Norvestor: A Sustainable Long-Term Value Proposition in Private Equity

The disclosure of environmental, social, and governance (ESG) practices by private equity funds has been associated with a 4.9 percent increase in the net IRR (internal rate of return). That is the conclusion of a London Business School research paper. Whilst private equity funds aren’t usually required to disclose their ESG policies, heightened public awareness and the need to remain competitive with publicly listed companies are driving PE funds to greater transparency and improved ESG reporting.

The paper also found that PE funds with a higher-than-average rate of disclosure tend to sustain a significantly reduced environmental footprint. The authors conclude that over the past 20 or so years, ESG reporting went from an esoteric sideshow to claim centre stage. It also became a tool to identify, extract, and monetise opportunity.

Nordic investors and funds have been in the ESG driver seat since the advent of ESG as a set of performance parameters. Perhaps, none more so than Norvestor which boasts nearly three decades’ worth of experience in partnering with businesses on the cutting edge of their fields.

Tapping Into Efficiencies

Norvestor is focussed on companies providing services that can be streamlined and upgraded through the judicious deployment of technology, upping operational efficiency and creating tangible value for both its clients and the wider society.

Norvestor treads carefully but decisively in those sectors where its team possesses experience and a strong network. The company prefers takeovers or close partnerships with targets that are managed by strong and ambitious teams. The aim is to spur accelerated growth during the holding period – usually between three and six years – through the expansion of geographies and the acquisition of complementary businesses in addition to implementing digital strategies.

Norvestor’s approach to investing has remained largely unchanged since the 1990s – and with good reason. During its ownership period, operating profits of Norvestor portfolio companies have grown by an annual average of around 20 percent. Norvestor typically concentrates on medium-sized targets with turnovers in the €25m to €250m range. Its funds have made 82 platform buyouts and partnered in over 300 add-on acquisitions. Norvestor has successfully executed 54 exits, including 16 IPOs.

Sustainability with a view to building long-term value is a key tenet of Norvestor’s investment philosophy. This includes companies with circular economy business models. One such example is SmartRetur, a Nordic pioneer in reverse logistics, specialising in reusable packaging. The company provides physical handling and digital inventory management of wooden pallets for a diverse customer base that includes grocery chains, breweries, carriers, manufacturers and construction companies. SmartRetur was built to reduce waste: 100% of the wood pallets sourced in 2021 were sustainable according to industry standards, and the recycling rate is documented at 98%. The company’s business model is centered around industry collaboration and sharing of pallets to reduce the total number of pallets in circulation, and to reduce unnecessary shipments of pallets. Investing in digital capabilities has allowed the company to monitor and report factors of the clients’ logistics ESG footprint: pallet reuse level, vehicle capacity utilisation, journey length, number of shipments and emissions. This way the clients can take action to cut cost and cut carbon emissions.

Holistic Approach to Sustainability

In April 2022, Norvestor agreed to the takeover of sustainability software platform Position Green and the advisory firms The Governance Group and Velocity Consulting. The three companies have since been clustered in the Position Green Group. This holding joins leading experts in ESG software, strategy, and communication and helps corporates fast-track their sustainability agenda.

Position Green Group currently has a portfolio of over 400 clients and more than 100 consultants across offices in Norway, Sweden, and Denmark. The holding hopes to make additional acquisitions to broaden its European footprint. Founding Partner Joachim Nahem of The Governance Group, now CEO of the Position Green Group, sees increased demands from regulators, investors, and supply chain owners for companies to articulate a clear ESG strategy supported by robust data.

“By bringing these capabilities together, supported by the experience and capital of Norvestor, our ambition is to help companies make the right strategic decisions and provide them with the necessary hands-on expertise, whether that’s helping them set a science-based target, conducting human rights due diligence in their supply chain, or providing a second-party opinion on a sustainability-linked bond”

Mr Nahem emphasises that his team provides a unique integrated sustainability offering that combines strategic consulting services with data and software, e-learning, and executive training: “This helps manage ESG-related risk, speed up value creation, and build resilient and sustainable organisations.”

Norvestor Advisory Partner Henning Vold, a renowned expert in IT growth companies, says that sustainability principles and policies will be ever more important as value drivers in business and investment decisions: “Norvestor has set ambitious goals to be an enabler of the global sustainability agenda. Position Green Group brings together a leading and fast-growing sustainability software platform with two best-of-breed sustainability consultancies. We are impressed by the strong positions that these companies have built in their respective market niches. Position Green Group accommodates corporations’ need for an integrated sustainability partner at the forefront of ESG, and we are enthusiastic about the opportunity to support management in scaling the company internationally.”

Norvestor holds a controlling stake in Position Green Group but shareholders of its three constituent companies will re-invest alongside the PE fund.