Private equity gets principled

Better late than never?

That would be a forgivable reaction to the news that 13 global private equity firms – who between them hold stakes in some of the biggest names in British business, such as Birds Eye, Boots and United Biscuits – have taken a key step towards integrating environmental and social concerns into their businesses, by signing up to a new set of guidelines on responsible investment.

The signatories, all members of the Private Equity Council, include major names such as Blackstone, Carlyle, KKR and Permira – which became famous amid the buyout boom of the pre-credit crunch years.

Now, under the auspices of the UN-backed Principles for Responsible Investment, they have met with institutional investors to create a set of guidelines specifically for the private equity industry.

The nine principles include considering “environmental, public health, safety and social issues” when evaluating investments; seeking “to grow and improve companies in which they invest for long-term sustainability”, and respecting the human rights of those affected by investment activities.

There need not be a contradiction between pursuing profits and sticking to such principles, the Council believes. “In today’s world, in order to maximise return on investment, we believe that businesses must address these issues,” said Robert Stewart, its Vice-President for Public Affairs.

Stewart suggested that so-called limited partners – mostly institutions such as pension funds and asset management firms, who invest in private equity funds – would seek to ensure that the guidelines are being followed before investing.

Alice Chapple, Director of Sustainable Financial Markets at Forum for the Future, said that while some limited partners are active on sustainable development issues, it was by no means “a matter of course” that they would hold private equity funds to account.

But she said that these do have an opportunity to think about long-term business risks such as climate change – because they take companies out of the stock market and buy and sell over a three- to five-year cycle. “You have the luxury of pulling a company into a private place while you sort out long-term perspectives – and come out at the end with a company more robustly positioned for the long term,” she said. – Chris Alden

• Institutional investors’ interest in climate change appears to be increasing despite the recession. The Carbon Disclosure Project, which holds a database of corporate information on climate change, said that 475 investors signed its latest annual request to companies for climate change information – up nearly 25% on the previous year.
  

14 May 2009

Chris Alden