ESG - Questions your Bank will Ask

No Company CEO Can Ignore ESG Anymore

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? 

Environmental                                                                

• Carbon neutral objective and timeline          
• Carbon offsetting tool or other initiative to offset carbon emissions
• Corporate policy to reduce business air travel               
• A third party or expert that tracks carbon emissions               
• Measures and reports the greenhouse gas emissions                                          

Social                

• Support for employee volunteering during work hours           
• Corporate charitable donation program (cash or in-kind)                
• Partakes in other community involvement                                        
• Whistleblower policy and/or protection                  
• Annual employee engagement survey         
• An employee wellness program (eg flexible hours, personal days for mental health, etc.)                 

Governance                       

• ESG policy and/or ESG specialist or Champion            
• ESG mission statement and/or commitment to ESG standards     
• ESG oversight responsibility that lies with key decision makers     
• ESG objectives incorporated into management's performance reviews and compensation mechanisms               
• Regular coverage of ESG topics at AGMs, LPAC meetings, and in regular communications with investors            
• Exclusion list to identify clear areas of business restrictions
• Procedures and systems in place to protect against cybersecurity risks
• Training for staff on recognizing ESG related risks and opportunities     
• Evaluation of supply chain ESG risks           
• Assures there is board level oversight on ESG related matters in portfolio companies             
• Tracks and reports on ESG metrics against targets and/or benchmarks                   
• 
  

They also want to know if there are any of these skeletons in your closet:                       

• Data breaches or cybersecurity incidents within the last 5 years   
• Other ESG-related incidents within the last 5 years (eg reputational risk, regulatory investigation, ethical breaches, etc.)                 

Want to download the BDC ESG Tool?     It’s here.

Andrew