Access: The changemaker shaping the future of sustainable investing
"ESG is a proxy for management excellence" - Megan Starr
Hello reader,
Welcome to the 12th edition of Access, and the fifth anniversary of Hertalis 🥳
One of the team sent me this:
11,857 cups of coffee. 24 birthdays celebrated. 3 dogs, 3 cats, 1 goat. 1482 interview hours. 251,763 Slack messages posted. 9,794 LinkedIn connections. 101 amazing people found jobs with our help. 8 interns. 10 staff members.
5 years.
It has been a wild ride, and I wouldn’t change a single moment of it.
Thank you for joining us for this chapter, we hope you’ll stick around to see what we do next! Enjoy this week’s scribbles, and keep the comments coming.
Until next time -
Liz & Melissa
In case you missed it…
Last week’s newsletter included interviews with Michelle Yeoh, Janelle Monáe & Brendan Fraser.
Our In-Depth section featured Ryan Reynolds, the hands-on investor with a Hollywood side-hustle.
FEATURING:
This week's best interviews
Indiana Jones star Ke Huy Quan’s Hollywood comeback
Guillermo del Toro on the Oscar-worthy crafts of Pinocchio
Andrew Ross Sorkin talks to FTX CEO Sam Bankman-Fried
In-depth: Megan Starr on the compelling business case for sustainable investing.
IN BRIEF
“I don’t think I’d seen a single American movie until I got the role in Indiana Jones. Acting wasn’t even on the horizon, or in my atmosphere.”
A child star in the ’80s, then Hollywood forgot about him. Nearly 40 years later, Quan opens up about the part that took a lifetime to find.
[Ke Huy Quan’s Hollywood comeback]
***
“The fact that a craft like that exists in cinematography and has gone unrecognised for decades of work is to me, staggering.”
Guillermo del Toro on the Oscar-worthy crafts of Pinocchio.
***
“I had a duty. I had a duty to all of our stakeholders, to our customers, our creditors. I had a duty to our employees, to our investors and to the regulators of the world to do right by them and make sure the right things happened at the company. And clearly, I did not do a good job with that.”
The full transcript of that interview between Andrew Ross Sorkin and FTX CEO Sam Bankman-Fried
IN-DEPTH
“Emissions are the next frontier for private equity”
This week, PEI announced their annual 21 Changemakers list celebrating some of the most influential and impactful individuals across the private capital industry.
You can read about two of this year’s Changemakers, Jeremy Coller and Wol Kolade, in past editions of Access. This week, we’re taking a closer look at Megan Starr, Global Head of Impact at The Carlyle Group and 2022 PEI Changemaker.
Previously at Goldman Sachs' Investment Management Division, where she helped build the ESG and impact investing business, Starr joined The Carlyle Group in 2019 as their global head of impact.
When fellow Harvard alum Jess Li interviewed Starr last year, they discussed how Starr’s work at The JPB Foundation, a $3.8B private family foundation based in NY, had sparked an interest in how ESG investing could play a pivotal role in creating a more sustainable future. Starr subsequently studied for an MBA at Stanford, secured an internship with Goldman Sachs, and reportedly won a permanent role off the back of a proposal she wrote, explaining how Goldman’s could leverage sustainable investments.
Starr was aptly named a rising star of Wall Street in 2018, which cited her involvement in Goldman's acquisition of Imprint Capital, an impact investment firm that ‘started with $550 million in assets just several years ago and is now [worth] north of $15 billion.’
The Carlyle Group
Carlyle is one of the world’s largest and most diversified global investment firms, with $369 billion of assets under management across three business segments and 531 investment vehicles.
On Carlyle
“We’re in the business of buying good companies and making them great companies. And as we think about the next few decades, great companies create sustainable economic value.”
On defining sustainability
“I think we have potentially some misconceptions about the word sustainable in the US. You hear that, and you think people wearing Birkenstocks and dancing around a campfire. [Yet] sustainability means - literally - the ability to persist over time. And that’s what we’re looking for.”
On linking ESG to value
“[P]eople hear ESG and SRI and CSR and it can mean a lot of things and it can mean nothing… [So] how do you separate out more value based investing from where ESG integration actually adds material value to an investment portfolio?”
