IP Group Plc (IPO) Earnings Call Transcript & Summary

Good morning, and welcome to the IP Group Plc investor presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CFO, David Baynes. Good morning to you.

Hello, and good morning, and welcome to the second of our deep dives. These are slightly different from the normal kind of annual reporting cycle where we're just talking about important accounts. This is an opportunity for us to look at some aspects of our business, perhaps a little bit more detail than one could normally talk about. So about 6 months ago, we talked about our valuation policy, which, at the time, we didn't think it would be particularly popular subject, but I think about 200 people turned up to, and was very warmly received. So we thought this would be a very good opportunity to look at another very important aspect of our business, which is ESG and impact. And we'll be covering questions like, why is ESG important to IP Group? But also, why is impact important? And why ESG -- impact, how is that different from the ESG? We, at our company, always felt we were going naturally highly impactful. But interestingly, as the importance of ESG and impact arose and went up. We found it is very hard to communicate that fact. So that's one of the problems we'll be talking about today. Now joining me today are our CEO, Greg Smith; Bran, our Head of ESG, will also be joining us. But we're actually hosted today by Alex Edmans. Now he has quite an extensive CV, and I certainly won't embarrass him by going through all of it. Just to say, he's a Professor of Finance at London Business School. He's done a number of TED talks. In fact, he's have more than 2.8 million watches on those TED talks. Hopefully, we'll be able to get that number up a little bit more today. He's written a number of books, including Grow the Pie, which I think is the Financial Times' book of the year. And last, I've been impressed as all the rest of it. He has been professor of the year in his time. So without further ado, I will hand over to him. He will be able to do a bit of background to ESG in the current market, and then we'll have a discussion. Just to mention, at the end, about 9:45, we'll have time for questions and I'll be then able to ask that to the full panel at that time. So with that, over to you to address.

Great. Thanks very much, David. It's really great to be here to talk about the importance of ESG for long-term financial value. So I'm actually not really an ESG person. So I'm somebody who cares about long-term value. But why I'm very focused on ESG is this is something that does lead to long-term value. So one, I look at it, to begin with, so my first job was at Morgan Stanley in Investment Banking. And then what really struck me was even though financial incentives was so high, you could work hard to get promoted and to get a large bonus, really per person impact perhaps very much mattered to an employee's motivation. So if you are a junior employee, you didn't go to the meeting, but your boss did. And she called on the way back and said, this meeting went great. The analysis that you did all weekend. This came up in the meeting, and this was something the client was really impressed by how much we understood the issue. So small things like that had a large effect on employee motivation, even though rationally and economically it shouldn't have done because financial incentives were so large. So then when I went to MIT to do my PhD, everybody else, because it was MIT, they were looking at tangible things such as cash flows and balance sheet, but I want to look at the human side of enterprise and did the case about employee's satisfaction, whether people feel aligned with the organization, whether they feel a purpose in the mission is that linked to the long-term performance of the company. And so I wrote a paper showing that companies, which are in the 100 best companies to work for in America, those are the companies that go above and beyond in how they treat their workers. They beat their peers by 2.3% to 3.8% per year over the [ 28-year ] period. So about 89% to 184% compound. And then we do further tests to suggest that it's causation or correlation, it's an employee satisfaction that leads to the longer-term financial performance, rather than the opposite, once the companies already doing well, then it can start investing in its employees. Now that paper is viewed as a standalone ESG paper, but I don't mention the word ESG a single time in it. ESG wasn't really that big when I was writing it. I talked about long-term intangible value. And then, in fact, my work has broaden from what we now call ESG, but I've always approached this with the idea that this creates long-term value. And the thesis of mine was the book, Grow the Pie, was that every company has a positive impact on wider society, then that impact will flow back and benefit the company in the long term. So impact is great to society. We can address some of the world's biggest challenges. But ultimately, we are companies or we are investors, and we do need a financial return. And the question, particularly that you see in the U.S., is the distraction from financial returns by research and practitioners also find that this is something which can be very synergistic and symbiotic. Now if you were a bit of a skeptic, and skepticism is always a useful issue such as this. You might think do we really need a focus on ESG and impact, shouldn't we just give focus on profit as long as our focus is on long-term projects. For example, if you are running a car company, would you invest in electric cars? Well, the answer is yes. Even if you did not care about climate change and a positive environmental impact, you might still invest in an electrical car battery. Why? You would build a spreadsheet. You do what financial sectors tell you and you will forecast all the use cash flows. And as long as that spreadsheet is sophisticated and deep enough and long term enough, you will show that, yes, in the short term, there will be some losses. But in the long term, there will be some profits. And then profits will exceed the losses and traditional financial calculation will say shift from petrol cars to electric cars, so you don't need ESG or purpose or impact for that decision. But the core thesis of my work, which has been informed by a lot of practice and discussions is that there are many decisions that cannot be reduced to a financial calculation. So no matter how good your spreadsheet is, there are certain investments that a company might not take without a view towards impact. First example, just to take a simple decision, would a company choose to provide more parental leave to their employees? Maybe you have some sense that if you do so, employees will be more motivated and more productive and more likely to stay. But to put this into cell C23 of an Excel spreadsheet, how much more productive will the employee be, that's something which will be very, very difficult. And so if we live in a world in which all our competitors are trained by finance people and are used to spreadsheet that are making decisions with financial calculation. The goal and the power of impact is that it frees us from making every decision exclusively based on the financial calculation. Certainly finance is really still useful, but are there additional dimension to a business decision and can it be that a focus and impact will allow us to pay some decisions that a business might not take otherwise. So this is why I, as a professor of finance, not philosophy or business ethics, and also as an ex-investment banker at Morgan Stanley can be so passionate about purpose and impact. It's not only that it's good for society, but it's also good for the long-term success of the business. Well, with all that said, you might think, well, one, is there such a backlash against ESG at least in some quarters, isn't everything that I said, for the illogical, should this make sense. But there is a backlash. And before argument, that backlash is politically motivated, we prefer to ask if there's actually truth behind the backlash. And there are three possible reasons why there is some ways to why people might be concerned. So one concern is there are some people who claim that ESG always improve financial returns. We always have win-wins. Doing good to society is always good to profit. And that makes a great message. I mean we don't need to deal with trade-offs. But even though my research and practitioner experience suggest there's a lot of overlap, that overlap is not perfect. There might be certain ESG dimensions and impact dimensions which benefits society, but don't benefit the company even in the long term because we have externalities. So that's point number one. And second concern is that some ESG advocate put ESG on a pedestal above everything else. So when they evaluate a potential investment, they will look at its ESG credential. And sometimes, that will be given more weight than standard business principles, such as good management, good innovation, great capital allocation. Those are important issues, they may be as important or sometimes more important than ESG. It shouldn't be that ESG dominates them. And the third and final concern is there are some investors in some companies do claim ESG will have a huge amount of societal impact. So if you are a mutual fund, you might claim that if I'm to disinvest from fossil fuel, I will starve these companies of capital. But actually, if you're selling in secondary market, you can't sell unless somebody else buys. And so your overall impact on that company's cost of capital may be more limited. So this is why it's great to be tied [indiscernible] about this because as a primary investor, this is an example where impact really is something that you can achieve and you can justify your claim. But to discuss all of these issues in much more depth, it's great to be able to speak to Greg, the CEO; and Bran, the Head of ESG, about the four complicated challenges of personal ESG in practice.

