Partners Group Holding AG (PGHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Corporate Sustainability Update Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to the Partners Group management. Please go ahead, ladies and gentlemen.

Welcome to Partners Group's annual corporate sustainability update call. I hope you're all safe and healthy, and thank you for joining us today. My name is André Frei, Co-CEO, and it is a pleasure to host today's call. I will introduce my colleagues in just a minute. This is the second year in a row that this call takes place in the midst of the global COVID-19 pandemic. Throughout the past year, the pandemic has confronted many investment managers with a central question: should they put their sustainability agenda on the back burner in favor of more pressing economic priorities? Slide 2 shows that at Partners Group, we have remained steadfast in our commitment to sustainability. In fact, the events past year has deepened our conviction that the integration of sustainability considerations into our operations and investment processes is key to creating lasting positive impact for all our stakeholders. As many of you know, Partners Group has a long-standing commitment to sustainability. Since 2006 when we first established our responsible investment policy, we have been a committed leader in responsible investing, and we were one of the first private markets investment firms to sign the United Nations principles for responsible investment. Since then, we have continuously evolved our approach to ESG and sustainability. On Slide 3, I would like to highlight 3 milestones that I'm particularly proud of to have achieved in 2020. First, in order to provide our stakeholders with further confidence in our approach to ESG integration, we have gone one step further this year by seeking external assurance on the most material topics covered in our 2020 Corporate Sustainability Report. One of the key points that has received external assurance is that 100% of our assets under management are covered by our responsible investment policy. This means that we integrate material ESG factors into our investment process for all asset classes and investment strategies. In light of the European sustainable finance disclosure regulation, we have also updated our responsible investment policy to ensure we are and remain aligned with the new regulation. Second, our approach to ESG integration has also received recognition within the industry, earning an A+ rating for responsible investment strategy and governance for the 6th year running in the UN PRI's annual benchmarking assessment of its signatories. Finally, to signal our commitment to addressing the impact of climate change in 2020, Partners Group has become a public supporter of the Task Force on Climate-related Financial Disclosure, or TCFD, which we have also used as a framework for our climate change strategy. In addition to these milestones, and I'm on Slide 4, in the next 30 minutes, we would like to share with you a few highlights from our 2020 Corporate Sustainability Report, which was published this morning. We are going to begin with our corporate sustainability highlights before we turn our focus to our portfolio ESG actions. I will give you an overview of some upcoming organizational changes and talk you through our newly launched climate change strategy. Next, my colleague, Kirsta Anderson, Global Head of HR, will give you an update on Partners Group's ownership excellence initiatives and our diversity and inclusion efforts. After that, we will switch to looking at portfolio level ESG. Our Co-CEO David Layton will provide an overview of our approach to ESG integration, and we will also share some highlights from 2020. Next, our Head of ESG and Sustainability, Carmela Mondino, will share a deep dive into our ESG work with portfolio companies in 2020. She will be joined in this section by Richard Thackray, a senior member of our operating directors and entrepreneurial governance team, who will give an update on our ESG work with portfolio company boards. And Nicole Kenny, a member of our ESG and sustainability team, who will talk you through our ESG performance measurement efforts. Finally, I would like to round off the presentation by providing an update on stakeholder impact, which is a key focus area for Partners Group, and I would like to share some insights into my new role. This brings me to the first topic on the agenda, starting on Slide 5, some upcoming rotations in our Executive Committee. As you may have seen from our announcement last week, as of July 1, I will be stepping down from my role at Co-CEO, and I will take on the newly created responsibility of Chairman of Sustainability, overseeing Partners Group's corporate sustainability, ESG and stakeholder impact initiatives. These are all topics that are strategically relevant for our firm and is key to delivering sustainable performance to our clients. I look forward to further developing these areas, and will provide more insight into our stakeholder impact efforts at the end of the presentation. Let me assure you that these rotations in the Executive Committee actually do enjoy that there continues to be clear ownership of corporate sustainability topics. For example, Michael Studer will continue to serve as Chief Risk Officer. And Kirsta Anderson, our current Global Head HR, on the call with us today, she will be joining the Executive Committee in the new role of Chief People Officer. Partners Group wants to be recognized as an employer of choice, and Kirsta's appointment reflects the importance we place on the personal and professional development of our employees. My colleague, David Layton, who has been Co-CEO with me since 2019, will become Partners Group's sole CEO as of July 1, and I look forward, Dave, to collaborating you -- with you in this new role. I would like now to move on to topic of climate change, which starts on Slide 6. Climate change has evolved as a global challenge with extreme weather events, natural disasters and unmanaged consequences of climate change among the top 5 global risks, both in terms of likelihood and impact. If not properly addressed, these risks will have significant negative implications on communities, businesses and investors. Last year, we had announced that we were developing a platform-wide strategy to manage these risks and the impact of climate change in a more systematic way. Today, we're pleased to be able to present the final format of our climate change strategy. The strategy aligns with the recommended disclosures of the TCFD and is based on 2 key commitments. First, at the corporate level, we are committed to achieving net-zero emissions for our Scope 1, 2 and key Scope 3 greenhouse gas emissions. And at the portfolio level, Partners Group is committed to managing our investment portfolio towards the Paris Agreement objectives. Our approach to achieving these commitments consist of 6 pillars, as highlighted on the right-hand side. Strategic asset allocation is the first. We have a thematic focus on low-carbon or climate-resilient investments, and we have a carbon avoidance list in place. Portfolio risk and opportunity assessment. We systematically assess climate-related risks across our portfolio. We measure and report the carbon intensity of our direct lead investment portfolio annually to identify assets that could benefit from emission reduction engagements. Investment risk assessment and management, we integrate a range of climate-related factors during the ESG due diligence and ownership phases of our investments. Metrics and reporting, we use the TCFD recommendations as a guiding framework to report on the progress of our climate change strategy. We are also committed to measuring and reducing the carbon footprint of our own firm. That is why another pillar of our strategy is led by example. We track and report our Scope 1, 2 and 3 emissions globally, and we aim to procure low-carbon products and services for our offices. Currently, 6 of our offices, including the 2 largest ones, Zug and Denver, are powered using 100% renewable energy. Since 2019, we have also offset our key corporate greenhouse gas emissions by teaming up with Natural Capital Partners, a leading provider of environmental solutions, to finance low-carbon sustainable development projects. While our goal while for -- while our overall 2020 emissions were much reduced compared to '19 due to the strong decline in business travel due to COVID-19, we did offset the same amount in 2020 as we did in 2019. The final pillar of our strategy is governance. To ensure proper oversight of our strategy, we have established clear governance structures. Ultimately, oversight responsibility for our climate change strategy lies with the firm's senior-most body, which is our Board of Directors. If you dive a little bit deeper into our strategic asset allocation pillar, there are 2 points I would like to highlight. Turning to Slide 7. The first is that Partners Group has a strong focus on renewable energy investments. Having identified the global shift towards net-zero carbon is a key driver of our investment strategy for the coming years. Over the years, we have built a substantial portfolio of renewable energy assets through 20 direct projects in 14 countries. In comparison to different scenarios created by the International Energy Agency, our current generation capacity is already, today, well ahead of the 25 target mix of the IEA Sustainable Development Scenario. Moving to Slide 8. The second point is that next to our focus on renewable energy infrastructure, we plan to continue investing in select carbon-based assets to enable and transition towards a lower carbon economy. We regard specialized natural gas pipelines, treatment facilities, natural gas-powered plants as supportive of the transition into cleaner sources of energy in the near term and as a bridge to accommodate more renewables. These types of assets provide flexible capacity for utilities that need to manage the impact of significant growth in intermittent renewable energy generation on grid stability. Our current mix of infrastructure energy generation assets is a testimony to our climate change strategy. Our direct infrastructure portfolio entirely excludes thermal coal. More than half is focused on renewable energy generation and integration and about 1/3 is natural gas infrastructure. We are convinced as a firm that we will continue to act in the best interest of our clients, hence, generating long-term sustainable returns and accomplishing positive impact for our stakeholders, including our environment, can be achieved in parallel. Let me acknowledge that publishing our climate change strategy is far from the end of our climate journey. More is yet to come. Aligning with the Paris Agreement is not done by just stating bold goals. It requires actionable plans to effectively reduce emissions. To commit to meaningful targets, it is essential that we first continue to measure our portfolio footprint in great detail and learn about effective mission reduction strategies that we can then apply across our portfolio and our firm as we progress on this journey. Later on in this presentation, you will hear from Carmela about how this strategy translates into action at the portfolio level. But for now, I would like to hand over to Kirsta Anderson to provide an update on our efforts on the human capital side.

