Evan Greenfield: White Space

Evan Greenfield is Managing Director and Head of ESG for the Private Equity division at BCI. He recently published a paper with Stanford called "ESG Value Creation in Private Equity: From Rhetoric to Returns" that explains exactly how sustainability strategies produce financial returns in portfolio companies. In this episode, Evan joins Jenn to explain why ESG is good for value creation, and why speaking the language of finance matters more than ESG jargon.

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Read Evan’s book recommendation: The Very Hungry Caterpillar by Eric Carl

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This podcast is brought to you by Re:Co, a tech-powered advisory company helping private market investors pursue sustainability objectives and value creation in tandem. 

Produced by Chris Attaway

Artwork by Harriet Richardson

Music by Cody Martin

Transcript

FIS - Ep 45 - White Space - Even Greenfield

[00:00:00] EVAN: What is exceptionally compelling for portfolio company, for management? For my investment professional colleagues, most certainly for our clients and for members of management and the employees of these companies, is that not only are we enhancing the economic value in many cases as a byproduct of this financial lens, in this financial discipline, is we're having enhanced societal outcomes and societal benefits that we're able to quantify.

[00:00:36] JENN: Welcome to The Future and Sound podcast. I'm your host, Jen Wilson. This is a podcast where we discuss people, planet, and profit. In each episode, we'll learn from world-leading experts who can help us see the future we want. And our role in it.

[00:01:02] JENN: This is episode 45, white Space.

[00:01:11] JENN: Evan Greenfield is managing director and head of ESG for the private equity arm of the British Columbia Investment Management Corporation, also known as BCI. He brings extensive experiences, both an investor and operator with the ESG and climate sectors at BCI. Evan leads the integration of ESG factors across the private equity portfolio aiming to minimize risk and enhance returns and create tangible financial value.

[00:01:38] JENN: His leadership has contributed to meaningful improvements in the performance and resilience of portfolio companies through ESG driven strategies. With $295 billion of managed assets as of, uh, the first quarter of 2025. BCI is one of Canada's largest institutional investors within the global capital markets.

[00:01:59] JENN: Prior to BCI, Evan was senior managing director and global head of ESG at s and p Global, where he oversaw ESG strategy, m and a and operations. He also spent time at Joy Ship Bank's Asset and Wealth Management division in the Americas. And prior to that, Evan spent over a decade as a private equity investor across the United States, Europe, and Asia.

[00:02:22] JENN: One of the many reasons why I invited Evan to join us today on the future in Sound is that he's recently come out with a paper that I thought was really insightful, which he published, uh, alongside colleagues from Stanford called ESG, value Creation Private Equity, from Rhetoric to Returns. Evan, I am delighted to have you on the Future and Sound podcast.

[00:02:42] JENN: Welcome. 

[00:02:43] EVAN: Thank you, Jen. It's, uh, great to be here. I appreciate the invitation and appreciate, uh, you spending time to talk about the paper and whatever topics you have in mind.

[00:02:54] JENN: Well, I've got lots and lots of topics related to this paper. I think it's a really good one. But before we get there, I'd love just a quick summary of your background and how you got into sustainability, Evan. 

[00:03:03] EVAN: I've, uh, started my career as a private equity investor, uh, several decades ago. Largely focused, uh, uh, initially on, uh, financial services, uh, investing, uh, here in the States as well as in Europe.

[00:03:16] EVAN: And eventually I was doing, uh, investing activity in India after business school. And it was during my time in India that I recognized that we have the ability to leverage. Investing in primary shares in the private equity domain to have a tangible, uh, impact on societal outcomes. Uh, commiserate with, uh, significant enhanced, uh, risk adjusted returns.

[00:03:41] EVAN: And that was my first foray into the arena of ESG. Uh, and then, uh, I moved back to the states, uh, and joined Doche Bank to help build out the ESG and impact efforts for their asset and wealth management platform over a decade and a half ago. Which was a very interesting time because there was very little focus and attention on this topic.

[00:04:03] EVAN: So it allowed for great experimentation and the development of new opportunities and new products within the ESG and impact domain. 

[00:04:11] JENN: It's interesting because a lot of the ESG rhetoric, I know we're gonna be talking about going from rhetoric to returns here in a second, but a lot of the rhetoric really started to ramp up, you know, three to five years ago.