So I'll first start with Greg. So why is ESG such an important issue for your IP?

Well, I think you made some really excellent points. I will say, if you haven't listened to some of Alex' podcast and you're interested in TED talk, you should very much listen because the framing of why growing the pie or creating impact and why the society is very good for financial return is a very common philosophy that we have here at IP, specifically on ESG. And there's sustainability and there's impact. Specifically on ESG, I think there's sort of three main reasons that we focus on as a business. I know Bran spoke recently and led a discussion at the conference around an article that was written in the FTE, which was talking about the part that sort of ESG has done and you've alluded to some of the reasons why we disagree with that, one of the points that you also made was you should keep ESG concepts as amorphous as possible. It's in everyone's interest to just keep them amorphous as possible. And our view is very much the opposite. We think that we should be specific about why we do ESG and how we go about doing it and Bran later is going to come talk much more about -- the how we talk more about why we do it. I think the sort of, first and foremost, we think that signed ESG principles contribute to long-term value in our -- in the portfolio of companies in which we invest, which will, in turn, lead to probably returns, but will also lead to lower cost of capital for those businesses. So I think that's very important, and we are increasingly seeing ESG or impact or sustainability being involved in the due diligence processes, both by ourselves, which will be hopefully lead in the marketing, but also by coinvestors and investors into IP Group as a whole. So it's very, very important. If you don't have a good ESG profile, then you can struggle to attract capital, the best opportunities or to deliver the best returns. Second area is around the sort of holistic view on risk. Risk as business space bit, and we adopted the principles of the TCFD relatively early in the U.K. market as a whole adopted them in early on an international stage, but we adopted those principles early to look at not just risk, around climate change, but also significant opportunities around that and use it as a risk framework. And I think finding a reason because it is a whole advantage, you talk about employee motivation, attracting and retaining talent, these are all vitally important, but as a quoted company, we are increasingly under obligation to report against things like carbon emissions and diversity inclusion, pay gap, et cetera. And so that is important for us to have a product due process on all of those matters as reported against them. And why is that important? A, partly it's [indiscernible], but also it does affect the rating that you get from rating agencies and an increasing amount of capital that is investing into liquid and equity stocks in the U.K. and abroad is through index trackers. One of the best ways that you can influence whether you're in the -- you're qualified for or you're in the top end of that sustainability funds and ESG funds, impact funds is to make sure that you got good credentials and you grade highly. So Bran and his team put a lot of work into making sure that we are rated appropriately highly above our peers, and that makes it a lot more attractive to those tracker funds.

So all those three points make good business sense, but they make such good business sense that some skeptics about ESG will argue, well, you don't need ESG to think about those things, just good business will mean that you want to manage your business and treat employees well. So how does that particular ESG impact lens lead to you taking a different decision from addressing what would be good business?