Thank you, André. Moving to Slide 9, we want to share our progress on people, growth and culture. Many companies say that their people are the most important asset, and we believe this is particularly true for us, because as an investment firm, our ability to see what others don't see and make brilliant investment decisions and our ability to understand our clients' needs and adapt to them is the foundation of our success. And that insight and that wise decision-making comes from our people. So it's because of that conviction that starting in 2018, Partners Group launched a program of ownership excellence, which is aimed at creating the environment in which our people can thrive and create value for our investments, our clients and each other. So as part of that program, we focused on, really, 2 key areas. One is developing our leaders and employees; and the second is empowering them with more decision authority. The key lever for empowering is we implemented a revised organizational leadership structure known as Cell Leadership, which gives all team heads or Cell leaders increased decision-making power and makes them directly responsible for day-to-day business decisions as well as the learning and growth of their people. And then to support them with that, we also established PG Academy, which delivers learning and development, training, face-to-face and online for leaders and for individual contributors. We're really proud of PG Academy, and that in 2020, 93% of our employees took advantage of the opportunity that it created for them and had some form of training in core leadership and in business skills. The third pillar of our approach here is to make this sustainable, we committed to conducting a firm-wide employee survey on an annual basis in order to ensure our employees' voices are heard and to foster increased employee engagement. The first survey was conducted in 2019. And in 2020, we did the second survey, which provided really helpful feedback on the efforts that we've made so far and reflected progress brought by our improvement measures. It also reflected increased employee engagement. So the number of actively engaged employees rose from 62% in 2019 to 71% in 2020. Turning to Slide 10. Another topic that is critical to human capital management is diversity and inclusion. I talked a moment ago about the importance of decision-making to our business and its decision-making that's at the core of our conviction about diversity and inclusion. Since our founding 25 years ago, we have found that we make the best decisions when we collaborate, when we jointly explore each other's ideas and vigorously debate a range of viewpoints in order to achieve clarity of direction. So diversity of perspectives and skills and experience and backgrounds among our employees really does underpin our success. And one of the key issues that we've been working on tackling as a firm and as an industry in the last few years is the underrepresentation of women within private markets, especially at senior management level. As you may recall, we put in place a target in 2018 to have 25 female partners and MDs at Partners Group by 2025. By the end of 2020, we had reached 11 female MDs and partners, including our female Board members. And I think it's fair to say there's still some way to go until we meet our target, and I can share a little bit about the reasons behind that. One of them is that at Partners Group, we have a preference for nurturing homegrown talent. So much of our initiatives behind the 25-by-25 target have focused on developing the existing pipeline of female talent within the firm. And in this area, I think we're doing well. In 2021, our FA class will be 40% women, and we're aiming to improve this further in our 2022 intake of financial analysts, which is that pipeline for our future leaders. At the same time, we always knew that we would need to hire at MD level as well in order to meet the 25-by-25 target. And given the size and breadth of our firm and our growth, we do have openings at the member of management and senior member of management level. So we do have the roles to hire into and also the appetite to hire women and, of course, other diverse candidates into them. But we found that the competition for women, especially in investments, is extremely fierce. So our hiring hasn't been as successful as we would like it to have been to date, but we have recognized that and have a solution and have, in fact, created a special budget to hire senior female talent to hopefully accelerate that process. So given everything that's in motion, I think we are confident that we'll reach that goal of 25 female managing directors and partners by 2025. And on another positive note, I'd like to flag that with the upcoming changes to our Executive Committee outlined by André at the start of this call, the proportion of women in our Executive Committee will rise to 38% from 1st of July. So if we move to the next slide then. In the context of some of the events that took place in 2020, we've also become aware, whereas previously, our focus was really on gender diversity. We've become aware of the need to broaden our D&I focus and, more proactively, to members of other underrepresented groups. So during the year, we have supported the launch of 2 additional employee networks aimed at doing that, the black network and the LGBT plus-plus network. And the leaders of both of those networks sit on the diversity and inclusion leadership team and have helped shape our diversity and inclusion goals and actions for the year. In -- at the same time in 2020, we have identified 3 focus areas to really drive progress. So up until now, our focus has been very much on both hiring and development of mid-level employees. We're broadening that out to focus on hiring and onboarding, culture and retention, and progression and development. So to give you a sample of some of the initiatives in each area that we'll spend time on from 2021. One, around hiring, as I mentioned before, we've got goals and aims to have at least 40% to 60% of our 2022 FA program come from underrepresented groups in each region. We're also aiming on strengthening our inclusiveness, and one of the ways that we're doing that is through launching a reverse mentoring program that will build greater awareness of the experience of underrepresented groups for our senior leaders. And finally, on progression, we're setting up a diverse progression panel to oversee progression and make sure that it is progressing the right people and that unconscious bias aren't -- isn't part of the decision. So I see a lot of positive momentum on the topic. And besides the efforts led by the diversity and inclusion, leadership group and the employee networks, there is broad buy-in and support from employees across the firm and also from senior management. If we move to the next slide. As a final update on this topic of diversity and inclusion, I'd like to highlight our work on equal pay in particular. Partners Group is committed to equal pay for equal work and has, for a long time now, benchmarked our pay internally on an annual basis to ensure there is fairness to pay between genders. In 2020, we took the extra step of having the pay for our Swiss employees analyzed and assured externally, using a methodology defined by the Swiss government and carried out by the center of diversity and inclusion at the University of St. Gallen. And we're currently extending that to gain assurance of fair pay between genders across our global employee base, and we'll also extend that to other underrepresented groups. So we're pleased with that outcome and the findings of that study. So that brings me to the end of my human capital update. And now I'd like to hand over to Dave, our Co-CEO, to introduce the update on our portfolio ESG activities and performance.

