ESG due diligence counteracts corruption

The Dutch Good Growth Fund - Financing Local SMEs - (DGGF) – is an initiative of the Dutch government to stimulate entrepreneurship and create jobs in frontier markets. Amongst other things, PwC acts as the environmental, social and governance (ESG) manager, enabling the fund to maximize its impact on the ground, while keeping ESG risks at bay.

What was the problem?

The DGGF is a fund of €700 million that aims at investing in small and medium sized enterprises via intermediary funds in 70 low- and middle income countries globally. The fund’s ultimate goal is to unlock sustainable economic development in these countries. However, there are many challenges: environmental and labour issues are not always well regulated and patterns of corruption are common.

Which solution was applied?

The Ministry gave PwC the mandate to ensure environmental, social and governance (ESG) risks are adequately mitigated in all DGGF deals. We designed a methodology to conduct ESG due diligence on all financial intermediaries that enter DGGF. This to ensure that all deals will meet the highest ESG standards. Our role is to unearth the key risks and understand the extent to which the intermediary funds are able to mitigate them. Our due diligence goes much further than checking if an exclusion list is in place. We engage with fund managers to test how they work on ESG in practice, and whether they are capable of addressing ESG issues throughout their portfolios and provide technical assistance where needed.

What was the result?

We believe that robust ESG management is a prerequisite to generating positive impact in the target markets. Through our role as ESG manager for DGGF, all key ESG risks are taken care of – even in the most challenging environments and in countries and sectors with a poor ESG track record.