Well, I think that's -- I thought about this question quite a lot. And the small tricky thing here is we don't see them as different. I'm never really trying to -- when it comes to an investment decision, we're never really trying to rate impact above the financial return. So we -- our purpose as a business is to accelerate our size for a better future, and that's better planet, better people, but we are a listed company, we're an investment business. And in order to have a right to operate, have the capital to operate, we have to be able to deliver compelling financial returns. So the thing that links together our portfolio companies and the opportunities that we look to address are; one, that they address a significant unmet need in the world; two, that there is a significant commercial opportunity; and three, that there is a deep technology solution to addressing those two risks or opportunities. And that means that in most cases, we're not looking to pick something which purely has the impact, a positive impact on the world. We're looking for the overlap that you talked about sort of Venn diagram, the overlapping Venn diagram. We start from the premises that's got to have a significant commercial opportunity and got to have a big impact on the world. And what we think we have as investors, the thing where we are edges is understanding the markets in which we operate, try to understand the dynamics of the markets in which we operate, being able to source novel deal flow, and that's the reason we work a lot with universities and seeds of innovation, not just universities, seeds of innovation which gives us a differentiated access, but thirdly, we think our edge comes in understanding pricing and taking technology risk, and we aim to do that better than others. So that maybe it's a way to -- I don't think we're avoiding the question, but I think we see the two things as not mutually exclusive, but we certainly don't see impact is above financial returns.

Yes, that really resonates with me. It seems that your goal is to be a great company rather than just a company that's great at ESG. Just like I see myself as -- my research and teaching is on long-term value, not just ESG that many other drivers of long-term value. And then just more on your approach, Greg. So a lot of companies nowadays, they claim that they care about ESG and care about its impact until many of these companies are really genuine and taken seriously. What do see and in particularly distinctive about your particular approach to ESG and impact?

Yes. So let me -- I'll try to give you a few examples of how we think about that sort of play out between the financial and financial opportunity. So it's an area that we focus a lot on with our future capital at the moment and I agree with you, we've got a very strong track record is in our energy transition, cleantech investing part and that's separate brand that we have, and we call it Kiko Ventures and is investing our balance sheet -- our shareholders' balance sheet capital into energy transition climate related technologies and businesses that are looking to address that. And one of the reasons that we invest in that space is because there is a very, very significant cost and value opportunity that is going to come about or is coming about because of the energy transition. But the various factors is to do with growing and scaling innovation. And in order to get more clean energy versus traditional energy sources is to do with the cost of existing energy going up, while our transition is occurring is to do with the infrastructure. It's going to be required to deal with rising sea levels, for example. And it also has to do with the cost of -- as crop yields are affected by climate change and costs of food related, and we've seen that those situations occur. So there's huge cost or financial opportunity in both here. And the numbers are very, very significant. So estimates are sort of 5 trillion to 10 trillion per annum in energy transition. And for the sustainable it's the value context, the world GDP, is about 100 trillion. So you're talking to 5% to 10% of world GDP is going to be related to investment in or dealing with the energy transition. So it's clearly a very, very significant area. That being said, that's not the same as generating venture returns in specific investment opportunities. I said about a few results, and I've say it more recently, we haven't actually done a single new investments through our cleantech platform this year. And the reason that we haven't done that is not through the lack of opportunities, we've got 70, 80 things on the pipeline. Actually at the moment in the economic side, we haven't found things that is sufficiently and appropriately priced in our view. That means we want to allocate our shareholders' capital into those opportunities. And I think there's a fantastic example, there's carbon capture technology based in the Middle East which we looked at and it's got some fantastic investors who have come into it. And we've helped that business with things like IP strategy and along the journey. But actually, we didn't feel that the technology would scale commercially sufficient to drive a financial return. So it isn't -- although there is a huge opportunity there to generate impact and although there's a massive commercial opportunity. What we're actually looking forward is the complex or the overlap of that very big opportunity, the biggest is [indiscernible] in this case, but it have to be able to deliver a better return for us. And I think that's where our discipline -- in fact we have a permanent capital vehicle means that we can take an appropriate view of our shareholder capital.

And I think that pricing valuation is really important as we put my public equity lens on, which is what I know better. There are many investor who say, well, that means investment in particular sector or invest in some other sector, and this might be based on ESG ratings. But if that is fully priced in or more than priced in, then you might be improving your ESG footprint, but you're not generating financial returns by doing so. So ESG is just like any other financial issue, it's one that creates return, but only if it's not appropriately priced. But you also care about it but you care about it in terms of the return percentages as well.

Great.

And so when you think about just how this drive decision. So when you see cleantech, those are great business decisions and one might even argue that, a traditional investor will know there's opportunities in cleantech, but have that in cases where you are maybe on the margin or undecided about an investment, and then you'll focus on impact just led it to the swinging one way or it could have gone the other way?