Thank you, Kirsta. Now let's turn to Slide 14. And let's talk about our approach to ESG integration. As a firm, we aim to create sustainable returns with lasting positive impact for our stakeholders. And appropriately considering ESG topics, I think, is a key enabler to create value for investment. This also helps mitigate risks. Over the years, we've developed a systematic platform-wide approach to ESG integration across the investment life cycle. As André mentioned, 100% of our assets under management is covered by our responsible investment policy, with integrated material ESG factors, alongside commercial and financial facilities. We do this across all asset classes and all investment strategies. It starts with our sourcing, and it goes all the way through our ownership team. Now let's flip to the next slide, on Slide 15. Our ESG Vision is to maintain our global leadership position in building sustainable business. Simply put, we have an aspiration to be a role model in responsible investing. It goes for our portfolio companies as well as the management. We were to achieve our vision by pursuing 3 key objectives: number one, we embed ESG into the strategy, direction and goals of our portfolio companies; number two, we hold ourselves and our investment partners accountable by creating transparency through the investment process; and number three, we quantify impact. As we translate our vision and objectives and action by working with our portfolio of companies on areas where ESG is best positioned to add and protect value and continuously develop tools and processes, and this will ensure systematic and scalable approach. Now moving to Slide 16. It shows here that in 2020, our long-term commitment to ESG, combined with our active ownership approach, has positioned us well to support our portfolio of companies and key stakeholders through turbulent times. And despite having to reshuffle some of our priorities to adequately support our portfolio of companies through the pandemic, we're glad to have achieved a number of ESG-related impact items in 2020. We're particularly proud of the 1.5 million metric tons of CO2 emissions that were avoided, largely tied to our renewable energy assets, as well as the 4,852 net new jobs added to our portfolio. We've actually created a ticker on our intranet with many of these metrics. And so our people can connect their work at Partners Group to this ESG impact. A key priority this year was to support our portfolio of companies through the pandemic, like guaranteeing the health and safety of our employees and by maintaining business continuity wherever possible. Our investment teams have worked intensely with our portfolio of company management team by providing support and direction and navigating the evolving pandemic and by making sure that business plans were adequate to protect employees from the spread of the virus. Next on Slide 17. In the early months of the pandemic, we launched our portfolio employee support fund. We raised $10 million to help support the vulnerable employees and financial needs or in poor health due to COVID. And I think we actually spoke about that first on this call last year. A number of us participated. Now by the end of last year, the fund had supported over 12,000 portfolio of company employees in a variety of ways, including covering shortfalls and household income caused by the shutdown last year, covering emergency and COVID-related medical expenses, support for children and remote learning costs. And we had our 25th year anniversary celebration this past December, and it was a lot of fun to review our history with our people and to talk about who we are as a firm of purpose. And I've heard over and over again from our employees that one of the most meaningful and important parts of that celebration, something that was amongst our employees' proudest moment, was to hear the stories and messages from a number of supported individuals. In addition to providing support, I think -- which I think was needed and important, I think it was also meaningful for our employees to be able to create a direct alignment of interest in this way. Luckily, the economy in most segments has come back strongly. The needs of our employees in these areas seem to have been met for now. We even have, I think, 2 companies that has initially overestimated their support needs. And given the speed of the recovery, returned a little bit of the funds previously allocated. And so we continue to have dry powder to support employees' future needs as they may arise. I'll now hand over to Carmela.

