The Environmental Defense Fund has launched an environmental, social and governance management tool for the private equity industry.
Created in collaboration with advisory firm Irbaris, the tool defines for the first time the practices necessary to build a successful ESG management program and provides a framework to assess, analyze and improve such management at private equity firms of all sizes, EDF says.
The Excel-based tool, which is free to download, is designed to evaluate and enhance performance across 22 best practice areas including commitment and leadership from the top; access to ESG resources and expertise; integration of ESG management into the investment process and portfolio company operations; and measuring and reporting results.
Companies can use outputs from the tool to perform self-assessments, evaluate performance and develop a prioritized action plan for improvement. Consultants can use the tool to develop specific recommendations for improvement with their private equity clients, EDF says.
Certain private equity firms have already begun to capitalize on ESG opportunities and expectations are growing for the rest of the industry, according to EDF. As the private equity industry’s interest in ESG issues continues to grow, there’s a clear market need for strategy resources, according to Bryan Corbett, principal at private equity firm The Carlyle Group.
The tool’s design was informed by EDF’s experience partnering with prominent private equity firms including Kohlberg Kravis Roberts & Co., The Carlyle Group and Oak Hill Capital Partners. These partnerships combined have affected over 30 portfolio companies and resulted in about $370 million dollars of operating cost savings or revenue growth as well as 820,000 metric tons of avoided CO2 emissions, EDF says.
EDF will now work with business non-profit BSR and other industry partners to broadly disseminate the tool across the industry, with the goal of making measurement and management of ESG performance a standard practice for value creation across the private equity sector.