Coming again on this one, I can think of many more examples where the impact has been very significant. The financial return hasn't been sufficient, or at least in our view, the financial return hasn't been sufficient. So there are not many more in that category than the other way around. I mean it maybe affect our -- and this is partly due to our structure and the long-term nature of the balance sheet capital rather than being fixed life funds, but there are definitely technologies that we backed, perhaps a traditional investor might say, that is way too far in the future for us to be able to make a financial case now. A couple of examples would be things like content computing that we were relatively early investing in the content computing space 5, 6, 7, 8 years ago. A lot of what we talked about within our sort of tech-enabled future part of our strategy is IP Group being ahead of the curve. And that's partly because interface with these things of innovation. And as I suppose you could argue in that case, the potential impact of wanting computing on the world will be very big when it comes to a huge amount of change in the way that we interface with machines and the way that AI is working. But equally, it's quite a long way off. Probably a more extreme example, and we've done -- not saying this we do this for impact, but again, sort of aligns with thinking is we had a nuclear fusion business. And we've had the nuclear fusion business from Oxford. At the point of which, it isn't mainly for PhD work. There was modeling the winning front of short values. And there is no empirical evidence, and we backed that company very early with a very small amount of capital. And in terms of about 10 years potential empirical prove that you could actually create the fusion and as the conditions required for fusion that was validated by the U.K. AEA. But again, we did that because actually the financial opportunity is very, very big there. And it's a very novel approach to fusion. One what we think is one of the few in the world that could be commercially relevant over the course of -- in the next few decades. So I struggle really to think of examples where we've actually said that the impact here is very big but the financial return is because we are an investment organization, and there are others that will fill that purpose. And if we have those situations often we will then try to pair them up with either drop it or using sort of transitional money or other sources of finance.

And so we're going to move shortly from the why in terms of the how. But still staying at a high level, how is that you incorporate impact considerations into an investment decision? So is that you have like a traditional network value service? And then you have a favorite impact assessment and then don't think of that separately? Or were you trying to have the impact integrated into the overall NPV so you just have one number yet or do they just depend on the investment ?

Can I sort of cheat and answer both?

Yes.

We do the -- we always do to the traditional financial return. There are various scenarios that you look at and think about how you might -- what capital requirements this business is going to have. What's the exit likely to look like or what would be likely to look like. And then we also look at various screens. So again, sort of in the cleantech business, we look at sort of 5 do-no-harm type categories to make sure that we're trying to have a -- not a negative impact, while thinking about positive impact. And as you said they will always play off. This is not sort of a black and white answer in each case. And sometimes we revert things up to our ethics committee. We have ethics committee, which Bran leads, and shared by a professor, Gordon Clark, who's also leading like globally on these matters. So we do contemplate those things. To come back to that sort of the thing that differentiates out what we're trying to invest in is in societal need and big market opportunity. And so we're looking for the interface of those and that's where things become intertwine. It could take Istesso as an example. So our most valuable therapeutic company, is a Phase II compound so sort of a good way through the clinical validation process. This further us through in a very, very big disease area called rheumatoid arthritis. Rheumatoid arthritis is a really horrible debilitating disease or sufferers, and it effects about 1% of the world population. So 165 million people suffer with this disease. There are various ways that you can treat symptoms. Our compound, we believe treats not just the symptoms, but also the underlying cause of disease and then reverse it. That's going to have a -- it works, which is obviously why we're doing clinical trials, and why we got risk capital. If it works, it's going to address a really significant need in the world. It is also going to have a huge financial impact. The value of that treatment of those cures is going to be very significant. And so when we're assessing things like therapeutic, you're obviously learning that market opportunity. Market opportunity is the same as it is the number of people who are suffering from this terrible condition, who are going to benefit from these treatments. You do then get into things like pricing and availability and that obviously is a consideration when we're partnering compounds. So that's very important. And I can give -- another example would be in the case of Oxford Nanopore. One of our sort of better known investments. They are working with the World Health Organization on TB and trying to determine strings of TB that are antibacterial resistant or antimicrobial resistant. It's a treatable disease. But more than 1 million people die each year around the world from TB, and that is something which we are very proud that we seed invested in back in 2005, and we have invested all the way along. We've taken all of our cost of the tables that we've done what good venture investors do. We've just invested apart from that, and we remain the largest shareholder of the business. But it is now in a real-world impact. And in that case, it's the speed of the turnaround, being able to get to an answer from an example within a few hours. Because in Sub-Saharan Africa, somebody has to travel a long distance to get to a medical and tend in some cases, and they're not given a answer, given an appropriate treatment, they might not be seen again or they might be seen for days. So it's really important. So it doesn't play into it, but I see it is very intertwined in those areas. Along the things as you said, not all is black and white as that. But in many cases, it's the commercial opportunity, the R&D impact are intertwined in what we're doing.

So I'd like to bring Bran now, the head of ESG, to speak more specifically about the implementation and integration. So Bran, your approach at IP Group is called ESG Forward. So why is it called that? What do you mean by that? And what are the main pillars of the ESG Forward approach?