[00:04:25] JENN: How has your experience been of the shifts in ESG and sustainability over the past 15 years? 

[00:04:32] EVAN: Well, there, there has been an explosion of interest, uh, in the topic, uh, over the duration of the last decade and a half, which is a real testament to the capability and to the abilities of, of this genre. But over the last several years, uh, there's been an ideological and politicization as it pertains to sustainability in ESG and one of the areas that we feel is so critical as we integrated in our private equity portfolio.

[00:05:02] EVAN: And one of the key elements of this paper is to demonstrate that irrespective of ideological political approach and, and interest, putting that all aside. We leverage ESG at the core for value creation and to allow for enhanced risk, adjusted return for our clients or pension errors in the province of British Columbia, which is exceptionally important work, uh, to allow for, uh, those enhanced returns.

[00:05:28] EVAN: And we have a view that in many respects, ESG is one of the last frontiers of value creation in a private market portfolio with significant wide open space. And that's because it's so relatively new. If we look at the evolution of ESG in the modern sense, it really grew as an outgrowth to the financial crisis of 2008.

[00:05:51] EVAN: It was largely has been the domain of the public markets. It's not really until the last several years, perhaps five years or so, that the private markets have been integrating ESG with scale. So in any sector that is so new in its approach, uh, we try for a merit of, of aspects to ensure that there is a leverage of this genre for return enhancement.

[00:06:18] EVAN: One of the key aspects of the paper is to demonstrate that they can be quantified and fully attributable, uh, to these sustainability drivers, um, which is, uh, presented in the case studies that emanate from BCI private equities portfolio. But I think one of the aspects and, and I would certainly encourage.

[00:06:38] EVAN: Maybe I'm biased. I would encourage the listeners to, to, to read the paper because it's very much from a practitioner lens, uh, albeit in coordination, uh, with my colleagues at Stanford who have provided, uh, a methodological, uh, review, um, and enhanced it somewhat from an academic, uh, element. But what is so important to recognize is that we can leverage sustainability across asset classes, industries, geography, size, stage of company.

[00:07:08] EVAN: To enhance return in a quantified sense, uh, which is why we've decided to highlight the case studies in our portfolio. We've focused on three in the paper, but this stands throughout our direct portfolio. We're able to leverage these factors with full attribution and quantification of how it can impact and potentially enhance value.

[00:07:30] JENN: It's really interesting, this idea of going after white space. Before we get into the case studies, Eben, I'd love to hear a little bit more about how. Sustainability integration works at BCI and how you go after that white space. 

[00:07:43] EVAN: Well, let me break down a, a little bit of, of, of our program. So we, we run about 25 billion US dollars, um, in private equity, half of which is allocated to leading gps, investment managers, private equity firms as a limited partner, and the other half is allocated.

[00:08:00] EVAN: As a direct investor, um, potentially co-investing with our gps, but, but certainly not always. And we invest across the broad spectrum on a global basis and we're looking at opportunities and financial services, business services, industrials, TMT, healthcare consumer, et cetera. So really across the landscape and we initially have always said that we look to leverage sustainability for enhancing returns.

[00:08:24] EVAN: It's what we call our, show me the money. And over time we've been asked to demonstrate a framework and I said it's pretty straightforward. We look to leverage these factors for return enhancement and, and, and eventually dollars and cents gains. But we've been asked so many times that we actually presented a framework as to how we look to leverage ESG and sustainability and investment process.

[00:08:49] EVAN: And we break it down into three main stages. So an investment diligence, we're steadfastly focused on ascertaining the underlying ESG. For the industry the company is operating in, and even more importantly for the company itself. And from there to have an understanding of those risks, helping to quantify them and to determine what we should do.

[00:09:15] EVAN: Should we look to negotiation in terms of purchase price adjustment because of the risk that we've identified? Should we look at rep and warranties post close? Should we look at operating leverage? Should we potentially step away from the transaction? So the inordinate time in the diligence phase is focused on understanding and assessing the material ESG risk.

[00:09:36] EVAN: We're also spending, uh, resources to demonstrate the potential for value creation, uh, from an opportunity standpoint with management. And that is mostly to set the tone and culture early. That ESG can be leveraged for opportunities and value emanating from them post closed. We transition to the extent the transaction comes to close.

