FSN Capital's Morten Welo discusses importance of ESG

Mikkel Stern-Peltz: ESG has become an increasingly visible and codified part of FSN Capital's business in recent years – why?

Morten Welo: Frode Strand-Nielsen, who founded FSN Capital 15 years ago, has always focused on building a defined culture in our firm and in our portfolio companies.

Addressing ESG issues has always been an integral part of our investment process and our active ownership and governance approach. We believe that addressing ESG issues head on drives returns and mitigates risks.

Throughout our investment history we have experienced many examples of the link between managing ESG issues and long-term value creation. The success of Aura Light as a thriving provider of sustainable lighting products and solutions has taught us the value of sustainable business models.

The impressive employee satisfaction ratings and their direct impact on VIA Travel's market-leading customer satisfaction and loyalty ratings, reinforced our belief in the value of creating stimulating and motivating working environments.

The millions in cost-savings achieved in Kongsberg Automotive by reducing sick leave from 9% to 4% demonstrated the value of taking targeted measures to bring down sick leave. The value of being proactive in dealing with a 30-year industrial spill at Troax was demonstrated through its favourable industrial- and community- relations impact. The risk-mitigation effects of enforcing implementation of compliant corporate governance were illuminated in Vizrt. These are just a few examples.

You are right that we have made our ESG approach more explicit in recent years by, for example, producing our annual ESG report. We do this in response to increasing awareness of – and emphasis on – ESG issues among Limited Partners, their beneficiaries, and other stakeholders.

MSP: Has it become a requirement in the Nordics for GPs to have an ESG policy?

MW: Yes, it has. The reason being LPs and their beneficiaries today not only focus on the returns generated but also, to an increasing extent, whether this return is generated in a responsible manner.

MSP: The LP community in the Nordics is driven to a large extent by public pension funds and other quasi-public investors – is there an increased focus on ESG as a result of this?

MW: Addressing ESG issues is very much a part of the Nordic model. All stakeholders – the business community, political community, unions, the public, and the media – expect us as investors and active owners to act according to sound ESG principles.

The point being, the focus on this comes not only from the LPs, but is driven by the values of the societies in which we operate.

MSP: What has the focus on ESG meant for FSN Capital when doing business, in terms of sourcing deals and being competitive?

MW: Our experience is that sellers of businesses in the Nordics – be it families, corporations or other private equity firms – place a great deal of importance on securing responsible ownership of the business they are selling. It may take us four to five years from the time we initiate talks until we acquire their business. This time is sometimes required to build the trust that the founder, family or corporation needs in order to hand over the business to us. The fact we are very explicit in our responsible investment and governance approach helps us to secure the seller's required trust.

As mentioned previously, our focus on ESG helps us drive returns and mitigate risk, and hence enhance our competitive performance with our investors.

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• Topics
• Nordics
• FSN Capital
• Norway
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• ESG