I think actually, ESG for many, unfortunately, can be a box-ticking exercise. So what I'm trying to do is to do ESG internally that adds value to us, to our portfolio companies, and ultimately to our shareholders. So I come from an engineering and maths background, and I spend quite a lot of time in investment banking like yourself, also at Canary Wharf. So I try and go back to first principles and so a little bit whatever you're doing with respect, your shareholders ask me why are we doing this? What is it actually going to do -- the value that it's going to add to us and to our broader stakeholders? And maybe actually, if I can just go back to the origins of ESG, and it'll be interesting to understand where we're aligned with your concern. So I think from my understanding, the perils of ESG is that an asset doesn't exist in isolation. It exist as part of a broader system. And you have to understand how their assets that are interfaces, interacts and impacts that system and how that system then impacts that asset in a [indiscernible] if you like, to get a sense in terms of the longer-term viability and the sustainability of that asset, right? So when they coined the term ESG in 2004, Who Cares Wins. I think the premise is that and historically ESG is always that's a risk framework more so than looking at the value-add aspects of it and which is why I think your work is really incredibly important because you are looking to sort of demonstrate and evidence the upside and evidencing the causality, the ESG signals with respect to performance. So that really, I think, what underpins our sort of approach to ESG. It's actually moving from a just using ESG for risk, but also moving into value. Moving in from box ticking to actually making in proportionate and relevant to our portfolio companies and also moving it from sort of an add-on analysis to actually integrating into what we do, which I think underpins the sort of thinking behind the ESG Forward approach. I mean, I'm a big fan of your book and your work. And in one of your TED talks you said -- have no emphasis on the short term and were [indiscernible] focus more on the long-term quality, which I agree with. [indiscernible] you imply that they're mutually exclusive. So one of the things I read as -- is to actually try and produce that evidential matters that we can raise to generate the [indiscernible] the pillars that [indiscernible] underpin our strategy creation.

To get that resonate not with me to and people think our ESG as [indiscernible]. So let's not be involved in [indiscernible] sample. But then you view as us only [indiscernible] companies may think let's do the minimum possible to avoid scandal, but let's not go above and beyond because that would [indiscernible] in our financial returns. So all the examples that Greg gave were around ESG actively doing good, having a positive impact on society. And we believe we have a positive impact in society that some of that value will come back to us. So this is something which is not purely defensive. It's something that is core and important because of the value it creates. And then one thing about [indiscernible] you can implement ESG both through start selection and investing selection, but also to enable to supporting the companies on their ESG journey. So can you talk a little bit about the second part, how do you help and support portfolio of companies?

Sure. Yes, [indiscernible] investments in companies. So we have a sort of internal framework for [indiscernible], which is essentially based [indiscernible] innovate, demonstrate the way and accelerate. And the principles behind that is actually we work with the company to innovate KPIs and measure [indiscernible] to help them to better evidence through the impact that they have, the value that they have. We do the collection, and we demonstrated honest to demonstrate where we are on our journey. We established a baseline. Then we sort of helped them to elevate their [indiscernible], provide support in terms of getting them to good standard and establish for the hygiene and best practice around [indiscernible]. And we also had experience in the value creation, so we provide them with the true [indiscernible], support they need to sort of pay at the end of the impact but also in terms of actually evidencing how good they manage around that. So we are working with various organizations that like the value balancing lines to create training to really help our companies to demonstrate the impact in a meaningful defensible rate. Because I think that's one of the challenges that we've seen, because our company is in still early stage, to provide a model of impact, that is defense. That doesn't include what I would consider non-sense numbers. I think there are nothing approaching [indiscernible], in fact, as you know. And oftentimes, I'm seeing people think about impact. They talk about a few key things to intentionality nasty -- potentially nasty -- and measures, but also the contact is the actual contribution what your sort of input and investment has actually put [indiscernible]. We are actually trying to approach it in a methodology through a systematic way.

Yes. That's true. Because there's so many people that have real potential of ESG but also sort of controversy for ESG. So on the controversy, so some people long due back ESG data as not comparable with fintech and companies. And that might be well, that should be. Because the key performance in the game for one company will go get from another depending on the business model. But then how does IP Group approach this as [indiscernible] because if you wanted to compare two different investments, if you're having actually different set of KPIs, can you compare the impact? Is comparability important to you? Or do you want to have a tailored approach, which is a relevant for any specific company.

Well, I think comparability is important. And that's one of the reasons why I think a lot of impact modality is a monetary amount to signify the [indiscernible] impact, whether there's no positive impact or negative impact. I actually think it depends. So the approach that we have adopted that we are actually trying out is to start bottom up. So we are creating an impact model. Well, we are creating essentially three different impact models, one for our cleantech, one for Life Sciences, one for deeptech. And the reason we've sort of already actually doing this is because we want the impact model that actually is meaningful to the company so that the company can identify with them so that we get buy in. And then have sort of all of the impacting KPI [indiscernible] nature of the company. But the intention is and as we sort of progress, as this matures, then to see where the patterns are, where there is actually a logical -- where we can logically agree in an intervention you present sort of a bigger dramatic impact future messaging. But I think it's sort of counterproductive to try and take a top-level framework and trying to force it down into a company when it doesn't necessarily fit because then you just kind of [indiscernible].

And actually before I get to my next question, I do want to remark that the world sort of creating [indiscernible] as well because sometimes you have investors to watch companies, it's all letter thing, we are going to go to requiring you to report all of those measures. And sometimes, those investors don't really understand a particular company. Sometimes the listing partner can't go to you, they go as to say we engage with x percent of our portfolio companies, so they got us to [indiscernible] as possible. But you're also saying, well, we do have some expertise, but also company has some expertise that we don't have. So we see ourselves as a partners of the business rather than policemen trying to telling companies what to do.

I completely agree. I mean I think it has a collaborative effort. I don't think -- there [indiscernible] ESG principles. So it's a partnership and doing something that's meaningful. And not just the sort of framework of [indiscernible].