[00:10:01] EVAN: We transition from investment diligence, obviously to value creation, which is an immensely critical stage in any private market investment, what you do between entrance and exit. Unlike other asset classes, we have the ability to really effectuate change into really enhance strategy as part and parcel of the private equity investment process.

[00:10:21] EVAN: The first aspect in that stage is cultivating a strong relationship with management. Need to. Build the credibility, the trust, the buy-in from management to engage in these sustainability topics, largely because there's been such a definitional void as to what is ESG, which we can get into in a little bit.

[00:10:40] EVAN: But we spend an inordinate amount of time with management and we're doing a twofold process. One, we're still continuing to do that ESG risk assessment. Risk, evolve and change over time. You also have the opportunity to understand the company with much greater detail, given access to management, access to different information, and a much different perspective.

[00:11:00] EVAN: Obviously, relative to the diligence phase of the process. We are then able to, once we uh, uh. Ascertain some of these risks or tools change somewhat from that, uh, earlier stage of diligence in the respects that they're, they're, uh, fully operational. The transactional aspect has gone away. We're also spending a significant time ascertaining how we can leverage sustainability as a core part of strategy for the company, whether it is in, uh, product innovation, supply chain diversification, enhancing customer stickiness, operational enhancements in what we are doing.

[00:11:41] EVAN: Part and parcel in that process is the quantification. So we're tying it into dollars and cents. The most important part is that management cultivation of relationships, and we're demonstrating the capabilities of sustainability by highlighting case studies throughout our portfolio of opportunities that have garnered economic return.

[00:12:00] EVAN: And finally, the last stage of the process is exit. And what we're trying to do in exit is ensuring that ESG and the associated financial ascertain pertaining to it go from. Potentially the appendix of a, of a confidential investment memorandum to the third or so slide that ESG is demonstrated as a key part of strategy.

[00:12:22] EVAN: It's utilized as competitive advantage and competitive position that's quantified, which we believe has the potential to allow for, uh, uh, multiple expansion at exit emanating from those underlying ESG factors. 

[00:12:36] JENN: You mentioned Evan, that sometimes there's a little bit of confusion, um, from the portfolio companies around what ESG means.

[00:12:43] JENN: What did you mean there? 

[00:12:44] EVAN: So, uh, it's not just the portfolio companies. There's confusion across the industry from, uh, those that are experts to those that are, uh, reading upon it. Uh, as a lay professional, we did a survey of 20 heads of ESG at 20 alternative asset managers, and we asked them what on the surface is a very simple question.

[00:13:06] EVAN: What is your definition of ESG? And what we received back was 20 different definitions of ESG. So it is astronomically challenging to expect investment professionals, members of portfolio company management to integrate something that we don't have consensus as to what it actually is. What we've defined in the paper in which is our guiding star at BCI Private equity for our approach to SG integration is a definition of ESG, and that is a collection of issues that have gained societal importance and therefore is relevant to business and highly important to our underlying portfolio companies.

[00:13:43] EVAN: And those aspects change and evolve over time. And if that is the arbitrator. Then we can have much greater understanding as to what we're trying to do when we look to leverage these ESG factors. But what I believe is important to note is that in the process that we just discussed, this is not a cookie cutter approach.

[00:14:05] EVAN: To ESG integration. It's not as if one approach that works for one company in one industry or one geography or one stage of, uh, growth and development will work in another. It's highly customized. The benefit of that customization, despite the work associated with that, is that it becomes a really core competitive advantage.

[00:14:24] EVAN: For that underlying company and you can really, uh, demonstrate more significant economic gains. Attributed a little to it.

[00:14:34] JENN: Hey, it's Jen. I just wanted to take a quick moment to let you know a bit about Ricoh and what we do and. We're a tech enabled advisory firm that helps private market investors and companies measure sustainability metrics Using our software platform, we also help you to set targets and focus your efforts on sustainability areas that really matter for your business.

[00:14:56] JENN: And finally, we help clients to translate all of this work into your core value creation strategy or your business model. Check us out@re.co.com to get in touch. All right. Now back to our conversation.

[00:15:13] JENN: I'd love to get into the case studies here in a second. So you, you walked through three different case studies in your recent paper that articulated, uh, not just. Within your portfolio, but sharing with the wider market specific cases of creating value, uh, within your portfolio through sustainability.

