The Private Equity World: Broadening Focus on Sustainability – The Blackstone Group is All In

May 17 2021

by Hank Boerner – Chair & Chief Strategist – G&A Institute

The P/E world:  Private equity firms often have a pool of companies wholly owned or invested in and managed and advised by them in portfolio …this is the ambitious domain of the private equity (P/E) universe.

The leading publicly-traded P/E leaders are familiar names to institutional investors:

  • Blackstone (NYSE:BX),
  • The Carlyle Group (NASDAQ:CG),
  • Apollo Global Management (NYSE:APO),
  • Kohlberg, Kravis Roberts (NYSE:KKR).

There also well-known P/E companies not publicly-traded such as TPG Capital and Bain Capital (which owns, invests in and advises portfolio entities).

Focusing on one major P/E firm today – Blackstone Group – we see how sustainability is now being driven across the alternative investment of P/E enterprises.

Blackstone owns and manages key asset categories such real estate (owning the huge Stuyvesant Town complex in NYC), hedge funds, credit & insurance, financial advice, investment (partnering for example with Pfizer and SFJ Pharmaceuticals for therapies), and managing private equity funds and funds of funds for its investment clients.

In the Blackstone investment portfolio are companies with familiar names:  SERVPRO, Ancestry, Refinitiv, Bumble, EPL, Aypa Power.

Blackstone Group Inc has asked the top executives running portfolio companies “controlled by its private equity arm” to regularly report on ESG matters to their boards of directors, according to a news story by Reuters corporate governance reporter Jessica Dinapoli (she covers boards of directors and C-suite trends).

She writes that Reuters obtained a letter from Blackstone’s CEO (“the world’s largest manager of alternative assets such as P/E”) to portfolio companies’ CEOs that is basis of her report.

Her takeaway:  The Blackstone firm’s sustainability credibility would be boosted by portfolio companies disclosing more about their climate risk, environmental certifications, diversity & inclusion, and commitments to protection of human rights.

According to the Reuters report, the letter to portfolio companies’ CEOs advised: “ESG factors are attracting greater focus globally and demand careful attention on your part.”

The latest move by Blackstone could help to “standardize” ESG reporting across the firm’s massive global portfolio.

An accompanying story by Reuters tells us that Blackstone recently hired five managers to beef up its internal ESG team as the firm moves to drive sustainability and diversity across its broad portfolio of holdings.

Adding our perspective why this is a very important development: The company is a member of the American Investment Council (formerly, Private Equity Growth Council).

What about P/E and sustainability? 

That organization says in 2020 the P/E industry invested $24 billion-plus just in renewable and sustainability projects… “playing a critical role in the energy transition and moving our economy in a more sustainable direction.”  P/E has invested $100 billion in renewable energy since 2010 says the AIC.

The Blackstone moves to have portfolio companies “be all in” on sustainability should help to bring about much more ESG disclosure by firms not necessarily doing much reporting today (as they are tucked away in P/E portfolios)l

From experience we know at G&A Institute that when firms move out of P/E portfolio (via IPO, SPAC, acquisition by larger firm, management buyout, other means) the proactive burnishing of corporate ESG reputations can be a big plus in the divestment of today’s P/E entity.

We have the link to the Blackstone report in the Top Story this issue.

TOP STORIES

 

Special Mention – IR Magazine Focus – Our Partners, DFIN

We’re a Long Way from NYC’s Stonewall Inn, But Still a Ways to Go for Corporate LGBT Policies, Says Investor Coalition

by Hank Boerner – Chairman, G&A Institute

We’ve come a long way since the gay & lesbian communities mobilized and began in earnest their civil rights campaigns of the 1970s and 1980s and into the1990s. It was the New York City Police Department’s wrongheaded “raid” on the Stonewall Inn in Greenwich Village neighborhood in June 1969 that provided the important spark for the long-term, winning campaign by LGBT community for equal rights and equal protection under the laws of the land. “Stonewall” became a rallying cry for the next installment of the continuing “journey” of the civil rights movement in the United States.

The 1960s/1970s were the era of civil rights protests — we were involved in or witnessed and were affected by the civil rights / voting rights movement; the counter-culture “revolution” (remember the hippies?); the drive for adoption of the ERA (Equal Rights Amendment to the Constitution); and the anti-war movement protests against the conflict in Vietnam.  These were catalysts as well for the LGBT equal rights warriors of the decades that followed the 1969 Stonewall protests.

Finally, in recent years, after years of campaigning by LGBT advocates, most states have been adopting protective measures to protect the LGBT community.  Same gender marriage is a reality in many U.S. jurisdictions.

On November 7, 2014 The New York Times carried an update — it was a “milestone year” for LGBT rights advocates, the publication explained.  Voters in the 3Ms — Maine, Maryland and Minnesota – favored same-sex marriage; the first openly-gay US Senator (Tammy Baldwin) was elected by Wisconsin voters.