[indiscernible]. So we, as a group, are in the unusual position that we sort of struggle public equity and private investment. Not to say that -- there are other examples, but it's quite unusual position. And an increasing number of our shareholders at the plc level are interested in our [indiscernible] aggregated view of metrics that they can report up to their stakeholders and members and potential firms, they [indiscernible] trust. And we're trying to have part of the reason that -- companies that brand spending, et cetera, is brand also doesn't allow reach to our major investors, where impact is particular importance. So example will be trust have a [indiscernible] we have a very regular dialogue with line trust talking about what's their impact measuring framework and how can we think about the work that we're doing with these really small companies, through 10 people, 50 people and try to bridge that gap to IP Group scale. Line trust is exactly [indiscernible] after tens of billions of scale. So we try to act as interface between those two views of the world. I think probably that's around having credible, quantifiable, meaningful, and useful metric. And we started with metrics of the portfolio company level with our hopefully, leading indicators of commercial success and normal pointed tracking things just substantive tracking impact that they are generally leading in the case of merger success, hoping that, that will be a way thinking about impact is very complementary with financial reserve, but having that sort of role where we statutory the businesses and some of the biggest impact investors in the U.K. and if not so, internationally is important. A little bit valuable for us in our sort of hardship approach to co-creating these approaches.

And I believe this is a site general principle that ESG is, in many cases, do business. And so we fundamentally founded business principles. So about 31 year ago, in 1992, there was a famous Harvard business review on the balance scorecard. And some type of balance was measured back driving performance. So why do we report this. It's not because external constituencies that are forcing us to do, it's because we truly believe these are measures that drive performance. Now they might be different from one company to the other, but why we were attracted is a fundamentally important value creation to not only society, but also to us as an investor. So going back to data question. Another challenge that we have with data is that data [indiscernible] quantitative and required by [indiscernible] back to you. What about a qualitative aspect? As Greg mentioned earlier, diversity, equity inclusion, and so you can have demographic diversity statistics but does that capture cognitive diversity and socioeconomic diversity and also inclusion that you could have a global mix of people, but how to ensure that they can bring best helps to work and then the culture which tolerates or actually encouraged the same. So how do you handle on those more tricky issues? Because that might be whether we or value-added lines is in the qualitative not just quantitative?

I agree. And I think we're trying to sort of build out the right signals. So my approach is to try and reduce to the questions that we -- how we assess our portfolio company there are some firms that have maybe harder question that very pointed-specific questions and I'll also qualitative -- quantitative in nature. What we are trying to do is to try and reduce that to use a combination of both quantitative and qualitative. And the qualitative, again, on the qualitative question, you give us sort of signal in terms of where things are sort of trending in the right direction. I'm just trying to think. I mean, for example, [indiscernible], right? So that's quite a quantitative -- sorry, quantitative signal. But then we also have in terms of is around employee working and our net promotion scores and there was actually given more broader sort of signal in terms of whether people are feeling comfortable and engaged and retract a few other sort of indicators, some indicators [indiscernible] in that. Actually I think both are equally important.

So you really have a robust approach, which has already integrated throughout IP equally. But again with the people bringing ESG forward, how will you evolve this approach, straightforward -- the new things that you'd like to add, sir?

I think it's an creating -- creates sort of consensus across the community. So we do other work with other organizations like the operating principles for impact management. So we all convened working group all we see with them. And the purpose itself is to discuss a lot of these issues and see how we can progress the thinking and the practicalities for -- specifically for us the types of companies that we invest in. So I think those sort of initiatives are really critical in terms of not just doing this, but as a collective, as the community furthering the thinking end approach to take this to the next step.

Well, there are some more questions I'd like to ask both of you, but I'm sure the audience also has a lot of questions. So let me just hand over to David to feel some of those.

Thank you. Perfect timing, I would say, quantitative, just thinking as a moment to do. I've got good questions, some slightly [indiscernible]. So answer that we plan to take. I'll do it [indiscernible] because if something else want to ask a [indiscernible] formal format. So on point to you, Greg. This is from Eugene. Thanks very much for your question, Eugene. Isn't ESG mostly important just for PR communication purposes? If you don't communicate, you get backlash which can harm your financial results. that's the question or is it more than that?

I guess a bit of a both of them and is that you've got to be able to communicate these things while you go on Dr. Bran, and I think Alex was talking earlier about the -- protecting the downside, protecting reputation, having minimum standards on governance and things, which is a downside projection. And then also thinking about it from an upside opportunity point of view. So I think you do -- obviously, you need to communicate these things. But I think it's more fundamental, it's good business practice. It is having a consistent way to consider your financial returns but alongside have we been about the ultimately, the purpose of the business that we're operating is to accelerate [indiscernible] for a best future. And so if you don't have some quantitative and qualitative ways of considering that in your processes internally, you're probably [indiscernible] also looking at a road can take you to any destination. But if you don't sort of have a rough idea of the estimate you want to get to the road or anywhere. So I think it's better communicate if you have some idea and that's the address you are heading.

Alex, I think you probably -- do you want to add on?

