This week, Oak Hill Capital Partners (Oak Hill) became the first U.S. middle-market private equity firm to publically report on its environmental, social, and governance (ESG) performance. Another first for Oak Hill and an extension of the ESG trend kicked off by industry leaders – including Carlyle and KKR – over the past few years.
Just last year, Oak Hill and EDF teamed up to demonstrate that opportunities to improve environmental performance were not limited to the mega buyout firms. We worked together to create a methodology that mapped environmental management opportunities across Oak Hill’s portfolio based on potential environmental impacts, financial results, and management’s readiness to act.
Oak Hill’s new report discusses the firm’s work to expand its ESG efforts and shares its progress to date. Last December, EDF released a new ESG management tool for the private equity sector. The Tool is informed by our work in the private equity sector over the past five years and defines the practices needed to build a successful ESG management program. Many of these best practices have been embedded in Oak Hill’s approach to ESG management and are evident in the firm’s first public report including:
1) Commitment from the top: Successful ESG initiatives require strong commitment from the top. Oak Hill’s Responsible Investment Policy, ESG related trainings for the firm and its portfolio companies, and the commitment to publically report annually underscore the support for the firm’s leadership and commitment to make ESG management a core part of the way Oak Hill does business.
2) Integrating ESG into due diligence: Collaborating with BSR to understand the key ESG risks and opportunities of potential investments is admirable, but it’s also smart business. Just as we’ve seen in our partnerships with other leading private equity firms, integrating ESG into the due diligence process results in opportunities to reduce risks, increase efficiency, and improve performance.
3) Engaging with the right stakeholders leads to results: Private equity firms are increasingly building relationships with key stakeholder groups to gain new insights and improve operations. Competing private equity firms take notice; three of Oak Hill’s portfolio companies have hosted EDF Climate Corps fellows. EDF Climate Corps trains graduate students to quickly understand and improve the way organizations use energy by identifying lasting solutions with long-term financial and environmental benefits. To date, over 30 private equity firms and portfolio companies have tapped in to this program to reduce energy use, cut greenhouse gas pollution, and save money.
In the past few years the private equity sector’s approach to ESG has evolved rapidly and we’ve been hearing from more and more players in the sector, including both asset managers and owners, about how to improve ESG performance.
Oak Hill is continuing to lead the charge in the middle-market. The secret to Oak Hill’s successful ESG strategy is that there is no secret.
Any private equity firm can do this if they dedicate time and resources to the effort. Luckily, the next firm to stand up to the challenge will have Oak Hill’s report as a blueprint.