Cupernican Dinner: Exploring ESG's Impact on Private Equity

Provoking conversation, interrogating perspectives and enriching others’ views.  These were the purposes of our first ever Cupernican Dinner.  An homage to the Jeffersonian Dinner, we extended personal invitations to a small, select group of professionals with expertise and interest in private equity and mergers and acquisitions.  Our collective task was to engage in thoughtful dialogue around this central theme:

“To be successful in the future, PE leaders must speak openly and often about the importance of sustainable value creation. They must recruit people who care about it in the broadest sense and aren’t joining the industry just because it can be very lucrative. We foresee three consequences if the industry fails to fully embrace ESG: Its social legitimacy will increasingly come under attack. It will no longer be able to deliver its historically high returns. And it will fail to fulfill its potential to help solve, rather than exacerbate, environmental, social, and governance problems.”

~ Robert Eccles, Vinay Shandal, Benedicte Montgomery. “Private Equity Should Take the Lead in Sustainability. Here’s How.” Harvard Business Review (July-August 2022)

Lively conversation and debate ensued.  We discussed the legitimacy of ESG focus and sustainability initiatives in private equity – for some of our guests, these were considered largely marketing ploys or check-the-box compliance exercises.  For others, issues of sustainability, especially those related to ‘S’ (the social components) were regarded as competitive advantages in employee recruitment(attraction and retention) for GP’s and their portfolio companies. Allowing these organizations to punch-above-their-weight in a highly competitive talent marketplace. Yet others spoke of having already made meaningful commitments to the United Nations Principles for Responsible Investing (UNPRI) and the underlying United Nations Sustainable Development Goals (UN SDGs). 

Our discussion highlighted frustration with the lack of standards for measurement and reporting, while at the same time concern for implementation of a broad-brush approach to reporting that may not address appropriate issues of materiality.  Concerns and skepticism abounded:

• how to adequately capture the necessary details of nuanced business details using appropriate narratives;
• how to make meaningful comparisons across similar businesses without both quantitative and qualitative standards for measurement and reporting;
• the lack of existing empirical data (especially for mid- and lower-middle market private companies) tying measures of sustainability to value creation and exit prices.  

In an intimate setting we broke bread, libations flowed.  Deeply engaged in debate and civil discourse, we showed respect and regard for each other.  Caring and dignity for everyone’s individual point of view made this a safe space to learn, personally and professionally.  We exposed personal stories, frustrations, cynicisms, hopes and for some, generated renewed optimism. Our purpose was not to come together to solve a specific problem or to make a concrete decision, nor were we engaged in groupthink.   Adam Grant suggests, “consensus makes you comfortable while dissent makes you smarter.”  As Grant encourages, we used our time together for thoughtful questions designed to stoke our curiosity and stretch our thinking; connecting as unique and diverse human beings with voices to share for causes greater than ourselves. 

On one thing we universally agreed.  If ESG and sustainability are to contribute to true value creation, they must live in the DNA of an organization and its people. Organizations must be comprised of leaders at every level who live, not just espouse, these values.  They are likely to do themselves, their companies and investors more harm than good if they cannot (or will not)walk-their-talk. 

Deeply grateful for this experience; we can’t wait to do it again. Thank you to all of our guests – we are delighted to have been your hosts.