Transcript for: Progression de l'Initiative ESG Carlyle
Hello, and greetings from New York. I'm here today with Meg Starr, who's the Global Head of
Impact at the Carlyle Group. And we're meeting one year on from the formation of the ESG
Data Convergence Initiative. Meg, it's fantastic to
be in conversation today. And it's exciting to see
the private equity industry converge around these
meaningful ESG metrics and generate comparable, useful,
performance-based ESG data for the private markets. How's the inaugural year been for you? - Honestly, the inaugural
year has surpassed, I think, our wildest dreams when we set
out to work on this problem. And so we're now a community
of more than 215 GPs and LPs globally who have come together to work on this initiative. I think what's most important is that this was built
by and for the industry. And I think that's why
it has staying power and that's why it has grown so rapidly. - We've been crunching the data, developing it into a benchmark,
which we've shared back with all participating GPs
and LPs in the Initiative. I don't think any of us imagined that we would be in a place
where we've got 100 GPs that have been collecting and sharing data from 2,000 portfolio companies, I think 22,500 ESG data points. I think this is unprecedented in terms of ESG data
in the private markets. - That was a crazy idea
we set out to work on. We have benchmarking in
public markets for ESG data, but we've never had a benchmark in private market data before. One of the most exciting
data points that came out, even in this first year of
data which is more preliminary, was around job creation. I think a popular narrative
around private equity as an asset class is that
private equity investors come in and they make money by
stripping out companies. And frequently that can have
negative impacts on jobs, or so the narrative goes. And what we found in the
data, of these 2,000 private companies, is actually,
it's quite the reverse. When you normalize for headcount, private equity companies create jobs at almost two to three times the rate of public market peers. - I think we also found
it interesting to see, for the first time in the data, that on average, private companies have been lagging their public peers on things like renewable energy usage, board diversity, other metrics. The initial data that we have shows that private equity funds
can be very powerful in driving change within
their portfolio companies. I think if we looked at renewable energy, in just a couple of years, you've seen some really,
really stark improvements in renewable energy usage, where you have been tracking data. And that for me just speaks to the power of the private equity investment model. You have often ownership
control positions. You have a long term mindset, you can focus in on what
matters and drive change. - Yeah, and I think that's important, Ben, because this isn't intended
to sugarcoat private equity. And we want to be clear about the areas where a performance doesn't
match up to public markets. But I think your point
is an important one, where it's not necessarily about the maturity of private companies when we invest in them. It's what we can do over our hold period. And so I think understanding
where we might be lagging on things like board diversity,
A, that's an opportunity for private equity GPs to
really differentiate themselves by excelling ahead of the pack. But B, it's a real area
of potential improvement when there's that much
of a delta to be had. And so I think it's important to show where private equity is
excelling, where it's not, but importantly, what change
is possible over a hold period. - And this benchmark's going
to be a really important tool in the toolbox for GPs. As they're engaging with
their portfolio companies, how can you be kind of
helping those management teams to drive change? - One of the best tools we
have is peer-set comparisons. And when we work with management teams of our private companies, one of the best ways to incentivize action is to show them how
they stack up to peers. And before, we didn't have a relevant private market data set. We had some public market comps, so you could try to cobble
together some context-setting, but now, being able to
show a management team, look, you're behind the industry on XYZ, or you're behind your relevant peer set, it's one of the best carrots
we have to be driving change. - What's next for the Initiative in 2023? - Well, I'm very excited
about what's next. We set up the Initiative
to continue to be governed and led by GPs and LPs. And the intention is we do
a sprint process every year after data collection is closed. We want to understand what
we learned, what went well, what we might need to
change, but more importantly, are there one or two metrics
that we could all agree to add to our data
collection for the next year? So we can incrementally and carefully build out
a more robust data set. So we just completed the sprint for this first inaugural year, and we decided to add an
additional metric on diversity. We'd started with board diversity, and we decided to add a metric around gender diversity at the C-suite. There's also a lot of
energy for future years around metrics such as net-zero alignment. So a lot of interesting topics for the group to explore
potentially adding, but we want to make sure
that we are doing it in a way that enables GPs to continue collecting robust data.