Private equity's ability to improve governance at portfolio companies is crucial to driving value-enhancing environmental and social changes, TPG managing partner Jim Coulter told delegates at a Private Equity International event today.
Speaking at The Responsible Investment Forum in London, Coulter said that rather than ESG, the acronym typically used in this area (environmental, social, governance), he preferred to think in terms of GES, to emphasise the importance of governance in changing the culture of portfolio companies.
Since governance is a core strength of private equity, he added, this was also the best way for the industry to differentiate itself and fend off negative media coverage.
“We're doing pretty well, but we could do a lot better,” Coulter said. “The way private equity works, with the governance structure, we can push things down into our supply chains – so not just our investments but the entire ecosystem within which we operate. If we do so, the noise we're making today, which is beginning to permeate the industry, will transform into truly deep impact for years to come – and differentiate the industry as one that cares.”
Coulter also talked about how he had attempted to inculcate a culture of making the right choices throughout TPG's wide-ranging business, which spans 18 offices and over 150 investee companies.
Part of the answer, he suggested, was making it about personal rather than corporate responsibility. For instance, the firm changed its philanthropic giving policy to embrace individual rather than firm-wide causes, encouraging its staff to become personally involved with the charities concerned.
Equally, he said, the portfolio companies that had made the most progress on ESG issues tended to be the ones where the leaders of the business had taken a personal interest.
Coulter also emphasised the importance of continuing to do the right thing even in the face of external pressure. He cited the example of TXU, the biggest private equity bankruptcy in history. Despite all the 'noise' around the restructuring, TPG had continued to honour all its commitments to the business, he said, including spending $400 million on energy efficiency measures.
These external pressures on private equity had intensified since Mitt Romney's run for US president, he added. He talked about how Facebook had been invited to the White House to talk about job creation, while private equity was vilified despite creating jobs at double or triple the rate of Facebook.
This was in no small part due to the industry's failure to communicate better with the outside world, he said. “We're doing the right thing, but we need to talk about it a bit more.”
TPG declined to discuss its wider business, the performance of its portfolio or the progress of its fundraising, citing SEC constraints.