Methodology

The calculations made in the context of the studies are based on voluntary data from France Invest members. Each study specifies the methodology employed.

• Methodology governing the France Invest study on growth and job creation:

Since 2003, France Invest and EY have sought to determine the characteristics of French companies supported by private equity in its various forms: innovation capital, development capital, buy-out capital and turnaround capital, and to carry out dynamic analyses by calculating the growth of their workforce and revenues.

The survey is conducted among all active members of France Invest. The survey covers all companies held in members' portfolios, whether owned for all or part of the period. The possible impact of acquisitions or exits carried out by these companies has been corrected for where information was available.

The information in the database has been systematically verified by EY. Workforce and revenue growth rates are calculated for French companies where all required data are complete for a two-year period.

France Invest is a UN PRI signatory

Since 2012, France Invest has been a member of the UN PRI Network Support. The PRI have developed specialist tools adapted to private equity. As such, they are an authority in implementing processes to help managers identify, manage and report on ESG risks and opportunities in their investment decisions and portfolio management (click to learn more).

Today, 43% of France Invest members are signatories to the UN PRI as of September 2020 (up from 27% at end 2018). France Invest has set a target of ensuring 100% of its members join the UN PRI by 2030.

France Invest has also developed training programmes on fostering the integration of ESG criteria by portfolio companies and the implementation of reporting for private equity teams.

Find out more about the training programmes France Invest offers on integrating ESG criteria into investment and disposal transactions and monitoring investment performance.

How are ESG criteria integrated into the holdings of a private equity firm's portfolio?

One specificity of private equity is the support provided to portfolio companies throughout the entire holding period, which varies from something in the vicinity of 5 to 7 years.

Consideration of ESG criteria by private equity companies active in France follows the investment cycle. Integration of these criteria begins at the pre-acquisition phase, continues throughout the holding period and is measured prior to exit during the disposal phase.

Upstream, an ESG analysis (ESG due diligence) is conducted during the pre-acquisition phase.

At acquisition, an ESG action plan is drawn up to establish clearly defined metrics and procedures to be implemented and monitored during the holding period.

At the end of the holding period, prior to the sale of a portfolio company, a new ESG analysis ("ESG vendor due diligence") is carried out in order to observe and measure the progress made in terms of impact and formalisation of company processes.

The application of an ESG approach at the level of the unlisted company by a listed private equity firm according to each stage of the investment cycle:

(These are examples illustrating the range of ESG actions a private equity fund can take at the portfolio holding level.)

A thriving segment of private equity experiencing rapid growth, Impact Investing differs in specific ways from Responsible Investment and SRI. This investment practice not only integrates ESG analysis and seeks to limit negative externalities, but also aims to combine an investment's financial performance with social or environmental performance. At the end of 2019, France's impact investing amounted to €4 billion in assets under management.

This segment is represented within France Invest as a Commission dedicated to Impact Investing. Members of the Commission must adhere to the France Invest Impact Charter, under the terms of which the 33 signatories commit to:

• A two-fold objective of seeking financial performance and impact:
  • A return on investment (financial return)
  • A social, societal and/or environmental impact
  • A fair balance between these two objectives
    
• Active engagement with entrepreneurs to maximise impact:
  • An economic development strategy that generates impact
  • An impact strategy that promotes economic development
    
• Measuring the impact of investments:
  • A methodology for assessing impact
  • Regular reporting to LPs
  • A total or partial alignment of carried interest with impact, where such a mechanism is included in new funds

More information on Impact Investing players is available on the France Invest website.

France Invest has launched several initiatives to promote gender parity. In early 2020, the organisation offered members an opportunity to become signatories to a Gender Equality Charter comprising some thirty commitments for furthering gender parity, including the following objectives:

• For investment teams of Management firms that are members of France Invest, to:
  • Have women in at least 25% of senior positions by 2030 and 30% by 2035.
  • Achieve a 40% participation rate of women overall by 2030.
• For companies supported by members of France Invest, to:
  • Have 30% women members of their ExCom by 2030.
• For Investors in private equity funds:
  • That they undertake to consider the gender ratio of management companies' teams and portfolio companies in their investment decisions, and to track progress towards significant targets for improvement to gender equality these funds have established.