Thanks, Dave. I'm proud of the support fund as well, by the way. Now turning to Page 18. In 2020, our ESG work with portfolio of companies was focused on, not only on COVID, but also on addressing 3 key topics: managing the impact of climate change; fostering diversity and inclusion across the platform; and ensuring ESG topics were integrated into our broader portfolio company Board work. If we start with climate change, now turning to Page 19. Addressing the impacts of climate change has really become an increasing area of focus in our ESG work with our portfolio. In 2020, 1/3 of our direct lead equity and infrastructure assets reported that climate-related hazards had impacted their operations, with their combined impact of over 700 days of business interruptions and over $2 million in lost revenues and repair costs. Climate change is a real investment risk, which we need to manage in order to achieve our aim of delivering sustainable returns. Through our new launched climate strategy, which André talked about earlier today, we have formalized our approach to managing climate change risks and impacts across our portfolio. To support our investment teams at the sourcing and due diligence stage, we have developed specific climate-related investment guidance, including carbon avoidance list. For the assets, which we already own, we have developed a portfolio-wide approach to managing risks and impacts, which includes measuring our entire portfolio's greenhouse gas emissions. And I'm happy to say that 80% of our equity portfolio that are under PG ownership for at least 1 year are able to report on their greenhouse gas intensity. And also, we are partnering with our portfolio companies to systematically reduce their emissions. In 2020, we designed a climate change sweep, just as we did for other topics, with the aim of identifying risks and impacts of common relevance at our portfolio companies and developing a standardized and scalable solution to reducing their emissions. To date, we have launched a pilot at 3 of our assets. Now moving to Slide 20 and diversity and inclusion, which is another area of focus. As Kirsta mentioned in her section, we are convinced that a diversity of perspectives, skills, experience, backgrounds is key to managing the best decisions. This is true not only for Partners Group as a firm but also for our portfolio. Until now, we had focus on individual diversity and inclusion engagement with our portfolio companies, and this allowed us to make progress. For instance, we have increased the average of female representation in management from 20% in 2018 to 26% in 2020 across our private equity portfolio. However, going forward, we want to develop a more systematic approach across our portfolio. As a first step, in 2020, we enhanced the diversity and inclusion section of our annual ESG review process with our portfolio companies to identify more opportunities for improvement. Today, 100% of our companies have anti-discrimination policies, 70% are implementing or plan to implement diversity and inclusion training, but only 60%, for instance, have defined D&I strategy in place. So our approach to driving progress in this topic is twofold. First, we aim to leverage the best practices that we have identified through our work in some of our portfolio companies and those who are the most advanced on the topic. And now we're going to apply them systematically across the portfolio. An example is Civica, a specialist software provider in the U.K. that has been working on diversity and inclusion topics for many, many years and most recently was ranked 73rd out of 15,000 companies in the Financial Times list for most inclusive companies in Europe. Civica embeds diversity and inclusion, best practices throughout their operations, starting with collaborating with schools and universities to attract diverse talent, all the way to providing mentorships, programs and other types of training to really promote an inclusive workplace. It is our ambition that all our companies have a road map toward adopting a similar approach. Second, we're focusing on increasing diversity within our portfolio company boards. This is quite important because we must lead by example, increasing the diversity of our boards in order to send the right message to our management teams. This effort is led by our operating directors and entrepreneurial governance team responsible for ensuring board excellence across our portfolio. I will now hand over then to Richard Thackray, who will provide more detail into this initiative. Richard?

