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Mega-firms embrace socially responsible investing

Some of the world’s biggest private equity firms – including KKR, Blackstone, Carlyle, Permira, Providence, Apax and Apollo – have committed to consider environmental, social and corporate governance issues when making investments.

The member firms of the Washington, DC-based lobbying group Private Equity Council have signed on to a set of socially responsible investment guidelines.

Member firms include Bain Capital Partners, TPG, Permira, The Blackstone Group, Apollo Global Management, The Carlyle Group, Apax Partners, Hellman & Friedman, Kohlberg Kravis Roberts, Madison Dearborn Partners, Providence Equity Partners, Silver Lake and Thomas H Lee Partners.

The guidelines came out of discussions PEC members had with institutional investors who had signed on to the United Nations' Principles for Responsible Investing (PRI). Those principles pertained more to investors, prompting the PEC member firms to work on something more specific to them, according to a PEC spokesman.

He said an important part of the guidelines is that they don't bar investment in any company or industry, but represent a commitment to work with the company management and investors to make the company better.

The guidelines call for the private equity firms to consider environmental, public health, safety and social

Our trustees and we as a fund believe if the sorts of issues we're talking about, environmental or social or governance, are poorly managed, that can lead to long-term loss.

David Russell

issues associated with target companies. They also call for firms to support competitive wages and benefits; support labor laws; and use governance structures for oversight over conflicts of interest and appropriate compensation levels.

Member firms will establish strict policies prohibiting bribery to public officials, respect human rights of those affected by their investments and confirm that their investments do not go to companies that use child or forced labour.

“[The guidelines] are intended to say the owner, working with investors, has a commitment to follow these principles as they seek to maximise returns for investors,” the spokesman said. “The bottom line is, you could buy a bad company and make it better.”

The guidelines are not in conflict with private equity firms' main goal of achieving high returns for investors, according to David Russell, co-head of responsible investing with the Universities Superannuation Scheme, the second largest pension in the UK. “Our trustees and we as a fund believe if the sorts of issues we're talking about – environmental or social or governance – are poorly managed, that can lead to long-term loss or risk to companies,” he said in an interview.

US public pensions the California State Teachers’ Retirement System and the California Public Employees’ Retirement System applauded the PEC's measures.

“We believe that encouraging policies and practises that help create a better society for this and future generations is an excellent way to maximise our investment returns,” said Ted Eliopoulous, interim chief investment officer CalPERS, which is a limited partner in many of the PEC members’ funds. “We view these guidelines as a groundbreaking commitment by one of our major asset classes to integrate ESG into investment decision-making and ownership activities.” 

Christopher Ailman, CalSTRS chief investment officer, noted: “Historically, the market place wanted to disdain environmental, social and governance issues. That myopic view doesn’t translate into today’s complex global market. These guidelines, like our CalSTRS policies, recognise long-term issues that affect the sustainability of corporate earnings.”

James Gifford, executive director of the United Nations-backed Principles for Responsible Investment, called the PEC's adoption of the guidelines “a major step forward in our efforts to elevate ESG issues at all companies, public and private”. He noted that the PRI group first made contact a year ago with the private equity sector “to launch a dialogue on how best to address environmental, social and governance (ESG) issues in line with the PRI principles”.

The PEC was formed in 2007 as a lobbying group for the private equity industry. Most firms declined to comment or could not be reached by press time.