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

G&A's Sustainability Highlights (5.17.2021)
May 20, 2021 2:15 PM ET
Newsletter

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), and 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 therapy), 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, and 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)…and from experience we know at G&A 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 week.

There is also an important story for you from Accounting Today in the Corporate/ESG content silo, about sustainability reporting being a  major disruptor now – a must read for everyone, we suggest.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.