Thank you, Carmela. So moving on to Slide 21, I'd like to give you a little more insight into our team's work with our portfolio company boards. We visit each company board annually and conduct a 360-degree review, incorporating interviews, observations and assessments. In 2020, we updated our methodology to incorporate new criteria around purpose and diversity as well as refining our benchmarks to make strong ESG performance, the criteria of best practice. Our ambition is that each portfolio company board ensures that there's a defined company purpose that encompasses positive impact for all the company's relevant stakeholders. The Board should also ensure that the company has a clear set of initiatives to deliver positive impacts to its stakeholders. These stakeholder impact matters as well as ESG matters, more broadly, should be the focus of a dedicated committee or at least housed under the Board's Risk and Audit Committee. Finally, we also believe that diversity is a critical strength of the Board and aim to have all of our boards reflect diversity across many identities. Each board has a development plan to achieve these aims so that we can track progress across the portfolio and share examples of best practice. If we move on to Slide 22, I want to share a best practice example from our private equity portfolio. USIC is a leading provider of infrastructure locating services in the U.S. It delivers 80 million locates annually to prevent underground utility damage in North America, and the company employs over 10,000 field technicians. USIC strategy encompasses initiatives and programs focused on ESG, including safety, employee development, diversity and environmental impact. These initiatives are all sponsored by directors on USIC's board and have specific forward-looking operational KPIs attached to them, which are reported on to help drive progress. To facilitate communication of these initiatives and progress measurement, USIC in quarter 4 of last year adopted PG Alpha, Partners Group's new proprietary digital board platform, which you can see illustrated in the screenshots in the slide. And this platform enables collaboration, communication and real-time performance management within the company. I'll now hand over to my colleague, Nicole, from our ESG and sustainability team, who will talk about how we measure ESG performance across our portfolio.

Thank you, Richard. Turning to Slide 23. 2020 marks the third consecutive year we've reported our ESG performance across asset classes through our ESG KPI dashboards. Our dashboards help us track and report key environmental, social and governance KPIs across our direct investment portfolio, covering topics that are material to most of our portfolio companies, such as energy management, health and safety, cybersecurity and gender equality. The increased transparency we're able to achieve through our dashboards is not only useful for communicating with our clients and other stakeholders, but it also helps us steer ESG projects within our companies because we can clearly communicate our expectations and measure progress. We recognize that standardization of ESG measurement is a key focus across the investment industry right now. And over the past decade, a broad range of standards targeting sustainability and impact measurement have emerged. And these are often used in combination by companies in their reporting. At Partners Group, we also use a combination of standards in our own reporting. Our corporate sustainability report is prepared according to the GRI standards. And for the first time this year, we've also reported under a number of the Sustainability Accounting Standards Board, better known as SASB, standards, recognizing the increasing importance that SASB has gained among investors in recent years. We also understand the value that standardized ESG metrics can bring to our work. And in the interest of our investors, we'll continue to work in 2021 to encourage further harmonization and convergence of our industry towards a set of shared standards and indicators, because this will help to drive transparency and comparability of ESG performance across firms. For now, though, I'd like to give you a better overview of how we currently measure ESG performance across our portfolio by taking a closer look at our ESG KPI dashboard for our private equity portfolio, which you can see on Slide 24. Based on SASB industry standards and our own experience of implementing ESG projects on the ground at our portfolio companies, and in addition, our one-on-one conversations with portfolio companies, our dashboard shows the 12 most common material ESG KPIs identified across our portfolio. It also shows how material an ESG topic is for different -- for each company through color coding. The light boxes you see indicate relatively low materiality topics for that company, while the dark blue boxes indicate high materiality or those topics that we should really be most focused on when we're prioritizing ESG projects with our portfolio companies. And for metrics that are typically more qualitative in nature, such as environmental management or cybersecurity management, we conduct what we call maturity assessments. We score each company's maturity from 1 to 4 on a given topic using a standardized framework with a 1 indicating a relatively low level of maturity and a 4 indicating a best practice approach. For assets that have been in our portfolio for more than a year, we also show performance arrows to indicate wherever a company's performance on a particular ESG KPI has either improved, declined or remained consistent compared to the prior year. And then finally, it's important to note that while we're reporting year-over-year on progress for each metric, individual portfolio companies select a subset of these topics to prioritize and take action on each year. And so the dark box around a metric indicates that, that company was actively working on that specific ESG topic to make an improvement throughout the year. Looking at the next slide. I'd like to walk you through a few specific trends in our ESG performance. Given that this is the third year that we've now published our ESG KPI dashboards, we're starting to analyze trends and dashboard data to help us identify areas of progress over the past few years and also, opportunities for improvement. As Carmela mentioned earlier, across our private equity portfolio, we've steadily increased the percent of female management who report to the CEO. And while we know we have more work to do when it comes to diversity and inclusion across our portfolio, increasing female representation at the leadership level in our portfolio companies is an important focus area, and we're really pleased to see initial progress there. We've also improved the average maturity scores for our portfolio companies on key ESG compliance topics like environmental management, responsible supply chain maturity, anti-bribery and anti-corruption, and cybersecurity maturity. And these increases ultimately indicate that we're improving the set of policies, practices and oversight structures that govern these topics across our portfolio companies. Based on this experience, we've built a library of ESG policy templates that guide portfolio companies who are just beginning to establish their ESG governance structures. And to ensure these policies actually impact operations, we've also defined best practices in implementation, oversight and reporting, which we assess through these maturity ratings. Across our private infrastructure portfolio, we've improved the average lost time incident rate from 0.4 in 2018 to 0.1 in 2020. And since 2018, we've also maintained 0 labor noncompliance issues. We'll continue to monitor changes in LTIR closely, especially for assets undergoing construction when risk for health and safety incidents can really increase. And similar to our private equity portfolio, we've also improved the average maturity scores for key ESG compliance topics for our infrastructure assets, such as environmental management, contractor management, and anti-bribery and anti-corruption. And finally, we're really pleased to report that both our private equity and private infrastructure assets have improved their overall ESG reporting capabilities since we first started collecting data through our dashboards. Turning to the areas where we also see opportunities for improvement. We've not managed yet to make significant progress on employee turnover across our private equity portfolio. Although we experienced lower employee turnover rates across our portfolio in 2020 due to the effects of the pandemic, average employee turnover across our portfolio companies from 2018 to 2020 has remained at 36%. As we begin to implement our stakeholder benefits program, which André will talk about a little later on, we really believe that this investment in our portfolio company employees will increase engagement and satisfaction and help us move the needle on employee retention. We do anticipate, though, that it will take some time for these initiatives to translate into a significant improvement in retention rates across the portfolio. Another area where we see opportunity for improvement is waste management, as currently, only 50% of our private equity portfolio is reporting waste data to us. And so as a first step, we really want to work with our portfolio companies to improve their reporting capabilities in this area so we know where we might want to execute projects to increase waste reduction. Similarly, on the private infrastructure side, we also want to improve our portfolio assets, water consumption reporting and management capabilities. And finally, in 2020, we noted a marked increase in community complaints at one of our assets that's currently under construction. In 2020, construction of this asset intensified heavily compared to the previous year and was conducted in more densely populated areas. In all instances, we were able to work with the local community to really understand and rectify their concerns, and we know that proactive engagement with communities is critical. So we'll work with our assets in 2021 and beyond to ensure that they have effective community engagement plans in place, especially any assets like this one who are undergoing development. I'll now hand it back to Carmela, who will conclude the portfolio ESG section and share an example of ESG engagement at a portfolio company called AMMEGA on Slide 26.