Yes, I think it's a great question. I really appreciate the challenge. So the one question I encourage the companies and investor. I work with themselves, if we couldn't tell anybody who were doing it, would we still do it? I don't know that's really useful because there are many companies, which might only do it for the external reporting. But if you want to do something deceptive, we are doing it even if we can't report it externally. For example, do I want to ensure that my workplace is inclusive that in a meeting that people are willing to share their viewpoints? Maybe this won't improve my diversity statistics, but it is still the right thing to do. So certainly, there are certain things that you want to do that can't be reported. And then one might say that all table stakes, but where we are truly committed to this rather than seeing it as a compliance exercise, that is where we take the real power to yesteryear improve the fundamentals of the business, not just to report on those actions.

Yes. Thanks, Alex. The next one, I think it's probably one for you, Greg. You probably might have to [indiscernible] it because it's one you got quite a long time, I suspect. But anybody in the organization can help, which is could you please provide hand of examples of how [indiscernible] make an impact. And then the second is I think we probably answered quite well, but do you try to quantify the impact to your products? [indiscernible], I get the question. What if a company's verdict impact.

Yes, I think I've given a couple of examples during the course of the conversation following to webinar questions were post, there are the individual company level impact. We're trying to do that through a framework which [indiscernible] done and we worked with about 20 companies so far. So we still got quite a long way to go. Another example is sort of maybe thinking about impact on a slightly different way, is the business that we have a fantastic business, which is very, very purposeful in the way that is led by the CEO, Martina, but also in a way that it delivers value. So we have a company's Featurespace. We are about 20% of this business. They are doing machine learning applied to detecting and preventing forward. And they -- because this is a fintech-type company, they are very good with data and have a lot of nice data. For example, 0.5 billion consumers are protected from risk using Featurespace technology. They process 50 billion events per year. They have 75% reduction in [indiscernible]. So that's the very annoying situation where you go to get a credit card payment and it's refused [indiscernible] embarrassed. So you have to go and try to find money from somewhere else, and 75% of all the tax are stored as they occur with a 1:5 false-positive ratio, which is very, very good. And so the impact of that is in those numbers. The bigger impact is where does the [indiscernible] money goes? It goes into financial crime typically and that is used to their finance various and the various activities being related to drug, to war, to trafficking, et cetera. And so we are that company is in its way held into -- so not just the direct impact of fraud, but also the wider impact financial grants. There's some really great impact stories there. Of course, we weren't surprised to learn because this is [indiscernible] where an investor. There is a huge market opportunity here that McKinsey estimated at about 150 billion in 2021, growing double digit, et cetera, et cetera. On that, about 20 billion is in sort of AI for fintech. Given the Featurespace's revenues are in the kind of tens of millions at the moment, there is a huge market opportunity to go with that company, which will contribute to financial return. So we did -- but our brand are quite a company specific and trying to generalize and say our companies as a whole have reduced carbon emissions by 47 trillion tons of [indiscernible] that's a different fail and will work towards aggregation. But in the meantime, we can give those sort of concrete examples.

I'll stop you on that. Because I'm asking 30, 40, 50 [indiscernible]. I am grateful. So it's probably another one for you, Greg, and a [indiscernible]. We were, at the time, I think we're coming out at. We tend to give with key companies [indiscernible] come and welcome that by beginning, but we also have a [indiscernible] on ESG impact. And you doing base questions, isn't that risk-seeking approach with good intentions in month, the reason why [indiscernible] when the market turns in a risk phase like we're at the moment. So it is a contributor that could be to each other?

I definitely think it does. And there is a market opportunity there for those people who are allocating capital into listed equities. We have a set of return objectives that we're trying to achieve and at different points in the cycle and the prices of our companies go down. So the environment for investing is better or worse at times. Similarly, the exit prospects for our businesses, you got to hold on these things forever also change with the time. So I think on the fact that we invested private businesses, about many of the growing businesses are addressing very, very big future markets does weigh on sort of procedure or term value. And so obviously we think about -- one of the other lenses we think about sustainabilities, or sustainability of our capital and how we use our capital. Since 2021, we try to combine investments for the long term in our portfolio with the mature returns of capital to shareholders. And indeed, since we introduced that, we've delivered about 70-odd million cash to shareholders through dividends buybacks. When the financial markets are as they are at the moment, you obviously, think about the ratio of your capital that you used to -- or the ratio of your realizations that you used to invest in the long term. I fact, you use for absolute shorter term returns. So we're always thinking about that. So there's another lens around sustainability, but it does partly explain, I think why not just us, but others too are in private equity or [indiscernible] are currently trading at very significant discount.

What we're trying to do is read out every question and we do try and try to take them. So this one, I think it's probably for you, Alex. I think it's really referring to your opening comments that I feel. It is more of state in the question, but still I'll pass it your way. There's much blind effects that ESG positive decision will lead to possible outcomes. For instance, there's certain amount of common factors [indiscernible] losses incurred from an [ EV ] factory because in the future, there will be losses out way by process. That is based on the fact and therefore a justification. But in reality, it's a [indiscernible] hope and fate, isn't it? The factory may be at a spectacular loss maker for example. In essence, does ESG fail when it [indiscernible] as a group of wealthy man still trying to make himself feel good. But perhaps isn't beneficial in pursuit of humility? More of a statement, but I thought you might want to comment on that.

