A growing number of private equity firms are hiring in-house professionals and engaging outside experts to better manage environmental, social, and governance risks and opportunities. Private Equity International's Responsible Investment Handbook 2012 highlighted this trend earlier this year.
In particular, the handbook spotlighted the fact that private equity leaders are adding new and much deeper social and environmental capabilities to their in-house teams. Among them: :
- Kohlberg Kravis Roberts, which in 2009 hired Elizabeth Seeger (formerly of EDF) to manage KKR’s environmental and social issues across its portfolio. Seeger and colleague Alexandra Hartman, who came from Coca-Cola, are two of six employees focused on responsible investing at KKR.
- The Blackstone Group, which in July 2011, hired Don Anderson as chief sustainability officer, a role that includes bulk purchasing low-cost energy efficiency items for Blackstone’s portfolio companies.
- UK private equity firm Doughty Hanson, which hired Adam Black as its head of sustainability in 2008.
- The Universities Superannuation Scheme, a £32 billion pension fund that employs a five-person ESG team co-led by David Russell.
- Hermes Equity Ownership Services, whose director for private markets Tom Rotherham works with a team of nearly 30 investment professionals to screen 8,500 companies and identify risks. “Everything that we do is ESG,” Rotherham told PEI.
- 3i, Actis, Carlyle, and TPG are among the other private equity firms with staff dedicated to ESG efforts.
There are many different solutions for private equity firms seeking to meet their capacity needs around responsible investing — not surprising, given the diversity of operating structures in the industry. One thing that seems to be critical, however, is having at least one person who owns the issue and leads the effort at the firm.
Whether the answer is a dedicated full-time employee (or several) or engaging with outside experts, at EDF we are eager to help lower the barriers to tapping into specialized expertise in ESG. We're doing our best to understand how we can help, whether that's developing job descriptions, interview guides, and/or a network of experts available to serve as consultants.
EDF Climate Corps fellows, MBA students specially trained on energy efficiency and ESG risk management, are one resource for jump-starting a new program or refocusing an existing one. Two private equity firms, The Carlyle Group and Clayton Dubilier and Rice are hosting fellows this summer to identify energy efficiency opportunities across a set of their investments. In addition, 7 portfolio companies of leading PE firms are also hosting fellows . It’s a simple, low-risk, highly cost-effective way to bring competitive to an organization, especially when compared with hiring an investment professional with a traditional portfolio management pedigree.
As James Taylor, editor of Private Equity International, points out in the handbook, responsible investment helps the industry's public image, protects the brand value of the businesses private equity owns, makes it easier to fundraise, saves money and increases returns. One thing's clear: those private equity firms that have invested in building capacity to manage environmental issues are going faster and further than those that haven't.