It's a pleasure to close a portfolio like this. It's a key part of our ESG work, and it's actually the part of it that I enjoy the most because it's where we are really driving improvement on topics that are highly material to our investments. So this is just one example of what we have done in AMMEGA to enhance their approach to health and safety. AMMEGA is a global leader in mission-critical industrial power transmission and lightweight process and conveyor belting. So for instance, all the machines that bring your luggage in an airport are made with these belts. During our acquisition process in 2018, we found that AMMEGA did not have a unified approach to health and safety across the organization, and we committed to changing this during our ownership. Together with the AMMEGA team, we designed a 5-year health and safety vision with an ambitious goal to reach 0 harm by 2025. To make this happen, we developed a health and safety policy to improve standards across AMMEGA's operations, and this is overseen by the company's health and safety and environment director. We also ensure that 100% of AMMEGA employees receive site-specific health and safety awareness training, record all incidents and near misses, and use the company's specialized incident reporting software that we have put in place this year as well as, of course, having the necessary safety equipment. Since our involvement, AMMEGA has made significant progress on their health and safety performance, and we're really proud of it. Its lost time injury frequency rate has improved from 3.2 in 2018 to 1.2 at the end of 2020, outperforming our 2020 target of 1.8. AMMEGA has also reduced the number of serious incidents from 10 to 1 every year. To make sure that AMMEGA continues making progress, we also linked the annual bonus compensation for management through their health and safety KPIs. Thanks to the implementation of these initiatives, I am happy to say that AMMEGA is among the best practice in our portfolio, and we are replicating this approach in other assets throughout the platform. With that, I'd like to hand over to André for the final part of the presentation and our approach to stakeholder impact.

Thank you, Carmela. Happy to conclude, actually, this call by talking about our commitment to building better, more sustainable businesses at Partners Group. It's about delivering consistent returns to our clients and about generating positive stakeholder impact at the same time. In our assets, Partners Group's ambition is to -- is that we do not only drive strategic business initiatives that increase top and bottom line, but that we also identify and implement stakeholder impact projects that our Board and management teams believe can directly or indirectly create returns in the long term, for example, by commanding a higher valuation in the market at the time of an exit. We did talk about the projects -- we talked about projects here that are long-term beneficial to these assets and a broader set of stakeholders, including employees and environment. We talk about tangible initiatives, that first -- the professional personnel or financial growth of the nearly 200,000 employees who work across our portfolio companies. So this year, we launched a pilot stakeholder benefit program at 3 of our assets. Actually, to say pilot program might be misleading because there is no, "one size fits all," approach, and the companies involved operate in different industries with different employee bases and different regional and cultural imperatives. So in fact, what we're doing is we're taking a systematic [ bought this boat ] approach. The process can be broken down into 3 stages: first, understanding the needs of companies and their employees; number two, identifying 2 to 3 focus areas to drive positive impact; and then third, defining specific projects with clear time lines and targets. So we're currently completing stage 2 with our pilot companies, and we will define projects in the next step. Now we will share a model -- we will share more details at a later stage. The Partners Group is a company that prefers to talk about things after they have been successfully executed and not before. But I can tell you that these projects will include initiatives like building, learning and development programs, establishing financial participation plans and offering also enhanced health benefits. Depending on how the pilot program goes, we are intending to roll this out across our portfolio over the years to come. And our approach is and ambition is to establish a reporting framework and best practice sharing amongst our portfolio companies. So I look personally forward to spending a lot of my time on sustainability in general and stakeholder impact, in particular, in my new role as Chairman of Sustainability, with the objective of creating lasting positive impact for all stakeholders, and I look forward to updating you on our efforts in due course. And with this, I would actually like to come to the end of this presentation. Thank you very much for listening today. I hope we have been able to provide you with a meaningful update on our ESG performance across our investment portfolio and as a firm. And with this, I'd like to open up for questions.