[00:15:35] JENN: And I was really taken by the first case, uh, linked to the logistics and transportation company. I'm just wondering, Evan, would you mind taking us through that case study with the situation was and how you started to turn your mind to the identification and quantification of value? 

[00:15:52] EVAN: Sure. So initially when, when I met with the, the company, um, uh, folks are on management are very excited to send me, um, ESG KPIs.

[00:16:01] EVAN: I, I looked at it, I thought it was helpful in some respects, but what I came to understand is that ESG is a really dominant part of the company's strategy. We just needed to distill it and to frame it and to ultimately quantify it in dollars and cents terminology. Uh, but what. We, uh, recognize is that the company and the transportation logistics domain is steadfastly focused on what we've classified as a driver first culture.

[00:16:29] EVAN: And that sounds somewhat intangible and ephemeral and not, uh, quantifiable. But when we spend inordinate amount of time together with management to distill it, we're able to ascertain the economic benefits, um, and the societal outcomes associated. Associated with it. But first I take a quick step back.

[00:16:48] EVAN: Whenever we're doing an engagement, what we're trying to do is not so much focus on what management believes. As I said earlier, are the associated ESG KPIs. The first and foremost of any assessment is understanding the company, understanding the company's challenges, opportunities, competitive advantages, barriers to entries, risk.

[00:17:08] EVAN: Opportunities for for value across the board. And then our responsibility in this sustainability value creation realm is to ascertain how these macro tailwinds behind sustainability or climate transition may be leveraged by this, uh, company. Such that it becomes a core part of strategy, allowing for a product innovation, supply chain, diversification, customer stickiness, EBITDA growth, margin expansion, capital efficiency, and ultimately enhancement value at at exit.

[00:17:38] EVAN: That's our goal. That's our that, that's, that is what we're trying to accomplish in the initiative. So getting back to case study one, uh, once we were able to distill and understand the company's value proposition and the company's challenges in a much more dynamic light, which took significant amount of time and conversations, uh, we distilled at the driver first culture.

[00:18:01] EVAN: And so most of the industry of which the company operates in, uh, pays their, uh, drivers as, uh, per mile driven. Uh, these are truck drivers. What we do in our portfolio company is we pay as a percent of load completed. So that allows for much greater alignment amongst the company. The client and the driver drivers are incentive, uh, to complete jobs much more efficiently and much more effectively because they are getting a percentage of the revenue associated with that load as opposed to incentive of driving more because that's how the industry gets compensated.

[00:18:39] EVAN: Very important, you can ascertain a significant amount of strategy of the company by understanding compensation structures. This case, uh, most certainly, uh, resulted in in that assessment. The challenge is that compared to the industry, we have much greater cost associated with driver compensation. In the paper, we, uh, discussed that it's approximately $23 million.

[00:19:03] EVAN: So that's certainly not a contribution to ebitda. It's a, uh, it's a, uh, detraction from ebitda. But what we saw was that the productivity gains emanating from this driver first culture and this compensation structure. And the downstream financial benefits greatly outweighed that cost of, uh, compensation.

[00:19:23] EVAN: So what we saw was that we reduced, uh, the, uh, necessity for training in recruiting new drivers because we brought down our turnover rate. The industry turnover rate is approximately 90%. This isn't the UK definition of turnover. This is, uh, an employee coming and leaving within that year, that definition.

[00:19:45] EVAN: And so we went from the industry average of a 90% turnover rate to 60%. So 60% in itself sounds very high, but on a relative basis, it's an astronomical uh, uh, differentiator. What we classified is that if there's about a $15,000 cost of recruiting and training new drivers, uh, we have about 4,000 drivers.

[00:20:07] EVAN: The delta between 90 and 60 rolls up into about $18 million of avoided cost of training and recruiting new drivers. Another benefit accrues in the respects that our drivers are more seasoned and experienced. They understand our systems, our protocols, 'cause they're staying with us longer as opposed to turning over.

[00:20:25] EVAN: And what we found is that we have a approximately third less accident and injury rate, uh, than the industry average. The economic benefit of that is that we bring down our insurance premiums from approximately 8 cents a mile. The industry average to 5 cents a mile, so another $18 million of avoided insurance cost.

