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3i aims to be more open on ethical due diligence

October 2007

One of the world’s best-known private equity companies, 3i, is examining how further to improve transparency in its due diligence to identify social, environmental and ethical risks.

The decision comes in the wake of recent calls for greater disclosure by private equity companies in these areas.

3i already has one of the best records among private equity companies for making such disclosures, but would like to publish more information on the extent to which it turns down prospective investments because of corporate responsibility concerns.

The company, which operates in 14 countries and spent more than €2.7billion ($3.75bn, £1.84bn) on buying businesses in 2006, says that among the 1500 investment prospects rejected in the last financial year were some turned down on ‘social, ethical or environmental’ grounds. But at present it can give no exact figure on how many.

Douwe Cosijn, 3i’s corporate affairs director and a member of its corporate responsibility committee, told EP that the company had found it hard to give exact numbers, partly because a refusal was ‘rarely down to CSR issues alone’. However, he said that in some cases these were a material consideration and 3i was now aiming for greater precision in the interests of transparency. ‘It’s something we’re getting our operations people to look at, and which we may address in the next phase of our reporting,’ he said.

3i says in its latest corporate responsibility report that it has recently declined to invest in:

a company providing security for Middle Eastern governments whose activities were felt to pose ‘reputational risks’

a financial services company that installs cash machines in pubs and shops on the grounds that it intended to charge an ‘unreasonable’ one and a half per cent handling fee for every withdrawal

a construction business after due diligence found it did not have ‘sufficiently robust’ health and safety procedures.

3i also disinvested in a UK maker of paintball guns for leisure that decided to switch to making sniper rifles.

Cosijn said 3i had tightened its ethical due diligence procedures during the past 12 to 18 months. ‘We’ve had investment guidance on CSR issues in place for about ten years, but we realized that in many cases we were essentially carrying out a tick-the-box exercise,’ he said.

‘Partly that was because we used to be a volume investor, but we’ve moved from that position and now we make 50 to 75 investments a year rather than several hundred.

‘This has allowed us to be more positive in our engagement in this area, especially as we are actively taking board seats and are more involved in management of the companies in which we invest.

‘CSR risks and opportunities now have to be written up as part of due diligence, and we have also introduced six-monthly portfolio reviews where any corporate responsibility issues are looked at in a formal document.’




Further Information
http://www.3i.com/about3i/corporate-responsibility.html
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