On getting serious about ESG
“In its early days, when people thought about ESG or whatever they termed it, they were like, that's feel-good investing or fuzzy math. ‘How can you possibly make money when you're busy thinking about carbon emissions for people?’ The world has flipped, where we realise that companies are thinking about engaged, safe, productive workforces, that companies that are in the forefront of the energy transition, they're outperforming.”
“We're in the early innings of [ESG] being recognised as a major discipline, and now we'll sort through who's actually doing it well versus who's putting in a pitch deck because they think people want to see that.”
On the ‘S’ in ESG
“[H]uman beings are not just salaries that are reflected in an income statement, they're people. And when you think about productivity and efficiency and engagement and loyalty, those things are massive drivers of business value…”
On drivers for embedding ESG practices
“It's important for [companies] to demonstrate to the market, measure and quantify that they are at the bleeding edge of environmental and social practices because they can attract and retain the highest talent.”
“People are starting to realise that the human element has been undervalued, which means it's a source of great potential alpha.”
On creating impact
“I think what we're seeing now is that the kind of next phase, of saying - actually, how can you invest in companies that maybe don't have great environmental or social dimensions, improve those and that's actually the kind of activism thesis of improving those companies into the higher multiples."
On the commerciality of ESG
“[I]f the purpose of business is around generating profit, what we're finding is that you generate more profit in today's day and age if you're conscious of your environmental and social footprint.”
“Carlyle bought a company called Weiman a couple of years ago, a cleaning supply company. Our thesis was around changing consumer preferences for green, safe cleaning supplies. And so our investment was all about how do we transform that company into a clean producer?”
On decarbonisation
“The world is changing, and the role of private capital is to invest in good businesses and turn them into great businesses – which means making them climate resilient first and foremost. That’s why we don’t segment investing into binary terms of good assets versus bad assets: we focus on the decarbonisation trajectory of individual companies.”
On the journey to net zero
“We call it the net zero virus, where more than half of global AUM has promised to have net zero carbon emissions by 2050 or sooner… It's not just about the individual companies, they're pushing it up their supply chain, down their supply chain. And so it doesn't really matter what industry you're in, you're going to start feeling the pricing pressure and getting in front of that will be a major driver of financial return.”
On carbon data
“Carbon footprint data isn’t an answer. It didn’t tell us whether companies were good or bad. It was an input into helping us better manage companies for the geographic complexities of the region in which they’re operating in.”
“If you want to decarbonise the global economy, you have to go where the carbon is.”
On investor impact
“LPs are one of the primary stakeholders driving change within GP organisations. They hold significant power and can help signal to the market how important it is to integrate climate-related risks and opportunities.”
On the importance of diverse boards
“In our own portfolio, our companies which have at least 2 diverse board members, have at least 12% faster annualised earnings growth than our companies without diverse directors.”
On Carlyle sourcing the largest ESG-linked private equity credit facility in the US (and the first to focus exclusively on advancing board diversity)
“[I]t was a three-year facility with interim targets leading up to our goal of 30% of diverse directors for all portfolio companies that are majority owned within two-years of ownership. As our funds hit those interim goals, they unlock cheaper cost of capital. So it’s a really interesting way of taking an area that we know is correlated with better financial performance and finding further ways to incentivise progress on an issue by unlocking cheaper capital through this facility.”
“I think every business has an opportunity to improve on sustainability dimensions that will increase their value.”
On the need for meaningful ESG data
“We’ve historically had anecdotal data, but we lacked statistically significant industry-wide ESG data for private markets that made it more difficult to interpret and use in a meaningful way.”
On the ESG Data Convergence Project
“ESG is one of the more collaborative corners of finance… We have a similar collective objective as a private markets industry – better, more quantitative, comparable performance data on ESG, so that we can accurately assess progress over time and potential correlations with financial performance. We worked together to agree on a common way of tracking data in order to make that happen”
On greenwashing
“A really hot topic of conversation in the industry is greenwashing, which happens when companies or investors write their own report card. We believe the antidote to greenwashing is having a standard set of metrics to compare, which creates real industry accountability and benchmarking. As more stakeholders join this initiative and work together, we believe better and more useful data will be gathered to inform deeper research insights, and ultimately, drive greater progress on critical ESG issues.”
On ESG for leadership
“ESG is a proxy for management excellence… we really saw this through the COVID crisis where it was management teams who were focused on agility, forward thinking, employee health and safety, who weathered the crisis well.”
Sources
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