[00:20:45] EVAN: Beyond that, we are recognizing that we're bringing down our emission profile and most certainly, I think those in the ESG landscape may or may not say, let's electrify the fleet. Well, there's a couple of challenges with that. One, it's much easier to say than to execute. Two, you don't have enough charging network.

[00:21:05] EVAN: Three, there's prohibitive cost to doing that at once. So certainly when new trucks are coming on board, they're much greater, uh, in fuel efficiency than, uh, more outdated trucks. But to electrolyze, the fleet is not a potential opportunity in the near term. And the cost are cer certainly prohibitive beyond the operational aspects.

[00:21:24] EVAN: But because our drivers are focused on, uh, being as expeditious as possible to go from one job to the next, 'cause that's how they're getting compensated. We brought down our emissions profile significantly, so we brought down our greenhouse gas emissions, but we also brought down our cost of fuel by around $8 million.

[00:21:43] EVAN: Finally, from the opportunity side of the equation for our clients that cure and have made. Public statements to enhancing sustainability in the supply chain. Largely the big box retailers, we've been able to more effectively compete and win and expend business, um, on RFPs by around $13 million. So when we look at this, uh, in summation, we see that.

[00:22:07] EVAN: All, there's approximately 144 potential uplift in enterprise value, fully attributable to sustainability. Now, what we, uh, don't, uh, consider in the paper in this case, studies is any type of multiple expansion that we believe may accrue to having a more sustainable company, not just because it's the word sustainable, but because it's a.

[00:22:29] EVAN: Competitive advantage and there's economic gain, which we strongly believe may be, uh, the case. Uh, but we don't get into, um, that discussion in the paper. We fully focused on operational value add and operational improvement. But, uh, as I said earlier, this case. It's very much tied to the transportation logistics structure.

[00:22:50] EVAN: Our next case as we, uh, look at a manufacturing company and our third case in the paper, focus on a, uh, uh, specialty insurance brokerage has very different undertones, very different characteristics, but the really exciting aspect is you can spend a significant amount of time understanding company understanding management.

[00:23:08] EVAN: Leveraging and acquiescing those levers to enhance value emanating from sustainability with a very different approach, um, relative to, uh, other type of areas of value creation. 

[00:23:21] JENN: It's such a fascinating example and almost like a plot twist, right. You know, because at the beginning of the story it was okay, we, uh, instituted a change that increased our costs.

[00:23:32] EVAN: EE exactly. 

[00:23:33] JENN: And if you are just looking, if you're just looking at the superficial. A cost increase without doing some of the calculations around what does this mean for our turnover? A variety of other, you know, safety, a variety of other costs. You'd miss really significant value here, which is a fascinating outcome from this research.

[00:23:54] JENN: Um, and, and summary, Evan, from your, your work, and I'm just wondering how does this look in practice? So with the transport company. How are the opportunities identified? For example, the thesis around, you know, paying for the percentage, uh, of the load delivered versus the mile traveled. How, like how does that brainstorm of ideas come to the fore and when does this engagement, you mentioned during due diligence, there's some initial conversations around, you know, a, a broader lens on sustainability, but how does the conversation happen?

[00:24:29] JENN: Are you building trust for a period of time before the brainstorm? Like, how does this, this is a successful case study. I guess the question is, how does the conversation and brainstorm take place at BCI? 

[00:24:41] EVAN: Well, it, it, so certainly, um. As I said in the uh, framework that step two obviously PO post close is the value creation stage, and what I think is the most critical aspect of any aspect of the framework is that cultivating relationship with management.

[00:24:58] EVAN: So part of that is this. Ideological void as to what is ESG and that definitional void. And so we disavow any conversation related to politics or ideology because we're steadfastly focused on enhancing value. And the conversation with management is, is, is about our. Job is to provide risk adjusted enhanced returns for our clients who are pensioners in British Columbia concurrently.

[00:25:27] EVAN: If we're able to successfully accomplish that, we'll successfully help enhance your mip, your management incentive plan. And I've yet to meet. A CEO or member of management, irrespective ideological background that is not interested in enhancing, uh, their ultimate compensation in the myth emanating from their economics and the transaction.

[00:25:47] EVAN: So it's steadfastly tied to that as opposed to any specific values we must engage to disavow the notion that we're compliance or the ESG police. So most critically is developing a strong rapport. A strong relationship with management, and that's not only just the board and the CEO and the C-suite that's most critically, those that are a step or two removed from that level who are doing the day-to-day execution.

