ADVANCING ESG WITH TECH

Northstar Group

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[HUI MIN LOH]

Time flies. We were introduced to each other almost two years ago when you first joined Northstar Group as the Head of ESG. It would be great if you could share a bit more about Northstar Group's mission and your firm's digital transformation journey.

[PRIYA GOPALAN]

So, Northstar is a Singapore-headquartered PE and VC firm, and we manage more than $2.6 billion in committed equity capital. And we invest in growth companies in Southeast Asia. We've invested in more than 50 companies across various sectors. Our business is relatively small and straightforward. Because of this, we don't use a lot of technology solutions. However, given that Northstar is committed to accurate and transparent ESG monitoring and reporting, what we decided to do is, in 2023, we implemented this ESG toolkit that really helped us in facilitating the gathering and analysis of ESG data from our portfolio companies. And we collect data that's aligned to the ESG Data Convergence Initiative, the EDCI.

[HUI MIN LOH]

How has this impacted your investors’ and portfolio companies’ relationship?

[PRIYA GOPALAN]

Oh, it's helped a lot, Hui Min So ESG initiatives often involve optimizing resource use, reducing waste, and improving operational efficiency. So these kind of improvements actually lead to cost savings because you could get fines from pollution issues, and legal issues could happen as well. So, this actually leads to enhanced profitability in portfolio companies. It makes sure that we mitigate risk and also create some value in our portfolio companies. Other than that, our initiatives also go beyond the regulations. So, some of these legal requirements, like minimum employment age or health insurance, there could actually be some legal and financial repercussions for noncompliance. But ultimately, I think ESG practices not only enhance the reputation of companies but also strengthens relationships with other stakeholders, like customers, employees, and regulators.

[HUI MIN LOH]

So, it's interesting that you have highlighted that one of your key technology implementations at Northstar Group has been on the ESG and sustainability front. So being in the region, we have seen that ESG in APAC is at an interesting journey. So, what are some of the sustainability trends you have seen in APAC?

[PRIYA GOPALAN]

ESG is becoming more important for private equity and venture capital firms. There are a number of reasons for this, but I can give you a few. The first one is growing investor demand. So, investors in PE and VC funds are increasingly prioritizing ESG factors in their investment decisions. So as a result, more PE and VC firms are integrating ESG considerations throughout their investment process.

Another reason would be for value creation. So, a lot of firms, like Northstar, are increasingly of the view that ESG is a value creation opportunity. So, we believe that being diligent about ESG throughout the investment lifecycle can also lead to better financial outcomes. There are other reasons as well -- there are investment opportunities related to ESG. So, the shift towards a low carbon economy creates investment opportunities as well, like in renewable energy, clean tech, and sustainable infrastructure.

Also, a lot of consumers are becoming more into sustainable consumption. So, they prefer using sustainable products and this opens the doors for PE and VCs to invest in these kind of companies, like organic agriculture, or green building materials, and ecofriendly consumer goods.

But finally, there's also a last reason, which would be the regulatory push, because a lot of regulatory bodies, particularly in Hong Kong and Singapore, are setting expectations for PE and VC firms regarding climate change and environmental practices. This is pushing the PE and VC firms to adapt their strategies and ensure compliance.

[HUI MIN LOH]

Sustainability is an important and evolving theme. APAC is a diverse region in terms of cultures, languages spoken, and more. So putting sustainability together with APAC, from your experience, would you be able to share a bit more on the different approaches, frameworks, and set of standards you have seen for Asian GPs?

[PRIYA GOPALAN]

So Hui Min that's a very interesting question. There are different regulations in different markets. And some are all-- could apply to different GPs, given where they invest, like there's the SFDR, which is the EU Sustainable Finance Disclosure Regulation. Now, that requires financial service companies to ensure transparent communication and also classify their funds based on very detailed sustainability criteria.

The MAS also has a requirement for private fund managers in Singapore to have environmental risk policies and also for public retail fund managers to disclose investment strategies. So, there are lots of different regulations out there. But it would be great if all the different regulations could be harmonized, both from a compliance and a reporting point of view, because I think that's one of the things that a lot of us, GPs, find quite cumbersome when we have to report on an annual basis for all the different regulations.

