On Monday, The Carlyle Group (Carlyle) – one of Environmental Defense Fund’s (EDF) corporate partners and the world’s second largest private equity firm – released its first-ever Corporate Citizenship Report, outlining the firm’s environmental, social, and governance (ESG) efforts and plans for the future. The report is a first of its kind by a leading global private equity firm and continues the growing trend within the private equity industry of improving ESG management practices as a critical value creation strategy.
The report and reflections on the changing attitudes towards ESG issues in the private equity sector were featured in articles by Laura Kreutzer in The Wall Street Journal Private Equity Beat and the Dow Jones PE News. According to Kreutzer, “Private equity firms love to talk about their track records and the depth of their operational expertise, but now they are adding another item to the list: how responsible they are. […] Although the largest buyout firms appear to have led the charge in formally addressing ESG issues, it may not be long before others follow suit, particularly as more firms head out to market new funds.”
Among the initiatives highlighted in the report is our partnership with Carlyle to create and implement EcoValuScreen, an innovative due diligence tool designed to identify value creation opportunities through improved environmental management practices at potential investments. EcoValuScreen, which was launched in March of last year and created in conjunction with The Payne Firm, expands the traditional focus of environmental due diligence from downside risks to include upside opportunities for better environmental and financial performance. The process is currently being used by Carlyle deal professionals to more effectively evaluate the operations of a target company, identify the most promising environmental management opportunities and incorporate them into the post-investment management, governance and reporting plans.
Two specific EcoValuScreen case studies are highlighted in the report.
- During due diligence for the acquisition of NBTY, a manufacturer of nutrition supplements (including including Nature’s Bounty, Holland & Barrett, Vitamin World and Puritan’s Pride), Carlyle applied EcoValuScreen and identified potential opportunities to reduce packaging, raw material usage and solid waste. These opportunities will result in financial savings as well as decrease the company’s energy usage, greenhouse gas emissions and waste output.
- At Park Water Company, a California-based water utility, Carlyle used the EcoValuScreen process to evaluate the company’s operations and identify opportunities to build on existing environmental management and conservation programs. Specific opportunities include expanding the use of water meters at Park Water’s Montana affiliate, replacing and repairing aging pipes, and scaling water conservation initiatives across all three of the company’s utilities.
Carlyle’s Corporate Citizenship Report and efforts to systematically embed ESG management into its investments practices are important steps for the firm and the sector. These initiatives create a solid foundation upon which Carlyle can continue to expand its efforts to measure, manage, and report on ESG performance while creating value for investors.
Equally important, this week’s news is another reminder that global private equity firms are serious about integrating best practices for ESG management into their investment practices and management strategies. It’s still early days, but leading indicators show that these initiatives have the potential to become a standard industry practice for creating lasting value for companies, investors, and the planet.
For more information on EDF's work with private equity, please visit edf.org/greenreturns.