[00:26:18] EVAN: So I've had the great privilege across our portfolio of developing wonderful personal relationships with folks up and down the spectrum, uh, across our portfolio companies. And we talk about everything. But ESG, we talk about everything but sustainability and then we're able to distill, by the way, what is exceptionally compelling for portfolio company, for management, for my investment professional colleagues.

[00:26:44] EVAN: Most certainly for our clients is that we, and for members of management and the employees of these companies, is that not only are we enhancing the economic value in many cases as a byproduct of this financial lens and this financial discipline, is we're having enhanced societal outcomes and societal benefits that we're able to quantify.

[00:27:05] EVAN: So in that first example. It is exceptionally compelling that we're able to produce the economic returns and, uh, demonstrate the attribution. But is it equally compelling that we're able to bring down accident and injury rates that we're able to, uh, enhance the compensation of our, uh, drivers, uh, that we're able to, uh, uh, bring down our emission profile?

[00:27:31] EVAN: Those are significant societal benefits, but what is really incumbent upon us is that we are a fiduciary. We are focused steadfastly on enhancing risk adjusted returns for our clients. But if there is an ancillary benefit emanating from this scalability of sustainability and that ancillary benefit is societal outcomes, that is tremendous undertaking into itself.

[00:27:57] JENN: It sounds like, you know, so you sort of lay the groundwork during the due diligence, and then it's what's six to nine months after acquisition, you're having these strategic value creation conversations. There's a lot of, you know, partnering, uh, with leadership of the company. They understand how it links to their compensation because there's the sort of financial, uh, uplift offer opportunity.

[00:28:21] JENN: Um, and then the sort of partnership goes through the hold period to once you have the plan to see and measure the outcomes of the plan. Does that sound about right? 

[00:28:29] EVAN: That that does, except I I just question. It's, it's not really six to nine months post-close. It's, um. It's immediately thereafter. But what we also wanna ensure is that management, we're investing in middle market companies.

[00:28:44] EVAN: They have constraints on human capital and financial capital. The worst scenario is if they view ESG as a cost center, because that is not fulfilling our purpose to our clients, nor is it filling our purpose to that underlying company that we've invested in, and we are shareholders up. So we need to change that narrative, which is part and parcel as to why we've written this paper and we demonstrate these case studies, but we also need to recognize that this.

[00:29:16] EVAN: ESG lever of value creation needs to fit in with the holistic value creation plan for that company. So in many respects, there's great opportunity because there's just so much significant green space as it pertains to this lever of value creation. But if there's another opportunity that has much greater return on investment, much greater opportunity.

[00:29:38] EVAN: That may get classified earlier, or it may get classified later. So we recognize that we don't jump to the front of the line because it's ESG. We are in position only so much that we can demonstrate the financial value emanating from these factors. The benefit is there is not a direct portfolio company that we've engaged in yet where there isn't an opportunity for value creation, but it requires great creativity.

[00:30:05] EVAN: It requires a great sense of understanding of that company, of where that industry is going, where that industry has been, what are the advantages, what are the challenges, what are the risks and the opportunities and how we can leverage these macro tailwinds, uh, to be front and center. As we said earlier, product innovation, supply chain diversification, customer stickiness, operational levers for enhancement, et cetera, et cetera.

[00:30:29] JENN: I'm interested, we, we don't want to cover all of the content of the paper because listeners have to, uh, read it for themselves, but if you had to choose either the manufacturing case study or the insurance broker case study, which one, which one should we go through next? Evan? 

[00:30:44] EVAN: I think that the insurance one is interesting in the respects that there's this overarching view in the industry and, and certainly, um, uh, strongly believe in the, the economic benefit and the societal benefit of decarbonization.

[00:30:58] EVAN: But there's this overarching view in the industry that we need to. Uh, get a sense of greenhouse gas emissions, rip large, uh, across the board for every company. And I am not a hundred percent convinced that that is the most pragmatic or societally impactful case. So if I'm looking at an asset like company that has a negligible amount of emissions on a relative basis for not only the industry they operate in, but for, uh, society, wr large, and I'm steadfastly focused on.

