The Tool in Use: Examples of practices highlighted in the Tool
The examples we have included below are intended to be illustrative (and not comprehensive) of the growing ESG activity throughout the private equity sector. The examples were selected to provide real world context for the action areas highlighted in the Tool. There are numerous case studies like these emerging at private equity firms across the industry by firms seeking to improve their ESG performance.
Action Area: Leadership
The Carlyle Group's co-founder and managing director, David M. Rubenstein, has publicly discussed the firm’s ESG management tool EcoValuScreen with the Wall Street Journal. In their March 2012 article The Private Equity/Sustainability Link, Mr. Rubenstein highlights the benefits of including sustainability in Carlyle’s assessment of portfolio companies.
Action Area: Policy
KKR is a signatory to the UN Principles for Responsible Investment (PRI). In addition, they annually report their progress on ESG metrics and targets by organizing them according to the PRI’s principles. See page 34 and 35 of KKR’s 2011 ESG Report.
Action Area: Capacity
Doughty Hanson & Co.’s dedicated Head of Sustainability, Adam Black, works with investee companies to undertake a range of ESG initiatives across the firm’s portfolio. All projects are commercially driven and create additional opportunities to increase the value of Doughty Hanson’s portfolio companies. ESG issues are internally monitored on a quarterly basis. Material and sustainability matters are reported to investors on a semi-annual basis.
Action Area: Culture
All Actis staff participate in ESG training when they join the firm and investment managers receive regular ESG updates. To further integrate ESG management into Actis’ work culture, ESG criteria are included in their internal performance management process to enhance accountability.
Action Area: Due Diligence
The Apax Sustainability Screening Program works to systematically assess each company and quantify the value that can be created. Apax looks for efficiency across its entire value chain, including areas such as transportation, waste and pollution, and human resources and knowledge. This screening complements the pre-signing due diligence work that is applied to all new investments.
Action Area: Ownership (Network Best Practice)
Blackstone created a solar program in collaboration with Smart Energy Capital that has the potential to cut energy costs by approximately 10% and improve environmental performance across their portfolio of companies and real estate assets. The program installs solar panels on rooftops, allowing their companies to buy solar power via long-term power purchase agreements, which will significantly lower their power costs upon system startup.
Action Area: Reporting
The Aureos Sustainability Index is an annual process that charts and monitors ESG performance, with the goal of improving index scores each year. The index spans financial performance, economic linkages, socio-economic impacts, private sector development, management and governance. The index allows for a focused and specific dialogue with the management of portfolio companies on potential areas of improvement.
"Reviewing EDF’s new tool helped expand our thinking about ESG management and best practices. The tool provides clear and helpful guidance on the building blocks necessary for a successful ESG program."
— J. Taylor Crandall, Managing Partner, Oak Hill Capital Partners