[HUI MIN LOH]

So ESG data challenges in private markets remain not only from the perspective of the nonstandard approach but also from the lens of incorporating ESG and sustainability into the day-to-day investment process. How do you and the firm approach sustainable investing?

[PRIYA GOPALAN]

Hui Min, at Northstar, we believe that, by carefully assessing and actively managing our ESG factors, it can enhance our ability to generate long-term returns and also positively impact our communities. We have a comprehensive ESG management system, and this was developed in consultation with a development finance investor. And it's also been implemented across our portfolio.

[HUI MIN LOH]

And how do you facilitate the change needed for your portfolio companies to embrace the importance of ESG?

[PRIYA GOPALAN]

So, the education process begins when we are actually considering the investment and as we start engaging with companies on our ESG requirements. So, basically, after we invest, during the holding period, we would set up regular meetings with our portfolio companies. And in addition to checking compliance and monitoring progress on their corrective action plans, we would also engage with them to help them build ESG policies and processes and also identify any areas of improvement in terms of their ESG profile. So, for example, it would be producing an emergency preparedness and response plan, or an incident and accident registry, and other such initiatives.

[HUI MIN LOH]

Now switching gears to DEI, what are Northstar's DEI initiatives?

[PRIYA GOPALAN]

So, it's interesting that you asked that, Hui Min. Globally, women are significantly underrepresented as investment decision makers at PE and VC firms and as founders of investee companies as well. So, we at Northstar, have developed a gender action plan to promote gender equality within our organization and also our portfolio companies. As part of this commitment, we've implemented policies DEI at the Northstar level, and we're also encouraging our portfolio companies to do the same. So in addition to this, we're also rolling out a gender scorecard, which was developed with a DFI investor, to assist us with conducting gender due diligence for our portfolio companies.

[HUI MIN LOH]

Do you see any challenges while working with your portfolio companies, especially that they are Southeast Asia based?

[PRIYA GOPALAN]

I think this is still something new for a lot of companies, especially the Southeast Asian portfolio companies. This is definitely something new. And I think we need to have a lot more engagement with our companies and help them understand the benefits of having improved diversity in their companies to make them realize why they should actually implement such DEI initiatives.

[HUI MIN LOH]

That makes sense. And I guess this is a good segue to my next question and a timely one as we are recording this a couple of days after International Women's Week. And you mentioned earlier on when we were chatting that it was exciting, that you have recently attended a women-only conference. So as a women leader in the industry, how have you seen your career evolve?

[PRIYA GOPALAN]

It's very interesting. As I mentioned, I did have the privilege of participating as a speaker on an ESG panel at the Women's PE summit APAC, just a couple of months ago. And the experience was truly enriching as I engaged with other female ESG leaders from PE firms and VC firms globally.

So I really think that such sharing of insights and experiences is very important in moving the industry forward. And also, as a woman leader in the industry, I think my career has evolved through various phases. And there's, obviously, been growth but challenges and continuous learning. Initially, it was difficult, I would have to say. I navigated a landscape where women in leadership roles were less common and facing very unique hurdles.

But I think over time I've witnessed a positive shift in attitudes and perceptions. And there's been an increasing recognition of the value that diversity actually brings to the workplace. I've also had the opportunity to take on very challenging roles in my career, and learn from experienced mentors, and also been able to contribute to the success of various organizations.

I don't know if you know Hui Min but I began my career as an environmental consultant in London and then Hong Kong. And then I moved to Singapore just over a decade ago as an ESG risk manager, working for international banks prior to my role at Northstar. So, I've actively contributed to sustainability efforts in the region. And I also represent the financial sector on the complaints panel of the roundtable for sustainable palm oil. So, I'm definitely committed to using my platform to advocate for continued progress towards a more inclusive and diverse landscape.

[HUI MIN LOH]

This is a really interesting career. So before we close out our chat, let's look into the future. What are you most excited about in the next three to five years?

[PRIYA GOPALAN]

I'm really excited about the new technological advancements that create positive impact. So, although Northstar is not explicitly an impact investor, many of the growth companies that we invest in are inherently mission driven, so, these are sectors like clean energy, health tech, climate tech, and sustainable consumer goods. And these companies address pressing societal and environmental issues naturally by incorporating ESG principles into their business models. So, I think, as we go into the future, I think a lot more investments will be in these areas.