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[Interview] Sustainable investing

EQT doubles down on sustainability and digitalization to fuel returns

More than buzzwords, the two themes can be keys to growth in uncertain times, EQT chief executive says

Nov 17, 2021 (Gmt+09:00)

EQT Chief Executive Christian Sinding
EQT Chief Executive Christian Sinding

With higher energy prices, creeping inflation and strained supply chains just a few of the headwinds to future economic growth, investors may find it increasingly hard to place long-term bets. Global private equity giant EQT, with more than €70 billion ($80 billion) under management, believes it has a formula to build companies that can weather whatever the future holds.

The firm is doubling down on its strategy to bolster the long-term prospects of the companies it invests in by helping them rejigger operations with technology and set sustainability goals, said its CEO Christian Sinding

Stockholm-listed EQT, which is deepening its links to Korea, recently closed its fifth infrastructure fund at a record-breaking €15.7 billion, just weeks after having launched a new impact-driven fund to allow portfolio companies to meet social and environmental goals that take longer to achieve than typical private equity holding periods.

"Each of the fund’s investments must have a clear impact thesis and plan to achieve asset-specific targets, and must contribute to portfolio-level impact objectives," he told The Korea Economic Daily. "Importantly, up to 20 percent of the fund’s total carried interest will be linked to achieving these objectives."

Sustainability and digitization are what Sinding, who joined the firm in 1998 as an associate, calls “pillars to future-proofing” not only for the portfolio companies but also to strengthen the backbone of its own organization.

“We invest with long-term positive trends in society, not only because it is good for the world but also because it is driving stronger returns,” said Sinding. “With EQT’s platform and active ownership approach, we have an opportunity and responsibility to contribute to a more prosperous society.”

Korea is an increasingly important market for EQT. The firm raised over €2bn in commitments from Korean institutions for its latest flagship funds, and recently hired local talent to explore opportunities to invest in the country’s infrastructure and further bolster fundraising efforts.

The following is a transcript of an interview with Sinding after he spoke at the conference of ASK 2021 hosted by The Korea Economic Daily on Oct. 27.

▲Why focus on sustainability and digitalization?

"Society faces several challenges today. Excessive resource consumption. Threats to physical and mental wellbeing. A growing socioeconomic divide. We see these challenges as opportunities to both create value and have a positive impact."

"If you have two companies that are exactly the same but one can become more sustainable, which will attract the best talent, have the most solid value chain, have the best relationship with regulators and customers, and ultimately become more valuable?"

"The clear answer is the more sustainable one and the same is true for digital capabilities. That is why we have integrated both into all processes of the investment lifecycle from deal sourcing, due diligence processes, company transformation and value creation process, to exits."

▲What sustainability themes are EQT focusing on and​​ can you give some examples of investments that align with your sustainability agenda?

"Our sustainability agenda is closely connected to climate change and I am proud that EQT has become the first private markets firm to set science-based targets. We have formalized our greenhouse gas emission reduction targets in line with the 1.5°C pathway described in the Paris Agreement."

"EQT has a unique position to take an active role in addressing climate change and we are fully committed to combating it holistically across the EQT ecosystem and all portfolio companies. Setting science-based targets is an important milestone towards this goal."

"We are looking a lot at the energy transition and renewables sectors, and earlier this year we announced the acquisition of the US waste-to-energy firm Covanta in a $5.3 billion deal, and our investment in the solar developer Cypress Creek Renewables, also in the US. The latter is EQT’s second renewables investment, the first being O2 Power in India last year through a joint venture with Temasek."

"Decarbonization is also a key focus area and two of EQT’s portfolio companies, Denmark’s largest passenger ferry operator and its equivalent in Norway have just started operating fully electric ferries on their most popular routes. We will continue to invest in both companies’ efforts to decarbonize their business and accelerate their transition to renewable fuel sources and fully electrified ferries."

"EQT recently acquired First Student, the largest student transportation service provider in North America perhaps most well known for its yellow school busses, and First Transit, a leading public transit management operator serving communities, college campuses, businesses and elderly care facilities. Together, the companies transport more than 1.3 billion people annually and in the coming years EQT will invest significantly in the electrification of their bus fleets and accelerate their transition to greener fuel alternatives."

"Another key sustainability theme we are pursuing is the drive towards more regenerative resource usage. During the past year we invested in the natural ingredients and fragrances company Indesso in Indonesia and Oterra in Denmark that develops and manufactures natural coloring ingredients for the food and beverages industry."

"Both companies are supported by secular megatrends, such as increasing consumer awareness around health and the environment, the ongoing transition from synthetic coloring components to natural ingredients, and a growing demand for sustainable and plant-based food."

"We are also looking at businesses that can improve mental and physical health outcomes. For instance, EQT has invested in the employee-engagement software company Peakon, which can improve worker satisfaction and productivity. And we are using technology to develop inclusive education and financial platforms, which can help narrow socioeconomic gaps."

What are the key trends and opportunities that digitalization presents to the private equity industry? 

"We live in an era of massive digitalization, and many traditional industries are still way behind the curve. We believe there is a huge opportunity remaining in many traditional economic sectors to harness digital technology. As just one example, EQT has invested in the software-as-a-service provider Thinkproject, which is digitizing the value chain in the construction industry."

▲What is EQT doing to stay ahead of the curve in digitalization?

"We support all portfolio companies in driving digital transformation with the aim to develop them into digital leaders in their respective industries. To achieve this, we have made significant investments in our own digital infrastructure and in-house talent. EQT’s Digital teams comprise some 80 technology experts, including software engineers, data scientists and experts in AI, Big Data and Machine Learning. We have recruited many from tech sector firms such as Google, Spotify and Klarna. They work directly with investment teams on deals and with EQT’s portfolio companies."

"We also have an in-house team of data scientists who have built our own artificial intelligence platform, Motherbrain. Motherbrain uses a big data approach to spot the most interesting investment opportunities and enables better and more efficient decision making across our platform. The 12 deals Motherbrain has sourced so far are all top performing companies in EQT’s Ventures funds."

Yeonhee Kim edited this article

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