ESG Value Drivers
Tailored ESG strategies most often
add value in four core areas:
To achieve the second pillar of our ESG strategy—value creation—Carlyle supports our portfolio companies’ management teams in their journeys to develop sustainability strategies that improve value. We focus on the four primary value drivers that are most important to stakeholders in a particular company, be they customers, employees, investors or other communities. These value creation strategies come to life in our library of case studies, with examples from a variety of funds, geographies and sectors.
Customer Satisfaction Customer expectations increasingly include a demand for more sustainable products and services, along with assurances that suppliers effectively manage their environmental and social performance. We see this increased demand in a range of sectors, including consumer products, telecom and media, business services, and manufacturing sectors.
Operational Efficiency Operational efficiency means operating with maximum productivity and minimum waste. Savings in energy, water and waste often require new expertise or an infusion of capital. Our ability to bring new resources to the table can help modernize a plant quickly. Our investments frequently result not only in greater efficiency for a company, but also measurable environmental gains.
Brand Equity For some Carlyle portfolio companies, sustainability initiatives enhance their brand equity because more and more consumers value responsibly sourced products and transparent practices. These companies often develop innovative products that reduce their own and their customers’ environmental footprints, disclose details about raw materials and work to ensure ethical practices throughout the supply chain.
Workforce Strength We evaluate workforce topics—including labor issues, diversity and inclusion, health and safety, and employee benefits—as part of our investment process. ESG initiatives can help engage employees, and an engaged workforce creates stronger companies and enhanced value. A strong workforce also reflects the important role employees play in a company’s brand and customer relations.
Annual sustainability workshop helps portfolio companies share ideas and build ESG strategies
In December 2017, Carlyle gathered a group of portfolio companies in Washington, DC to discuss sustainability trends and emerging issues and to share ideas. In this latest edition of a recurring event, the sessions focused on how we can help our portfolio companies identify and transform their ESG initiatives into full ESG strategies. We considered how to create value by integrating not just the most material ESG issues, but also input from key stakeholders, including customers, investors, employees, suppliers and communities. Our investment professionals discussed how our value creation strategies align with our four sustainability value drivers. Carlyle’s Chief Information Officer, Georgette Kiser, led a session on weather risks and tabletop exercises, using a climate change risk assessment for Carlyle’s own business operations.
The group was inspired by George Serafeim's research from Harvard Business School, which affirms that the most effective ESG strategies reflect a solid understanding of how managing and improving ESG issues creates value. In contrast, those strategies that miss the right issues tend to simply spend money on initiatives that may be misdirected and add minimal value.*
* Mozaffar Khan, George Serafeim, and Aaron Yoon. Corporate Sustainability: First Evidence on Materiality. The Accounting Review: November 2016, Vol. 91, No. 6, pp. 1697-1724.