Today, nearly 73% of France Invest members have signed this charter and have committed to taking action to achieve the objectives it sets out.

These commitments are subject to an annual follow-up within the framework of the study, carried out every year and piggybacking on a long-running study on Gender Balance in Private Equity which has been carried out for 8 years in partnership with the firm Deloitte among private equity investors who are members of France Invest.

French private equity, a CleanTech financing player

Private equity firms operating in France have significantly contributed to the development of the CleanTech sector. The term CleanTech refers to innovative technologies with environmental added value. These include the areas of renewable energy, ecomobility (transport/mobility), eco-industries (air, soil, water, waste, noise), the circular economy, storage, Agritech, energy efficiency and green chemistry.

According to the Cleantech 2019 barometer compiled by France Invest in partnership with GreenUnivers and EY, assessment of financing for the energy and environmental transition by French private equity over 10 years shows that €1.2bn in capital was provided in 2019, enabling the financing of more than 100 CleanTech companies (more information here).

Over the past 10 years, private equity in France has invested €5.7 billion, more than a third of this in renewable energies.

The Cleantech barometer is a half-yearly barometer. The barometer for the first half of 2020 shows that, despite the health crisis, CleanTechs were the recipients of €270 million across 39 financing operations.

Initiative Climat International (ICI)

France Invest supports the "Initiative Carbon 2020," recently renamed "Initiative Climat International." IC International is the result of deliberations around the need to create an approach addressing the specificities of the Private Equity sector in France and around the world. Aware of their responsibility as shareholders, 5 members of France Invest decided in November 2015 to take action on behalf of the COP 21 objectives by creating a sharing platform alongside all Private Equity players seeking to get involved in the fight against climate change.

The commitments of IC International members are expressed in 3 steps:

1. Recognising that climate change will have effects on the economy that represent risks and opportunities for businesses;
2. Mobilising to contribute, each at their level, to the COP21 objective of limiting global warming to 2°C;
3. Reducing the greenhouse gas emissions of their portfolio companies and ensuring sustainable performance.

IC International was endorsed by the UN PRI at the end of 2018.

Today, IC France has 41 signatories representing 13% of France Invest members (up from 11% at end 2018).

Strengthening the dialogue between private equity firms and institutional investors:

In view to improving the ESG dialogue between institutional investors and private equity firms, while limiting the workload involved in monitoring ESG criteria, France Invest has published a number of recommendations aimed at standardising ESG questionnaires according to a number of principles established by the UN PRI and TCFD, among others.

These recommendations were updated in October 2019 (document available here). In substance, a common framework (definitions and DDQs) was adopted and made available to all institutional investors and managers.

Among the recommendations is a list of 11 ESG key indicators "Fund companies" which constitute a minimum basis of extra-financial criteria for private equity firms to track at the level of portfolio companies:

• Environmental
  • Carbon footprint tracking for the prior 4 years: number of holdings concerned and percentage of overall portfolio
  • Existence of a formal environmental policy: number and percentage of portfolio companies
    
• Social
  • Job creation: number of jobs created excluding build-ups
  • Tracking of accident frequency: number of holdings concerned and percentage of overall portfolio
  • Tracking of absenteeism: number and percentage of holdings concerned
  • Tracking of turnover: number of holdings concerned and percentage of overall portfolio
  • Value sharing: Existence of a mechanism to enable sharing of value beyond legal obligations: number of holdings concerned and percentage of overall portfolio
    
• Governance
  • Gender composition of boards: number of holdings concerned and percentage of women
  • Gender composition of management committees: number of holdings concerned and percentage of women
  • Independence of board members: number of holdings concerned and percentage of independent members
  • Formal procurement approach consistent with ESG risks identified in the value chain: number of holdings concerned and percentage of overall portfolio

The Greenfin Label:

France Invest supported this project and, welcomed the creation the government's creation of the Energy and Ecological Transition for Climate (TECC) label in December 2015, now known as the Greenfin label since 2019. The aim of this label is to mobilise a portion of household savings on behalf of the environmental and energy transition by setting out specifications funds must meet to earn the label in terms of their contribution to financing the environmental and energy transition, the transparency of their reporting and their environmental impact. At 31 December 2019, 41 funds had received the TEEC label, 34% of which are members of France Invest.