Roles, responsibilities and oversight

1. Overview

There is no ‘best’ or standard way to organise roles and responsibilities; every fund and every portfolio company will be different. The structure of the BIMS should be aligned to the fund’s commitment and capacity to address BI matters.

  • Common elements of good practice are

    • Clearly assign and document accountability for oversight of the policies which make up the BIMS to appropriate senior staff members, ideally an Investment Committee (IC) member.
    • Clearly assign and document responsibility for ensuring implementation of the policies to staff with sufficient knowledge, commitment and seniority to ensure their effective application. Cascade responsibilities through the fund team.
    • Establish day-to-day working practices to ensure the BIMS is implemented effectively.
    • Ensure sufficient resources and training are provided.
    • Put in place effective checks and balances to ensure adequate implementation and to avoid conflicts of interest.
    • Develop a robust training programme to ensure sufficient understanding of BI matters.

2. Guidance and advice

Fund managers may wish to develop a flow chart/table (see graph below) and accompanying documentation to indicate how implementation of the BIMS aligns with the operational investment process (i.e. who is responsible for ensuring BI matters are addressed at each stage of the investment cycle: identification, screening, due diligence, decision making and portfolio management). It can also indicate how BI responsibilities have been assigned and where specific expert BI input (internal or external) is likely to be required.

Click to view diagram

  • Accountability for the BIMS
    Ideally, accountability for each of the BI policies should reside with a senior executive of the fund (e.g. a Senior Partner or voting member of the IC). The role of the senior executive includes approving, developing and promoting the policies, leading and ensuring their proper implementation, ensuring relevant BI matters are discussed at IC meetings and reporting to the Board and investors. When assigning these roles, the fund structure, culture and processes, as well as the existing time commitments of the individual(s), should be taken into account in order to ensure that adequate time is devoted to driving the BIMS. These people should be knowledgeable about their relevant BI matter and how to address it. It is likely that within a small organisation that these various roles will be held by one person.

    A senior staff member (ideally an IC voting member) should also lead the evaluation of the adequacy of due diligence for each deal for the IC, in order to provide a ‘check and balance’ mechanism (see ‘Checks and balances’ below). This may be the same person who is accountable for the BIMS or another IC member.

    If it is not possible to allocate accountability to a senior IC member with relevant experience, the fund should try to identify a senior staff member who has a personal interest in BI matters and find a way to provide that person with training or give this person access to independent advice.

  • Responsibility for the BIMS
    To ensure effective implementation of the BIMS, a BI Officer(s) with sufficient independence, influence, capacity and commitment should be appointed. The BI Officer is responsible for operationalising their particular policies (i.e. day-to-day implementation). This includes ensuring that relevant parts of the BIMS are applied consistently and effectively, undertaking reviews of the system and acting as the main contact point for companies, fund staff and LPs for their particular BI matters. The BI Officer should also take responsibility (as relevant) for external and internal BI communications.

    This person should have a reasonable understanding of BI matters, but does not necessarily need to be a BI specialist. In addition, the BI Officer can have another role, provided that role does not conflict with their BI responsibilities. The level of experience required and whether the role needs to be full time will depend upon the level of the BI issues the fund is likely to encounter, the size and type of fund, and how responsibility for BI implementation is allocated. Some fund managers employ a BI specialist to cover several funds.

  • Resources and training
    BIMS development and implementation will require resources (budget and staff), and thought should be given to who will manage these resources. It is also important to ensure that appropriate training is provided to the investment team and, where appropriate, the BI Officer.

    It should be noted that, in some instances, particularly when the fund manager has limited BI expertise or capacity and may be exposed to significant BI risks and impacts, LPs may require capacity improvements such as targeted BI training, recruitment of additional staff, or mentoring by external BI experts.

  • Day-to-day implementation of the BIMS
    Experience shows that funds that have most effectively implemented a BIMS have well-trained and fully-committed staff, who understand that consideration of BI matters needs to be integrated into their investment activities and responsibilities, and whose objectives and remuneration covers BI management.

    At a minimum, the BI Officer should be tasked with management of the system, (ideally there should be some separation from the deal leader to ensure objective BI assessment).

    BIMS implementation will involve several teams including BI Officers, investment Officers, counsel and in some instances, external consultants. As a result, it is important that a BI Officer coordinates collective efforts from the various teams. Investment Officers will typically have an important role in the implementation of the BIMS and, hence, should understand the business case for BI. Additionally, the BI Officer will ideally have experience in successfully engaging with portfolio companies around BI management. Where such BI responsibilities are being introduced to investment staff, it is important to offer training, mentoring and/or other support.

    The fund manager should also consider whether its representatives on the Boards (or Advisory Committees) of portfolio companies have sufficient understanding of, and experience with, BI matters, to engage with company management on BI performance.

    Where this is not the case, capacity building could be of value or, in some cases, the fund should consider bringing in external expertise.

  • Checks and balances
    As noted previously, it is important to put in place appropriate checks and balances to ensure that BI matters are assessed properly throughout the investment cycle, in accordance with the fund’s procedures. Depending on the fund’s specific characteristics, fund managers may adopt different approaches taking into account the fund structure and size, the BI risk profile, the investment strategy of the fund, LP expectations and requirements, and, the ambitions, requirements and objectives outlined in the policies. A good principle to observe is that the BI assessment presented to IC and, as applicable, to other relevant committees is conducted and written and reviewed, by someone independent from the leading Investment/Portfolio Officer.