Still, there was vocal and often fierce opposition to same-sex marriage and equal protection under the law for LGBT citizens.

About LGBT Policies and the US Corporate Community

Many large companies (estimate:70 companies in the S&P 500 Index to date) have adopted non-discrimination policies to protect LGBT employees in the United States, says the 2014 Corporate Equality Index (a national benchmarking tool of the Human Rights Campaign).

We see these policies and programs for inclusion described in the many sustainability and responsibility reports we examine as exclusive data partner for the Global Reporting Initiative (GRI) for the United States of America.

Still, legal protections for LGBT citizens are not sufficient in numerous US jurisdictions. “Homophobic” policies and attitudes still reign in too many US cities and states and local communities.

And policies, attitudes, practices in other countries?  Well, that’s really a problem, say sustainable & responsible investment advocates — and steps are being taken to address the situation.

The S&R investment advocacy campaign is focused on the LGBT employees of US firms working overseas.  In countries like Russia, one of the world’s largest industrial economies, which has harsh anti-LGBT policies. The US investor group points out that 79 countries consider same sex relationships illegal; 66 countries provide “some” protection at least in the workplace; and in some countries, homosexuality is punishable by death.

In a business environment that continues to globalize in every aspect, with American large-cap companies operating everywhere, the investor coalition is calling on US companies to extend their LGBT policies on anti-discrimination and equal benefits policies to employees outside the United States. A letter was sent by the coalition to about 70 large-cap companies (the signatories manage US$210 billion in assets.

Shelley Alpern, Director Social Research & Shareholder Advocacy at Clean Yield Asset Management explains: “Today, most leading U.S. corporations now have equitable policies on their books for their [American-based] LGBT employees. Ther’s a dearth of information on how many extend policies outside of the U.S. In starting this dialogue, we hope to identify best practices and start to encourage all companies to adopt them.”

The objective of the shareowner advocacy campaign is to stimulate interest in the issue and create a broad dialogue that leads to greater protection of LGBT employees of US companies operating outside of the United States.

Mari Schwartzer, coordinator of shareholder advocacy at NorthStar Asset Management compliments US firms with effective non-discrimination policies and states:  “While we are pleased that so many companies have adopted non-discrimination policies in the USA which incorporate equal protections for LGBT employees, the next phase of implementation is upon us — we must ensure that international employees are receiving equal benefits and are adequately protected.  Particularly those stationed in regions hostile to LGBT individuals…”

Signatories of the letters sent to companies include these sustainable & responsible investing advocates:  Calvert Investments; Jantz Management; Miller/Howard Investments; Office of the Comptroller of New York City; Pax World Management; Sustainability Group/Loring, Wolcott & Coolidge; Trillium Asset Management; Unitarian Universalist Association; Walden Asset Management; Zevin Asset management.

Companies contacted include:  Aetna, AIG, Allstate, Altria, Amazon, American Express, Apple, AT&T, Bank of America, Baxter, Best Buy, Boeing, Cardinal health, Caterpillar, Chevron, Cisco, Citigroup, Coca Cola, Colgate Palmolive, Costco, CVS Health, Delta, Dow Chemical, DuPoint, EMC, FedEx, Ford Motor, General Electric, General Dynamics, General Motors, Goldman Sachs, Google, HP, Home Depot, Honeywell, Human, IBM Ingram Micro, Intel, J&J, JPMorgan Chase, Lockheed Martin, McDonalds, McKesson, Merck, MetLife, Microsoft, Morgan Stanley, Oracle, PepsiCo, Pfizer, P&G, Prudential, Sears, Sprint, Starbucks, Target, Texas Instruments, United Continental, United HealthGroup, United Technologies, UPS, Verizon, Visa, Walgreen, Walt Disney, Walmart, Wellpoint, Wells Fargo.

Summing up the heart of the issue for investors (and corporate employees):  “Corporations must take the extra step to ensure consistent application of LGBT-inclusive workplace policies throughout their operations, regardless of location,” said Wendy Holding, Partner, the Sustainability Group of Loring, Wolcott & Coolidge.

The Corporate Proxy Season is Underway – ESG Issues Are in Focus

by Hank Boerner, Chairman, G&A Institute

It’s a new year and the 2014 corporate proxy season is really underway, and the topics in focus are reflective of asset owners’ and managers’ concerns about key societal issues. Managements taking no action on the issues, deciding the wrong actions, or boards and managers ignoring the facts regarding key topics of concern to the asset owners could lead to greater risk, lost opportunities, and dramatic hits on corporate reputation — and share price valuations.