[00:31:32] EVAN: Sending a emission profile to ascertain scope one, two, and three emissions. And for a company to spend a fair amount of time and resources. And as we addressed earlier, these are middle market companies with finite human and financial capital. There's only so much time and money they can allocate to various parts of, uh, their business.

[00:31:50] EVAN: And we. Then just believe we fulfill the promise of ESG because we have their scope one, two, and three emissions. 'cause they commissioned a potentially expensive report to ascertain that that may not be the best benefit for that companies, uh, potential return and additionally societal interest. And I'll give you a reason why we, we spend an inordinate amount of time with that company ascertaining how they can leverage.

[00:32:19] EVAN: What they do as a core part of their strategic and product, uh, capability set for assisting in a transition to a low carbon economy for economic gain. And if we solely focused on just what their emission profile is and bringing it down, which is commendable, that may not have the most. Economic benefit nor societal benefit.

[00:32:45] EVAN: So if we transition that viewpoint and we say, let's leverage that finite amount of time you're gonna give us to focus on how we can enhance your product suite to assist your underlying clients, to allow your clients to have a better understanding of risk, to have a better understanding of how they can transfer that risk to have a better understanding.

[00:33:03] EVAN: Of climate transition overall, that may be greater benefit than solely, fully only focusing on their emission profile. And what we are able to do, uh, with that company, and by, by the way, these case studies, they're still a work in progress many years out. Um, we're still actively engaged in working side by side, but we recognized early on that the business has a significant, uh, energy brokering, uh, operations fulfilling.

[00:33:31] EVAN: Uh, uh, risk transfer needs in the traditional energy sector. And what we recognize is that the underlying brokers in our business have tremendous expertise and sophisticated knowledge as it pertains to energy overall, and especially if how to place a. Um, very highly specialized lines of, of insurance in the city of London.

[00:33:53] EVAN: And what we've done is we've leveraged that knowledge to expand into the alternative energy market, leveraging that same capability set and energy. And we've been able to introduce this portfolio company to, uh, investment managers that are investing in the climate thematic, whether it's an alternative energy or long project infrastructure initiatives.

[00:34:18] EVAN: And for them to develop, uh, a significant amount of market and revenue share, um, in the alternative energy segment. And again, we have economic gain that's fully attributable emanating from that. But we also have societal benefit and the respects that in order for these projects to get finance, there needs to be insurance associated with them.

[00:34:40] EVAN: And if we can do our part in ensuring that our clients receive the benefit of. Highly specialized insurance lines placed. There is great societal outcomes associated with that, but I think it's paramount that we as an industry in the ESG realm recognize that putting those time and resources for that development relative to solely focusing on the emissions profile is critical.

[00:35:10] EVAN: From an economic and societal standpoint, we're also doing some product innovation work as well with this company when we're looking at the carbon credit market and how we can ensure that there's much greater transparency in that market, that there's much greater stability in the market, and we strongly believe that that emanates from insurance cover and insurance protection.

[00:35:29] EVAN: And we're looking at some other aspects within the sustainability domain to ensure that the companies that we work with in the middle market, that they're in compliance with. The, uh, multitude of regulatory regimes, um, in the underlying sustainability or regulation that that's, uh, out there and will be printed in the years to come.

[00:35:48] EVAN: So that's very much looking at the product innovation standpoint, but we wanna ensure that we don't get so bogged down with Purism as climate or ESG, and we really are pragmatic and think about where there's the economic drivers associated with it. 

[00:36:02] JENN: It's interesting you say that, Evan. What I love about this case study is.

[00:36:06] JENN: It's focused on growth, um, not just cost reduction, because often in the past when we've started to talk about value creation linked to sustainability, it's been about, okay, optimizing operations, cost reduction, that kind of thing. But this speaks to, uh. If there's a strong commercial background of a sustainability, uh, professional or a DLT professional who's considering sustainability, then you can really start to unlock some growth levers, innovation market space, as you point out, price premium, where it's appropriate more quickly growing segments of the market.

[00:36:41] JENN: And I think you pointed a really. Important area of inquiry for the field to consider that it's, it's not just risk and cost reduction. Growth is part of this conversation. 

[00:36:53] EVAN: Yes. And you know, we have a mantra here that we want to ensure that our underlying portfolio companies are the disruptors as opposed to the disrupted as it pertains to, uh, transition both in sustainability and energy.