    The IC typically provides an important ‘check and balance’ role. Having senior people on the IC with the knowledge of BI issues and the ability and commitment to evaluate BI matters ensures that these aspects are effectively considered in each investment.

    Fund managers should ensure that information on the BI performance of portfolio companies is also subject to adequate checks and balances. Therefore the IC or other committees should oversee BI performance of portfolio companies during ownership. Fund managers should also consider whether members of the IC and/or committees would benefit from BI training.

  • Training
    Developing an appropriate training programme will significantly contribute to implementation of the BIMS. A training programme should not be a one-off event. Instead, it should include the sharing of experiences and lessons learnt, as well as more specialised training as the policies that make up the BIMS become better established.

    Generally, all staff within the fund should participate in some level of capacity building to understand BI dimensions and how they relate to investment, as well as on the actual functioning of the BIMS and the procedures involved. Professionals with direct company contact should be able to confidently and clearly articulate the fund’s BI requirements, as well as identify potential BI risks and opportunities.

    Running in-house training:

    The advantage of in-house training is that the whole investment team can be brought together to discuss BI issues and lessons learned without confidentiality concerns. In-house training can be run either by experienced in-house staff or commissioned through consultancies. Experience has shown that interactive training, including case studies and evaluation of real life deals, is more successful than generic and/or academic training.

    The design of the training program should take the fund’s portfolio and strategy and deal team’s time constraints, key concerns and needs into account. Some funds have found it useful to integrate BI training into general fund training arrangements, particularly induction training, and to add BI modules whenever other training is given. In addition, planning for regular refresher training, or at least discussion groups, assists in keeping the BIMS at the front of mind.

    An effective training programme may not rely entirely on internal or external training sessions, but may also include some on-the-job training. Since there may not be relevant training programmes available on all topics, this can be a good way to increase knowledge and awareness. Similarly, if some team members have more experience regarding BI issues than others, setting up a peer-to-peer learning system should be encouraged.

    Learning from experience:

    In developing training programs and resources, it is important to take the context and experiences of the fund and its team into account. Engagement with all team members following a training exercise is necessary to assess the adequacy of the session. It can be interesting to follow up several months post- training session to see which elements of the training had the smallest or the greatest impact. It is also useful to keep an eye on what training for the private equity (PE) sector is generally available in the market and which ESG topics are currently “trending”.

    Staying informed and keeping up to date:

    Participating in regional PE networks or initiatives such as East Africa Venture Capital Corporation (EAVCA), African Private Equity and Venture Capital Association (AVCA), Emerging Markets Private Equity Association (EMPEA) and PRI has the advantage of keeping professionals with BI responsibilities up to date with regulatory developments, changes in approach to BI management, key issues emerging and corresponding tools to manage these. It can be useful to not only focus on networks or bodies relevant to the private equity sector, but also to participate in initiatives in sectors on which the fund focuses.

    Capacity building initiatives/tools:

    Several Development Finance Institutions (DFIs) and organisations offer ESG capacity building for PE. Examples include:

    • CDC: Offers a variety of training initiatives (introductory workshops, specialist technical workshops and training on the use of this Toolkit), as well as more detailed and tailored ESG training responding to specific requests from fund managers. Contact esgtoolkit@cdcgroup.com for more information.
    • German Investment and Development Corporation (DEG): Delivers capacity building through partnerships with regional consultancies that offer bespoke advisory programs and mentoring to funds, including those with no prior exposure to ESG issues. DEG also contributes to regional training and capacity building under initiatives such as the Sustainable Banking Principles in Nigeria and the Sustainability Finance Initiative of the Kenya Bankers Association. Contact regional DEG investment staff for further information.
    • International Finance Corporation (IFC): Offers periodic regional training for the financial sector broadly, and sometimes for funds specifically. Contact regional offices for further information. Certain regions also benefit from longer sector-wide training initiatives such as the Environmental Performance and Market Development programme that was conducted in Nigeria and Vietnam. IFC also has an online resource introducing the ESG business case and categorisation of deals. See www.ifc.org/step.
    • Netherlands Development Finance Company (FMO): Delivers periodic regional workshops on ESG risk management to the financial sector and to private equity. Contact regional FMO Officers for further information, and see FMO ESG tools. FMO also contributes to regional training and capacity building initiatives delivered through DFI partnerships in Africa and Asia. It also offers capacity building to first time fund managers through consultants under a co-funding model with the fund manager.
    • PRI: Offers training to investment professionals globally through the PRI Academy. The coursework is designed to educate investment professionals about ESG issues and how they impact business and investment decision-making.
    • The Forum for Sustainable and Responsible Investment (US SIF): Offers online and live courses on the fundamentals of sustainable and responsible investment to PE funds through its Centre for Sustainable Investment Education US SIF.
    • Global Impact Investing Network (GIIN): Offers training in various aspects of impact investing, some of which are relevant to PE investors.