No, I think it's a really good [indiscernible] point. So it's actually the electrical [indiscernible] was actually not an example of ESG. That was an example of an investment that could be made on purely financial grounds. And so if you're doing a financial analysis of that, you would do you forecast out the initial losses and then the future profit. And just to make sure that it does not mind so you do a sensitivity analysis and look at the upside case and the downside case, but you can make that analysis purely based on traditional financial net present value criteria, you don't need ESG for that specific decision. And then when you look at decisions where you do have ESG criteria, then how you can be guided by evidence. And so that's why the goal of my research is to look at hundreds of companies, over dozens of industries to see whether something seemingly fluffy, likes employee satisfaction, does that leads to long-term shareholder returns. And if it does, is it something which is correlation or causation. So what that means is that if you're a CEO or a Head of ESG, you don't have just blind faith to go on or just the one hand big example from Harvard Business School case study. All you do [indiscernible], but you have evidence behind you so that you can make these decisions with some more conviction. But I think the humility point is also important because even though I have evidence, evidence is not proof. Evidence might not work in every situation. If the evidence I gathered was from 1984 to 2011, maybe the world is now different. And this is why business are run by CEOs, not my professors. But professors have the evidence, but the evidence is something which is not tailored to a specific company or a specific time save, time horizon. So this is something where we need to have both the evidence, but also the traditional knowledge of what make sense to the business. And I think one is really distinctive and helpful about IP Group's approach is we do want to take impacts in ESG seriously, but we also understand business fundaments are really serious. And why there is a pushback against ESG is because I think some ESG applicants have not have humility, like question highlights, they believe ESG should be put to the pedestal above all the other factors, which is not the approach that creates value either to shareholders or to [indiscernible].

Thank you very much. We're going to try and close hard on telecom. So I'll try and get a couple of questions [indiscernible]. if I could probably pass to either Bran or Greg. And has your ethics committee made recommendations, which have led you not to invest in the company?

Well, I mean, I think we're partially likely because we don't invest in our [indiscernible] sectors. So how rising sector any different really contentious area of themes because we have 3 themes that have impact for [indiscernible]. Our committees, at least in all the meetings that I have been, provided total completed approaches that people should consider with respect to the implications of AI or technology or [indiscernible] that I don't recall any instance where we had to identity any recommendation not to proceed with an investment.

No, I don't [indiscernible].

[indiscernible] the brand. It is doing this for a year or 2, predating that. First of, 15 years ago, we started investing with IP. So there's quite a lot of exclusion areas. So we already have that sort of built into our investing strategy there was an example about 5, 6 years ago, which is why particular technology could be applicable to guidance systems [indiscernible] guidance system, and that instance, that became a very big market opportunity for that company. I mean we did discuss how we get the committee and decided not to invest in that instance. We did very carefully take into account the fiduciary duty, including fiduciary duty of the Directors of the Board of our company. So we concluded that we wouldn't invest further in business team would actively seek to divest.

I do believe the power of the [indiscernible] committee is not just whether you turn things on but people know that there isn't that committee, so they might not compose something unless they think it something go through. I can never fail any student. It's not because I'm a thoughtful professor. If people work really hard for the exams, [indiscernible] that they fail them then that is something which has impact.

I'll try and get one more question. Edward, I'm not ignoring your question, but your question was around the fact we've talked about the numbers -- to have impact on anymore. And I feel we can probably answer that one. We can always ask some more in line if you need more.

Try to give more example in the annual week, we try to give a lot of examples in annual week, so maybe we can highlight those.

Not in year-end presentation. There's no we often trying to highlight [indiscernible]. Don't we have a [indiscernible]. David, thank you very much. Anything [indiscernible] Alex reference is research. But those businesses, which were scored higher by their staff and it's format. So the question to us is, do we have any aspect -- maybe expanses, do we have any evidence or plans to develop any for those businesses which aim and deliver great and positive [indiscernible] that ESG impact grow more and do better? Is there any research on that yet or are we planning on doing more.

Yes. there is. And so what my look at, it's called growth apart, it's the idea is that the company's grow the time and create value for wider society, ultimately, this translates into financial value. Now [indiscernible], this is quite tricky because you might think what is this correlation or is a correlation, maybe be a great CEO both thinks about creating relative society and he or she delivers financial returns anyway. So what academic research can do is they can look at external shocks, which might change a company's orientation. And so there is one I studied, it's not my own, I'm plugging somebody else's read, that's by Caroline Flammer, a professor of Colombia, which looks that what happens when shareholders come in, investors come in and they sort at least changed the orientation of a company. And even if that orientation is to create value for wider society, ultimately, if you find that's also creates financial value. So this is something which is randomly stocking [indiscernible] orientation but ultimately leading to financial return, again, suggesting that there's the [indiscernible], which both Greg and Brad have highlighted also in their comments.

And the last one, I did see some question, but there is a very good way to win. I think [indiscernible], thank you very much. So we invest in IP Group, it's not entirely about maximizing the chance. It may be to feel good to invest in technology and make an impact [indiscernible]. So thank you very much indeed. That I think is the end of our session now. Just over 10:00. Thank you very much for joining today. I particularly thanks to for cheering and learning it so well. Thank you, I'm sure we'll be back again in the near future in other [indiscernible].

David, Greg, Alex, Bran, thank you very much indeed for updating investors today. [Operator Instructions]. On behalf of the management team of IP Group Plc, I would like to thank you for attending today's presentation, and good morning to you all.