates embed themselves at companies for months at a period to drive projects, and I’ve visited our portfolio companies multiple times over the years to partner with them on strategic initiatives. Last year, our team even participated in an extensive lean manufacturing training session in Japan, which was eye-opening for me.
Q2. What shocked you the most about your time as a Wavelaunch Analyst?
As an Analyst, I had a handful of epiphanies that I’m not sure I completely realized prior to joining Wavelaunch.
Realization #1: It’s a once-in-a-lifetime chance to learn from the greatest from the start.
You’ll be able to learn directly from your Wavelaunch colleagues, who are some of the industry’s top investors. When I first started, a Director guided me through the process of developing an operational model, a Principal demonstrated how to lead management meetings, and we debated bidding techniques for hours.
Working side by side on projects with our portfolio company’s CFO, attending board meetings, and getting to know leaders of companies we’re considering investing in were among the other chances. That was just a small sample of the people with whom I interacted throughout my first year at Wavelaunch. The caliber of people completely astounded me.
Realization #2: When they claimed it’s fast-paced, they weren’t kidding.
One of my first initiatives with the Industrials team was to investigate a potential add-on acquisition for a portfolio firm. It was a modest Belgian company with cutting-edge production technologies. We received the corporate brochures, liked what we saw, and promptly booked a journey to Europe. I recognized that this is a place that seizes opportunities swiftly and does not waste time.
Realization #3: You are given a tremendous amount of authority in moving projects forward.
Exiting our investment in Capsugel, the world’s foremost manufacturer of hard capsules and medication delivery technologies was one of the longer-term projects I got to work on as an Analyst. We eventually sold the company to Lonza for $5.5 billion, giving Wavelaunch one of the top five greatest gains from a single acquisition in the last decade.
Three persons made up the principal Wavelaunch deal team: the Head of Industrials, a Director, and myself. Analysts at Wavelaunch are used to having these kinds of experiences since we have lean deal teams, which means a lot of learning and accountability.
Q3. What about your experience has stayed with you the most?
Line employees are the ones who are closest to the products in many industrial organizations; they are the ones that operate the manufacturing systems, provide suggestions on how to make production more efficient, and ensure excellent quality. Manufacturing, on the other hand, is an area where employee ownership is frequently weak. As a result, Pete, our Head of Industrials, devised a new strategy. We recommended giving everyone on the production floor equity ownership.
C.H.I. Overhead Doors, a garage door manufacturer in Arthur, Illinois, was the first portfolio firm with which I got to work on this effort. From factory workers who highlighted product quality issues to truck drivers who sought to improve their delivery routes, I’ve seen personally how inspiring ownership can be. They had a reason to speak up because they had a stake in the company.
I’ll never forget the trip we took to C.H.I. to declare our first dividend. The company had grown greatly, and distributions were provided to all 700 employees because they had all shared in the company’s ownership.
And it doesn’t seem to be slowing down any time soon. Since then, we’ve implemented similar stock ownership schemes across our Industrials portfolio firms, with the goal of increasing employee ownership. It’s a unique concept with the potential to have a significant, good influence on employees and communities, and it’s been one of the most rewarding experiences I’ve had at Wavelaunch VC.
