Private equity firms must apply their environmental, social and governance policies as rigorously at the corporate level as at the investment level or face reputational risks, according to Blackstone’s head of ESG Alison Fenton-Willock.
“When we think about ESG at the firm, it’s ESG at the corporate level in terms of how we manage Blackstone, and it’s also ESG at the investor level in terms of how we are being a responsible source of capital,” said Fenton-Willock onstage at the fourth annual Private Equity International Responsible Investment Forum in New York last week.
“You have to look at both,” she said.
Fenton-Willock stressed that ESG initiatives are now “just core to good business”, with everyone from investors to lenders to prospective employees inquiring about it.
Fenton-Willock walked attendees through how Blackstone incorporates ESG into its investment process all the way through to exit.
A deal begins in the review committee stage. The committee, along with Fenton-Willock, begin by familiarising themselves with the company and its principles. It then moves onto the investment committee stage.
“By the time we know that a deal is actually committed to the investment committee process we are going to start engaging third parties,” like consultants and lawyers, Fenton-Willock said.
Post-investment, Blackstone engages with the company, providing them with frameworks, resources and tools to use as it develops its own ESG framework.
“The primary approach to our portfolio companies is not to be buying carbon offsets,” said Fenton-Willock. Rather, Blackstone focuses its efforts on a company’s HVAC systems, thermostat and refrigeration controls, and maintenance tasks to “actually change behaviour that reduces energy consumption, which then reduces emissions”.
At exit, Blackstone hopes to compare the ESG considerations with where they were on entry to demonstrate improvement. “That’s sort of the goal – to look at the scorecard at entry, at exit, and be able to tell that story,” said Fenton-Willock.
She told attendees she is optimistic about the ESG initiatives undertaken by the private equity industry in recent years.
“I think private equity is definitely, of the asset classes, leading the way,” she said. “There is probably a little bit more that we can do.”