How Longship navigates the ESG Jungle

“It’s a jungle out there.”

This is how Kai Jordahl describes the many and complex ESG reporting requirements, sustainability initiatives, and various guidelines, as well as the multitude of consultants that help businesses ensure compliance.

“Much of this is based on the perception that if you as a company tick all the boxes, positive change will happen. It may be the case, but it will take a long time. We are focused on actions and actual results, and therefore try to limit the number of reporting initiatives that the companies where we are involved as owners should report on,” says Jordahl.

We are focused on actions and actual results, and therefore try to limit the number of reporting initiatives that the companies where we are involved as owners should report on.

This was also how he introduced his speech at the recent Nordic Buyout Forum on how Longship, through its ESG work, builds long-term values in its portfolio companies. Before Jordahl took the stage, the British finance professor Alex Edmans captivated the audience. Edmans is the author of the popular book “Grow the Pie,” which is about how the very best companies in the world succeed by delivering both on social responsibility and profit. Edmans’ research has been important in defining the ESG framework for Longship.

“We differentiate between impact investments, which directly through their business model contribute to solving the most pressing challenges in the society, and more ordinary businesses that the world needs, but which do not in themselves cut emissions or end hunger as examples. Longship has invested in a number of exciting impact investments. But even in the latter category, there are still companies that deserve to grow. Our mission is to identify these, which with the right approach can create great long-term values both for society and for shareholders. For this, Alex Edmans’ “Grow the Pie” has been an inspiring, academic starting point for how we integrate ESG principles into Longship’s framework for investments,” says Jordahl.

We differentiate between impact investments, which directly through their business model contribute to solving the most pressing challenges in the society, and more ordinary businesses that the world needs.

In his speech at the Nordic Buyout Forum, Alex Edmans argued that it is not the case that increased shareholder values must come at the expense of other stakeholders. With the right approach, it is possible to increase the size of the pie to be shared, so that both investors and society benefit. This happens when decisions are based on the purpose of a company.

“Purpose is about why a company exists and who it serves. By being purpose-driven, the company makes decisions that bring value to society even when it is not expected of them. It is not just about reducing risk, but about using what is in your hand as a company to do something good for the society. This creates not only value for external stakeholders but also brings long-term profitability and shareholder values,” argues Edmans.

Purpose is about why a company exists and who it serves. By being purpose-driven, the company makes decisions that bring value to society even when it is not expected of them.

One example is investments in improved working conditions. Traditional thinking is that such investments come at the expense of the equity that accrues to investors. Edmans points out that more satisfied and loyal employees contribute to increased values for the owners in the long run; the pie grows and there is more to split for everyone. He has researched the 100 most attractive employers in the USA and finds that they perform far better than their competitors over time.

“The best companies beat their peers by 2.3-3.8 percent annually over a 28-year period, which corresponds to 89-184 percent compounded.”

Kai Jordahl explains that Longship has established a methodology and an integrated approach to what is referred to as “Pieeconomics,” inspired by Alex Edmans’ research.

“After a thorough investment process, we work together with management and key personnel in the company to develop a value creation plan where we define how the pie can grow. This plan is reported on and revised in annual board reviews. We now have many examples among our portfolio companies where we have succeeded in creating long-term values both for investors and society.”

Jordahl emphasizes that ESG is part of a company’s strategy and operations.

“Sustainability and social responsibility are often made very complicated. We need to keep it down to earth and ensure that it is relevant and makes sense for the individual company. It cannot be handled as something separate on the outside of the operation. It’s really not that difficult,” he concludes.

Sustainability and social responsibility are often made very complicated. We need to keep it down to earth and ensure that it is relevant and makes sense for the individual company.