[Operator Instructions] So far, there are no questions from the phone.

Thank you. We have a few questions on the webcast. First, we have 3 questions from Thomas Streiff from Brugger and Partners. The first for Dave Layton, regarding our energy portfolio, is energy storage an area Partners Group is looking at? The second from Thomas is for Kirsta related to our sell leadership. Are there any implications on employee performance measurement and incentive systems from this structure? And the third, again from Thomas for Nicole regarding our ESG dashboard analysis. It would be interesting to learn more about the main challenges, stagnation areas or even areas where we've seen a decline here.

I'll take the first one on energy storage. So it is something we spend a little bit of time on. One thing you have to keep in mind is a lot of these energy storage platforms, at least the ones we've seen, are quite small scale. I think the goal should be storage solutions that provide real grid stability solutions. That technology is quickly evolving, but we haven't found yet, to date, a scalable platform that we think would be a suitable investment opportunity. We do have some of our existing renewable platforms that have added battery technology to their offering. And within our infrastructure thematic sourcing efforts, one of our teams is doing a deep dive on power flexibility. Shreya Malik is leading that project for us out of Switzerland. So it's something that we're keeping our eye on, but nothing active to talk about right now.

Great. Well, I'll take, this is Kirsta here, the second question about Cell leadership. I think the question was, are there implications of that for employees and teams on performance measurement and incentives? And the answer is yes. So the expectation for sell leaders is that they both own the business and care for people at the same time. And there's a couple of ways that we measure that and incentivize them around that. Every employee in Partners Group is measured on 3 performance categories at the end of the year. Productivity and quality is the first one, leadership is the second one and collaboration is the third one. And so for Cell leaders, in particular, leadership is clearly critical. And there's 3 sources of feedback that we have for Cell leaders on that. One is the engagement survey every year in where they have enough people in their team to keep the anonymity. They get the results of that engagement survey as does their manager. The second one is, last year, to strengthen the feedback that Cell leaders were getting, we added to our 360-feedback process, which is part of our year-end performance review process, we added that everyone in the company gets feedback from all of their direct reports or all of the people in their team on their leadership, in particular. So that strengthened the feedback quite a lot. And then finally, after the performance management process at the end of the year, we run a survey to see how that performance management process was received and the impact that it had and the value for employees. So those 3 surveys create good visibility for how our Cell leaders are doing on owning the business and caring for people, and that then flows through into their performance review and their bonus.

Great. And then this is Nicole, and I'll take the third question, which was around any areas of stagnation or potentially decline we saw through our dashboard analysis. And I think there are a couple of areas where we haven't seen as much progress as we want. So maybe these are areas of stagnation. Employee turnover, really, the turnover rate has remained consistent across our portfolio of companies, really, from 2018 to 2020. And I think that's why we're really excited about our stakeholder benefits program, which we really think will increase engagement and satisfaction among our portfolio company employees and help us to move the needle more systematically on that number across our portfolio. Waste and water are also 2 areas that we know are quite important, but where our portfolio companies' reporting capabilities have been a bit weak. And so we're working on increasing their ability to report waste diversion and water usage so that we can actually identify areas where we can execute projects on those topics with specific portfolio companies and move the needle there. And then I would say the one area of decline that we saw was on -- was one portfolio company in our infrastructure portfolio who saw an uptick in community complaints because of increased construction. And while we have a strong track record on community engagement within our infrastructure portfolio is a strong reminder to us that for our assets undergoing construction, making sure that our community engagement is strong and our mechanisms are in place is really important.

Next, we have 2 questions from [ David Fullerton ] from [indiscernible]. The first is for André regarding our climate change strategy, by when does Partners Group aim to be net-zero for Scope 1, 2 and 3 emissions? And the second as well for André, how does Partners Group motivated staff members to aim for ESG improvement in their business activities? Please go ahead, André.

Well, if you look at Partners Group as a firm, we actually, by way of reducing emissions and those offsetting, we have been neutral in 2019 and '20. I believe what is more challenging and requires more work is really to set clear targets and dates for our portfolio. Now we've seen a number of companies in technology, for example, really moved quickly, stated ambitious goals. But for Partners Group as an investment manager, we have a diversified portfolio, a number of assets in different sectors. And that is why, quite honestly, we have not pushed to set the date and the target very quickly, but we want to now really commit to performing the work, analyzing the portfolio footprint, find out about effective emission reduction strategies. So I think we need to -- quite honestly need to do homework before we can communicate such dates. As I said before, it's not about just talking about the date, but it's about having a plan to achieve this. And that is what we're really committed to do. Naturally, we will start with the direct portfolio. Because when you are the majority owner of an asset, you can really influence the strategy -- the strategic initiative to start reducing carbon emissions. And that is what we're going to focus before we move to, like, the indirect portfolio, also before we move, for example, to private debt exposure. I hope that answers the question. The second question is about how we create incentives as a company. What I would say, at this point, it's probably rather qualitative assessments that we perform to figure out whether we are on track to achieve ESG goals. So for example, as an executive committee, like we -- the Board assesses whether we are on track to achieve the key targets for promoting gender diversity, which Kirsta talked about. We have committed that we want to train employees on ethics-related issues. We want to really commit to perform deep dive ESG engagements, as I just talked about. But this is part of a qualitative assessment. Maybe over time, that can become more quantitative, but it's not at this point. What is, however, important to state, and I feel strongly about this, is that ESG at Partners Group is part of value creation. So if we get the right ESG initiatives triggered, launched, implemented, this can and does have a positive influence on the performance of our assets and our portfolio. And the majority of our long-term incentives as a company are linked to the performance of our assets and portfolios. And that is why, also from a quantitative and financial perspective, there's a very strong incentive for all employees and leaders to contribute to ESG initiatives. I hope that answer these 2 questions.

