Can a Private-Equity Giant Invest in Oil While Saving the Planet?
Carlyle Group Inc. bought a business that sells harsh chemical cleaning products to put streak-free shines on kitchen appliances and swiftly remove dried paint. Then private-equity executives set about changing the products and even the office lightbulbs. Now the company, Weiman Products, sells a line of cleaning sprays made to emphasize sustainability and appeal to eco-conscious shoppers. Business has improved, which should help when it’s time to sell the company.
This process plays out hundreds of times each year in the world of private equity, and an investor like Carlyle would be expected to tout improvements in revenue and profit margins. In this case, though, Carlyle also wants to position the deal as proof of its commitment to fighting climate change—and a demonstration that moneymaking private-equity investors can be a force for progress.
“We fundamentally think Weiman will be worth more upon exit because of this focus on the sustainability of their products,” says Megan Starr, the head of impact at New York-based Carlyle.
Starr’s job at Carlyle, which she joined last year, is to push environmental, social and governance (ESG) strategies throughout its $217 billion portfolio, even if these businesses aren’t easy to square with a commitment to the climate. That makes Carlyle’s approach different from private-equity rivals such as KKR & Co. and TPG Capital, which have set up dedicated impact funds targeting renewable energy and sustainable ventures. At Carlyle, investments in military equipment, fossil-fuel production and cleaning chemicals are all supposed to be ways to make a better world.
The problem for private equity’s push into into ESG is what can be done to address business in all kinds of controversial areas, says Mark Campanale, founder of the Carbon Tracker Initiative. “I think the answer to that is ‘not very much,’ so long as pension funds and insurance funds still want to allocate to that area.” That legacy, for Carlyle, includes a minority stake in Combined Systems, a manufacturer of tear gas.
A basic premise of the ESG movement is to discourage investment in companies that, for example, create heavy greenhouse-gas emissions. Carlyle finds itself among an emerging group of investors that believes in the ability to bring about positive change, without screening out companies that fare poorly on ESG measures. That raises a big question: Can private-equity investments in things that aren’t great for the planet actually be a force for good?