Pitchbook webcast sheds light on ESG trends in private equity

Private equity (PE) firms are increasingly aware of the need for environmental, social, and governance (ESG) management, a trend likely to continue, with 55 percent of firms recently surveyed by PitchBook saying they plan to increase their attention to ESG issues in the future.

The biggest challenge that PE firms cited in establishing an effective ESG program was effective metrics, followed by implementation, cost and employee participation, said PitchBook editor in chief Adley Bowden on a recent webcast, in which I was happy to participate.

The primary driver of PE interest in ESG is limited partners' growing attention to the issue, followed by environmental or social consciousness, brand or image, risk management, corporate governance, portfolio companies, government regulation, operational efficiency, cost management, employee interests and competitors, the survey found.

"Increasingly, we are being sent ESG questionnaires as part of the due diligence that LPs are doing on our fund," said Carlyle Group principal Bryan Corbett, on the webcast. "We view our program at Carlyle as providing them an answer and serving as a jumping off point for a broader conversation with our LPs about what their interests are and how we at Carlyle can do a better job of addressing them."

PE firms at the beginning stages of ESG management should start small and look for opportunities for early wins, without trying to achieve their goals all at once, Corbett said. Also, bear in mind that every firm is different in what drives adoption and what resources are needed, he said, urging firms to make use of free resources like EDF's Climate Corps fellows and ESG management tool. (I'll be speaking about the tool during a panel discussion at SuperReturn International in Berlin, Feb. 25-28.)

TPG senior advisor Beth Lowery agreed, noting that a couple of TPG's portfolio companies participated in Climate Corps. "You get a real product that can really improve energy efficiency and reduce costs; it's an excellent program," she said.

Some PE firms mistakenly believe that an ESG program will be expensive and that investors don't care about ESG issues, she said. In fact, successful ESG management should improve the bottom line, and many LPs care both about return and ESG management — you have to be careful how you word the question. Lowery stressed the importance of leadership support for ESG at both the firm and portfolio company levels.

"We found that our companies were interested in ESG to the extent that we could (1) show them value creation (and) (2) show them how it would benefit their relationships with customers and suppliers," Corbett said. "Very quickly, the companies begin to see it not so much as a bureaucratic, administrative task being pushed on them by their GP owner but rather as a business development tool that's going to help them expand their revenue base."

Both Corbett and Lowery stressed the importance of understanding your internal firm culture and building support with all stakeholders, rather than moving too quickly and losing buy-in. TPG's sustainability and leadership council has spread best practices among its portfolio companies, a framework that Carlyle and others have adopted with great results.

Overall the theme of the webinar was that a network of professionals is rapidly emerging across the private equity sector and collaborating in a way that is unusual for the industry. "We're all competitive. We're all trying to get the highest returns. We're all fighting over LPs, but on these issues, to a certain extent we're all in the same boat," Corbett said.

How Ocean Spray cut its shipping emissions by 20%

Corporations aren't paying enough attention to the massive global impact of their carbon emissions from transporting freight — yet there are simple steps they can take to reduce their shipping footprints.

Last month, EDF released the first in a series of case studies intended to draw attention to the significant potential for emission improvements and cost reductions from this sector.

The challenge

Freight transportation is a small component of the overall lifecycle environmental impact for most products. For example, it’s less than 5 percent for a pair of Timberland shoes, 8 percent for a six pack of Fat Tire craft beer, and 10 percent for an iPad. Companies have to prioritize where in their supply chain to focus on environmental improvements. It is natural for them to focus first on the largest contributors to their footprint.

Of course, every single product has a transportation footprint. So those percentages add up across the economy. Moving freight within the U.S. creates over 500 million metrics ton of carbon emissions each year.  Freight already emits more carbon pollution than lighting, cooling, heating, ventilating and powering equipment in all U.S. commercial office space. Worse still, freight emissions are projected to increase nearly 40 percent from current levels by 2040 — even with the enactment of the first-ever truck efficiency standards.

The good news

Companies that take a systemic metric-based approaches to freight sustainability are finding significant savings. Example number one is Ocean Spray Cranberries. By making smart process changes to one of its primary transportation and distribution routes, it reduced emissions for the route by 20 percent while cutting costs for the route by 40 percent.

To achieve these impressive results, Ocean Spray deployed three of EDF’s Five Principles of Carbon-Efficient Shipping. It chose the most carbon-efficient mode possible, collaborated with other shippers, and redesigned its network for efficiency.

As this case demonstrates, shippers — the consumers of freight services that don’t own or directly operate trucks, trains, ships or planes — have significant control over the environmental footprint of logistics operations. Their decisions on where products are made and stored, how they are designed and packaged, and how much time is allotted for transit have a tremendous impact on carbon efficiency.

The proof

EDF believes all shippers have a significant opportunity to advance their sustainability goals by improving their supply chain logistics.

Through this case study series, conducted in collaboration with Dr. Edgar Blanco of the MIT Center for Transportation & Logistics, we will demonstrate how several very different companies have been able to identify carbon- and cost-reduction opportunities in their supply chain logistics operations.

Are there emissions reductions ready to be harvested from your supply chain logistics operations?  Yes. The biggest challenge is knowing where to look. We hope that this case study series will help to direct you to undertake similar improvements in your supply chain.

Learn more about EDF's work in supply chain logistics.


To learn more about the efforts of Ocean Spray or this case study series, sign up to attend the GreenBiz Forum being held in New York February 19-21.  Representatives from MIT, EDF, and Ocean Spray will hold a workshop, Smarter Moves: Practical Supply Chain Strategies, the afternoon of February 20th.

This content was originally published on Greenbiz.com.