Eurazeo seeks more gender parity, net zero carbon goals by 2040

The investment firm has stepped up its ESG goals and aims for 75% of portfolio company employees to benefit from a value sharing mechanism.

French firm Eurazeo is upping its efforts aimed at improving diversity and inclusion in its workforce as well as achieving a net zero carbon goal by 2040.

The strategy, named O+, is an expansion of its five-year responsible investment strategy, which it formally outlined in 2014, according to a statement.

“O symbolises the planet; O+ is the universal blood type; and + is to show that this is our second phase in our environmental, social and governance ambition,” Eurazeo chief executive Virginie Morgon told Private Equity International. The name indicates the “universal positive effect” the firm wants to achieve to the planet, its stakeholders, and for the next generation, she added.

The firm’s previous responsible investment initiative has resulted in over one million metric tonnes of carbon reduction, nearly 12 million cubic meters in water, more than 2,900 GWh in energy and €243 million in savings for the firm as at end-2019, according to its corporate social responsibility results.

“We are at an inflection point where everything is in place and we feel mature about what we want to achieve. We think this is the moment of exponential effect and benefits,” Morgon said.

Virginie Morgon
Morgon: wants 75% of portfolio company employees to benefit from a value-sharing mechanism by 2040

Eurazeo aims to have at least 40 percent female representation among its portfolio companies’ executive management team members by 2030, the statement noted.

This is in addition to the firm’s plan in 2015 to achieve 40 percent gender parity in the boards of its portfolio companies. Morgon said the firm has still “a way to go” with this goal. As of end last year, the firm hit only 40 percent of its target, having started with a 7 percent female representation in its boards in 2011.

Morgon had said at an industry conference in January this year that the lack of gender diversity is a clear industry failing: “It has to be a joke. It’s a disgrace. We have to face it. We have to make some changes.”

Paris-listed Eurazeo, which mainly backs start-ups and small- and mid-cap companies, wants to get in early with its companies and set gender balance targets right from the beginning, Morgon told PEI. The firm believes doing so will drive growth and performance, she added.

Eurazeo is not the only firm intensifying its efforts on improving diversity and inclusion. Carlyle Group set a goal of achieving 30 percent diversity of all directors on the boards of its portfolio companies by 2023. Last year, it also implemented a requirement that at least two diverse candidates be interviewed for each role. KKR started its diversity push in 2014 and early this year had at least two board directors with diverse backgrounds in some 80 percent of its companies, said co-chief executive Henry Kravis in an interview with CNBC in June.

Private equity has long struggled with gender diversity: women hold only 10 percent of all senior positions in private equity and venture capital firms globally, according to a report from the International Finance Corporation.

A 2020 global PE survey from EY found that increasing gender diversity and inclusion is a top priority for PE managers. Nearly half of GPs in the survey had set targets for gender diversity and representation of ethnic minorities, the report found. However, the activity and outcomes connected to these targets can often be lacking; 40 percent are falling behind their planned diversity targets, with mid-sized managers reporting the greatest difficulty.

Under O+, Eurazeo also aims to have 75 percent of portfolio company employees benefiting from some sort of value sharing mechanism by 2040, according to Sophie Flak, CSR director at Eurazeo.

“We see widening social gaps everywhere and street demonstrations are starting again in France. We believe that companies, in order to develop and become prosperous, need peaceful societies,” Flak said.

Eurazeo is also setting up an endowment fund with initial capital of €3 million from its balance sheet, to support non-profits focused on education and childcare. It expects to raise additional capital in the near-term from its LPs and peers, according to Morgon.

The firm, which had €18.5 billion in assets under management as of early September, has invested in more than 430 companies since inception in 2001 through private equity, venture capital, real estate and private debt, according to its website. In its first half 2020 earnings call, the firm revealed around 10 percent of its assets were directly hit by the lockdown, such as companies in travel and leisure. These have seen 56 percent of their value marked down from December last year. Morgon declined to provide further details on the firm’s portfolio.

Morgon noted that to achieve net zero carbon emissions, Eurazeo may launch dedicated vehicles focused on clean-tech and food production in the near-term.

Limited partners globally have been more vocal about the need for investment capital to address climate change. Mark Machin, chief executive of Canada Pension Plan Investment Board, said in a virtual panel last week that divestment in fossil fuels alone would not lead to social change and added that companies that are heavily reliant on carbon-based fuels and want to transition need capital to do so.

Read our 2019 profile of Eurazeo here.