The private equity firms that provided inspiration for the cutthroat fictional investor Gordon Gekko from the film Wall Street have since grown a heart. The Carlyle Group, born the same year (1987) Gekko first appeared on screen to declare “Greed is good,” recently released its inaugural Corporate Citizenship Report, the first of its kind from a large private equity firm. The report is just one component of Carlyle’s larger initiative to incorporate environmental, social, and governance (ESG) metrics into its core business strategy. For Carlyle, currently the world’s second largest private equity firm, greed is not good enough.
Larger financial service providers and wealth management firms like Goldman Sachs or Bank of America have a hefty track record of corporate social responsibility or corporate citizenship programs and reports. Under pressure from their own investors – mostly institutional investors such as state pension funds, hedge funds and others – private equity firms like Carlyle have gotten the message that ESG metrics matter, as they provide a newly urgent means of demonstrating the ability to mitigate risk, on top of ethical concerns.
Pressure from institutional investors should help drive innovation and adoption when it comes to ESG metrics, especially beyond ‘E’. Environmental footprints and energy efficiency are easier to measure, partly explaining why most of Carlyle’s 30-page corporate citizenship report focuses on environmental initiatives.
Social and governance returns have mostly been anecdotal to this point. The growing field of impact investing has at least one industry-recognized initiative to standardize social returns on investment: IRIS (Impact Reporting and Investment Standards).
On the same token, last week the Business Call to Action (BCtA) network hosted a webinar on “Measuring the Reults of Pro-Poor Business Models.” The webinar featured Coca-Cola’s Inclusive Business Program Director Adrian Ristow and Mission Measurement CEO Jason Saul. Discussion revolved around BCtA’s new Results Reporting Guide, designed to help companies comprehensively but succinctly capture how new business models or new business units are engaging and expanding opportunities for low-income households and for women in particular. Keep it simple – jobs/suppliers created, knowledge transferred, and infrastructure built – was Saul’s refrain to webinar attendees. Could the BCtA metrics become incorporated into a private equity firm’s social metrics?
As reported in a Dow Jones LBO Wire post about its groundbreaking report, Carlyle fully expects to expand its corporate citizenship activities across the rest of its portfolio, starting where it sees the most potential impact. If they haven’t already, industries or firms that adopt IRIS, BCtA, or other third-party metrics sooner rather than later may pique Carlyle’s attention – as well as that of competing private equity firms that are almost guaranteed to follow Carlyle’s suit.
That said, financial markets around the world still have a long way before purging themselves of Gordon Gekko’s ghost.
Published Date: January 19, 2011