Just as apples have many varieties, so do our Environmental, Social and Governance (ESG) solutions. We believe that our portfolio companies benefit from distinct ESG strategies that reflect their particular operations, sectors, geographies and stakeholders.

We call this approach tailored strategies. Solutions tailored for each particular company's circumstances enable our companies to address their material ESG risks and opportunities.

Tailored strategies help to create maximum value for companies.

One size fits none

Carlyle helps our portfolio companies and their senior management teams strategize around a range of ESG issues, including environmental performance, workforce health and safety, governance, and diversity and inclusion. Our tailored approach helps ensure that these companies address the ESG issues that can have the biggest impact.

In this year’s citizenship report, we highlight in-depth case studies that demonstrate how specific, tailored strategies can
help companies create more value from ESG initiatives. We also describe how one of our largest funds, Carlyle Europe
Partners IV, monitors portfolio companies through ESG Key Performance Indicators that enable an approach tailored to the
most material issues.

In Carlyle's own operations, we too pursue an ESG strategy tailored to our business as an alternative asset manager. We focus on the areas that drive the most value for our limited partners and unit-holders, and draw on our expertise and resources to be a leader in our industry.

To our investors, our partners and our communities

“The most effective ESG strategies are those with a clear connection to how managing and improving ESG issues creates value. A tailored strategy enables our deal teams to assess ESG risks and opportunities given their deep knowledge of the companies and their stakeholders.”

KEWSONG LEE AND GLENN A. YOUNGKIN
CO-CHIEF EXECUTIVE OFFICERS

As stewards of our investors’ capital, Carlyle’s mandate is to invest wisely and create value. Over the last decade, one of the ways we have strengthened our stewardship is through our sustainability practice: quite simply, sound ESG practices enhance our investment processes and outcomes. In this, our first annual letter as co-CEOs, we want to assure our investors and other stakeholders that sustainability is and will continue to be an important priority for Carlyle.

As Carlyle enters our second decade of ESG leadership, we are focused on three priorities: value creation; robust governance and transparency; and industry leadership on ESG issues.

The theme of this year’s report—tailored strategies—captures the first pillar of our ESG strategy. Each portfolio company and investment is unique, and we create the most value by tailoring ESG objectives and priorities on a case-by-case basis. As a firm with more than 275 active portfolio companies, we have learned that a one-size-fits-all solution does not serve our investors well.

In essence, we encourage our investment professionals to prioritize those issues that matter most. Recent research from the Harvard Business School validates this approach. The study found that firms that focus on and achieve success on material sustainability issues create more value (for more information see annual sustainability workshop section). In other words,
many firms say they prioritize sustainability, but those firms that focus on the right issues—the material ones—generate the
most value.

At Carlyle, we possess strong internal capabilities, including a Chief Sustainability Officer and external specialists in specific ESG issues who help us identify the materiality of ESG issues and provide insight to our investment teams during the due diligence process. In the last year, we augmented our existing investment process by adding the Sustainability Accounting Standards Board (SASB) sector guidelines as a resource. These guidelines identify material factors likely to create or destroy value in 11 sectors and 79 industries. For example, if we explore an investment in an agricultural products company, SASB points to several material sustainability issues to consider, including water use, fertilizer consumption and food safety. These sector guidelines, combined with our in-house expertise, allow us to approach ESG strategically and focus on those issues that matter.

Our ESG strategy:

  • Tailored value creation
  • Robust governance and transparency
  • Iindustry leadership on ESG issues

The second pillar of our ESG strategy—governance and transparency—ensures alignment between Carlyle’s interests and those of our investors, and places a premium on effective communication with our investors and other stakeholders. We follow a rigorous process around ESG issues, with mandatory inclusion of these issues in Investment Committee materials in most asset classes, and annual board-level review of our Guidelines for Responsible Investment at all of our controlled Corporate Private Equity companies. We also publish this annual citizenship report—our eighth—and regularly brief and consult with investors on ESG issues. We are excited to announce that in 2017, one of our largest fund families, Carlyle Europe Partners, further advanced Carlyle’s ESG policies and practices by moving from fund-level reporting to reporting, on a company-by-company basis, ESG Key Performance Indicators (KPIs). This enhanced framework gives our investors greater insight into the true ESG performance of our portfolio companies.

Carlyle’s third ESG pillar is to continue providing leadership on ESG issues, as we have for ten years. In 2008, we created our Guidelines for Responsible Investment, which also became the basis of the American Investment Council's guidelines in 2009.
We published the first sustainability report in the sector in 2010 and hired our first Chief Sustainability Officer, Jackie Roberts,
in 2014.

We are pleased to announce that Carlyle, across our 31 global offices and the activities of our roughly 1,600 employees, is now carbon neutral. Over the past year, we conducted our first-ever carbon footprint analysis with the assistance of environmental consultants with expertise in carbon measurement and estimation, and continued efforts to reduce our carbon emissions through efficiency projects. We then used our carbon data to invest in an offset project with The Carbon Fund focused on reducing emissions from long-haul trucks, a service used by many of our portfolio companies. We are not aware of any other global private equity firm that has taken this step. For more information on how we are deepening our approach to carbon and the climate, please see section on carbon neutrality.

Another area in which we aim to provide leadership is diversity and inclusion. Pursuing a diverse workplace not only reflects our values as a firm, but also enables us to better serve our investors because teams with diverse perspectives and experiences make better decisions.

In our 2017 citizenship report, when we chose to highlight our progress (and areas for further work) in hiring and promoting women at Carlyle, we had no way of knowing that gender diversity would become a front-page issue by the end of the year. However, the spotlight only reinforced our belief that proactive leadership on these issues is essential to our firm’s success and development. We are proud of our achievements and committed to even further improvements.

This year, we are also proud to announce that the Human Rights Campaign gave us a perfect score of 100 for LGBTQ inclusiveness, the result of inspired leadership by our LGBTQ Employee Resource Group and support from senior decision makers at Carlyle. We believe that such employee-driven initiatives help in all areas of diversity.

We are humbled by your trust and hope this year’s corporate citizenship report will further validate your confidence in Carlyle.

Kewsong Lee
Co-Chief Executive Officer

Glenn A. Youngkin
Co-Chief Executive Officer