And all of that that could affect the value of the investors’ holdings. Since many of the shareowners are fiduciaries (think of SRI mutual funds, public employee pension funds, state trust funds), the growing consensus is that as fiduciaries, asset owners have a duty to be vocal, to actively engage with corporate management, and to take strong stands on key ESG issues. And, in some cases, to bring those issues to the electoral process at proxy time so all shareholders can have their say. Of course, there is usually negative press resulting for some companies.

“Proxy season” used to be those times of year when certain gadflies showed up to (in the view of management and board) ” harass” the assembled corporate leadership. (Such pioneer proxy luminaries as the Gilbert Brothers and Evelyn Davis come to mind.)

Today, the proxy  season is actually a year-round engagement, with advocates such as the Interfaith Center on Corporate Responsibility (ICCR) institutional members active in dialogue with corporate managements and board members on various E-S-G issues. One sea change of a decade ago or more was the linking of traditional corporate governance concerns with environmental and social or societal issue concerns, and working through the barriers to getting their resolution to the proxy statement and to vote.

Linking “good governance” practices with progress (or lack of) on supply chain issues, or product stewardship, marketing practices, protection of natural resources, or lobbying and political spending, now helps advocates avoid the “no action” letter from the SEC that allowed corporate managements to ignore the shareholder’s resolution. (In the past, the usual practice of SEC staff was to advise the company protesting the draft resolution that “no action” would be recommended to the commissioners if the company ignored the draft.)

So what is in store for 2014 corporate proxy voting — what are the issues in focus? Sustainable & responsible investing (SRI) advocates are raising issues with companies about public policy and climate. (As we write this, every US state is in the grip of a cold wave, that is being linked to climate change by experts.)  For two decades now, investors have engaged company managements about climate change.

Now, coalitions of shareholders are involved in a larger collective effort — “Raising the Bar” — in response, they say, to the expanding and alarming scientific evidence of our changing climate. And, as long-term advocates like Tim Smith of Walden Asset Management point out, the resulting significant environmental and economic impacts on the corporate enterprise. Investor interests are very concerned about climate change.

A number of companies — AEP, Chevron, Conoco, ExxonMobil — have received draft resolutions by coalition shareowners urging boards and managements to re-examine their opposition to regulation and legislation intended to address climate change. That includes their lobbying on climate change issues and disclosing more about those actions to their owners.

It’s not just direct company actions in focus — the shareowners include the corporation-funded efforts of the US Chamber of Commerce , the oil lobby (American Petroleum Institute) and the National Association of Manufacturers in the lobbying and advocacy on issues…

Beyond climate change, other proxy resolutions call for companies to re examine their state-level lobbying, especially through such groups as ALEC (the American Legislative Exchange Council), which operates primarily with corporate contributions and promotes conservative public policy issues with :”model” legislation which often moves from state-to-state. (An example is the “Stand Your Ground” laws adopted by a number of states.)

The companies in focus include Microsoft, Pfizer, Time Warner Cable, and UPS. Among the prime movers in this initiative: State of Connecticut Retirement Plans, Zevin Asset Management, Sisters of Charity of the Incarnate Word, and Walden Asset Management clients.

Some companies are responding to shareowner concerns — Coca-Cola, John Deere, Dell, P&G, GE, GM, Unilever, and Wal-Mart have reduced their involvement or quit ALEC,according to information provided by Walden Asset Management.

Other concerns: ICCR’s David Schilling advises that an issue now in focus is the garment industry’s pricing policies, following the Rana Plaza tragic fire in Bangladesh (killing 1,000+ people). The “Accord for Fire and Building Safety” addresses pricing practices and the almost 300 institutional members of ICCR and other shareholder advocates are focused on current pricing models, outsourcing, and prevailing wages in developing countries.

And, from Green Century Capital Management we hear that more than 40 institutional investors representing US$270 billion in AUM are urging the other invesotrs, major palm oil products, consumers, and major shareholders in such companies as food marketers Kellogg and financiers HSBC to support an effort to not contribute to further deforestation or support human rights violations. “Fueling deforestation is bad business for any company seeking to position itself as a responsible, sophisticated global player,” says Lucia von Reusner, Green Century’s shareholder advocate.

Ceres helps to mobilize business and investor leadership on climate change. Rob Berridge, director of shareholder engagement, says investors Ceres works with are asking corporate managements to actively address forced labor, deforestation, habitat destruction, and accelerating GhG emission, and to develop and operate palm plantations more responsibly.

Consumer-facing brand companies — Uniliver, Kellogg, Dunkin Donuts, HSBC — are facing high-profile consumer campaigns on palm oil issues. Some companies are saying in response that they will purchase of finance palm oil that has been certified by the Roundtable on Sustainable Palm Oil (RSPO).

There is much more action to come in the days ahead as the peak of proxy voting nears — we’ll bring you news and commentary and insight on trends in this space.  Stay Tuned to the 2014 ESG-focused proxy campaigns.