We have also a follow-up question on the climate change strategy, asking when we plan to publish our first TCFD reports.

Well, actually, the climate change strategy report is really -- has been published very much in line with all the TCFD recommendations. So I suggest you look at the data that we published and the way we talk about governance, risk management allocations in this climate change strategy. I believe that will answer that question.

Next, we have a question for Carmela from Brad Darling, Jarislowsky, Fraser. How do you incorporate ESG and sustainability into your private debt business?

Thanks. So on private debt, we focus on risk because due to our governance structures, normally where we can do the most work is during due diligence or in the event of a refinancing or a change of terms. So focus on due diligence, we analyze the ESG risks and engage with the sponsor or with experts, as needed. Then we do monitoring during the debt holding period. And then as I said, whenever there's a change or the opportunity to engage or if there's a particular event or incident, then we engage with the managers. Now over the course of the last year, we saw sustainability-linked loans coming into the picture. And this is a really interesting model where you can actually set certain KPIs on ESG topics for debt investments. We have already made a couple of investments of this kind, and we are really refining our approach to make sure that these targets are relevant and ambitious, right? So yes, we will see more of that to come. I hope that answers the question.

We have a question for Richard from Jessica Mitchell from Calgary Foundation. Were your annual on-site visits put on hold due to the COVID-19 pandemic restrictions?

Thanks, Jenny. So broadly, we followed guidance by market and by company. And so in some parts of the world, we were able to spend time with the companies. In other parts of the world, we were conducting our visits by video and by telephone, just like the -- just as a Board in the company we're operating in. And whatever the jurisdiction, we then had to overlay the local market requirements around distancing, facemasks and so on and so forth. The one thing I would say was that the past 1.5 years has been a period of extreme stress for the Board, and we've had a great opportunity to see them perform in a very tough environment, more often than not, excellently, and we've had multiple touch points throughout the period, which I think has given us a very rich view on how all of our Boards have performed.

Thank you. Next, we have another question for Carmela from [ Nuremberg Berman ]. How comfortable and far out with you -- are you with your STRF compliance and demands for material indicators and progress?

That's a really relevant question. Well, actually, we are really comfortable with that because we have been integrating ESG for so many years. And having initiatives like the dashboard for over 3 years really prepared us to both be able to face the ESG integration in the investment process requirements as well as the reporting requirements. So this is something that we are -- we have adapted our policy, as André said. But on March 10, we actually were able to have all our funds in fundraising as Article 8. So we are okay and confident that we are going to be able to meet the requirements as the regulation continues to evolve.

Next, we have a question from Toby Mitchenall from PEI Media for Kirsta. Can you elaborate a little bit more on the special budget you mentioned for hiring senior women? Does this simply mean high office to female candidates? Please go ahead, Kirsta.

I think Kirsta's line might be down. Maybe I'll take that one. So as it relates to that special budget, it's not about higher offers for female candidates, but it's about ensuring that we have no bureaucracy that gets in the way of hiring really talented female candidates when we find them. And so our teams have individual hiring budgets. And if we find a great female talent, we don't want the local team budgets to get in the way of a broader global strategic initiative in that regard. And so that's what that -- Kirsta was referring to in that prior statement.

Thank you, Dave. I was on mute, but that's exactly it.

Next, we have a question from [indiscernible] from VZN Nordhein. Can you provide us with a scoring for your investment and/or funds on an ESG basis?

Yes. I'll take that one, Georgina. So I mean, from our side, for our direct lead investments, as we discussed today, we have our ESG dashboards, and this is really a holistic view. Given our governance rights and our relationship with the assets, we don't really need a score nor would it do justice to the level of engagement that we have with them. And that's why you can find ESG information about specific assets in our client reporting. And also as part of SFTR, we will have reporting on each one of our products on quantitative metrics as well as per the regulations requirements. So I hope that answers your question, and we can take it on the side, if needed.

And one more for you, Carmela, from Peter Zollinger, from Globalance. Do you have a rough estimate of the proportion of declined investment opportunities as a consequence of unfavorable ESG assessment?

Excuse me, I -- could you repeat the question, please? I lost you for a second, Georgina.

If you have a rough estimate of the proportion of declined investment opportunities as a consequence of unfavorable ESG assessment.

Well, as Partners Group, we declined a vast majority of the investments that we look at. Now when it comes to ESG topics, in particular, the declines are based on the identification of ESG topics that we cannot change to our active ownership, right? So if we're convinced like in the [ Meyer ] case that we can make a positive contribution, we would still make the investment and make this a priority, right? So I don't have an exact percentage of which investments we reject due to ESG reasons. But I can tell you that it is a key item as part of our investment due diligence. It is included in all our investment committee documentation. And for this reason, we may decline investments, but it's normally on an early stage, among other reasons as well due to the fact that we feel like we cannot engage in the way that we should.

Thank you. There are no further questions on the webcast.

In that case, let me say thank you to everyone for listening in. I hope you found our update meaningful. We look forward to staying in touch with many of you. And I wish everyone a great day and a successful week. Thank you so much.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call. Thank you for participating in the conference. You may now disconnect your lines. Goodbye.