[00:37:06] JENN: If you could advise sustainability professionals in PE or deal teams to do one thing differently, what would it be? 

[00:37:14] EVAN: Resolutely for them to speak the language of finance, not the language of ESG. The reason for that is because in this industry of private equity that we operate in, I've yet to meet an investment professional or a member of portfolio company management that is not well versed in business and in finance.

[00:37:34] EVAN: And the challenges if we expect them to learn ESG jargon, ESG lingo, ESG KPIs, that is an uphill battle. If we transition. Our knowledge into the language of finance will allow for much greater cohesion and much greater scalability in this industry, especially if we can demonstrate the economic opportunities associated with sustainability.

[00:37:59] EVAN: Over the last, uh, several months, we've had this unique advantage collectively, those that are focused on ESG for value creation. In the private markets where we're starting to own the narrative and to take back the narrative. But with that comes great responsibility where we need to demonstrate what the financial linkages are with great attribution, which I hope that this paper serves as a foundation and somewhat of a starting point for that, such that others can replicate this, not only the gps that are within our portfolio.

[00:38:35] EVAN: Across the board that we gain so much for this ecosystem if we are able to continuously demonstrate to our investment professional colleagues, to members of management, to the constituents across the board, and to our greater society, that we can leverage these factors for economic return. And in the introduction of the paper, we say that this paper, ESG, value creation and private equity from retro to returns, that this is for any investor.

[00:39:04] EVAN: That has an interest in performance irrespective of ESG as a stated objective or not. And that if we're able to accomplish, we'll change the discussion, the narrative, the focus on ESG comprehensively and is an area in a direction that I strongly in a proponent that we must, uh, we must focus on. 

[00:39:26] JENN: Music to my ears.

[00:39:27] JENN: I think that you're spot on, Evan, and I'm also a little bit biased, but it's great to see your leadership and really bringing these clear case studies, uh, case studies to the industry, um, to inspire others to, uh, a similarly. I guess one of my questions, I mean, you also have a background at s and p Global, so I can't not ask what information do you consume to stay informed aside from, of course, listening to the Future and Sound podcast?

[00:39:52] JENN: Evan, I know it's one of your favorites. 

[00:39:54] EVAN: Yeah, that, that's right, that's right up there on, on the li That's right up there on the list. What do I do to stay informed? Well, I, I, I try to. Engage with the broader ecosystem. You know, it's pretty interesting. I have three children, um, and my, my eldest is a 12 years old and she goes to school for classical music education focused on, on violin.

[00:40:16] EVAN: And my wife started her career as a ballerina. So, and, and, and I am thethe of this. I can't dance. I don't understand a beat or I don't understand music very well, but I really like to spend time in that arts community because there's so much passion. There's so much engagement, there's so much emotion.

[00:40:34] EVAN: Associated with it. So I try to get away from the business news, the ESG news, and really spend my time in the arts community and take a different viewpoint and a different appreciation, 

[00:40:46] JENN: and 

[00:40:47] EVAN: I get very much inspired. Uh, my, my, my daughter's, uh, teacher grew up in the former Soviet Union and grew up in, in that realm of, of a very, uh, uh, significant music education.

[00:41:02] EVAN: He's a perfectionist through and through and I'll go and I had the opportunity to listen to her classes in the summertime and the perfection associated with each note in in each. Leverage of, of the bow against the violin. Just so impressive. And he would, you know, yell and he, he would make his point that each note needs to be played to the very last drop.

[00:41:28] EVAN: That each note needs to be perfect. And I think that. When we try to instill that in our professional careers, very interesting things result when we try to have the, to the minutia to be perfect. Um, there's some really great benefit associated with that. So I'm not a hundred percent sure that I clearly answered your question.

[00:41:49] EVAN: Um, but, but I, I try to leverage the arts for somewhat of my awareness in the world. 

[00:41:55] JENN: You know, I think that's a wonderful answer. I have never had that answer. And I'm just, uh, really conscious of the fact that when I pick up the Financial Times on the weekend, I go straight to the life and arts section.

[00:42:08] JENN: And there's something about taking a step back. I think, um, some of the other participants on the podcast have talked about, you know, connecting the dots between different fields, like sustainability is quite a. Uh, varied field. It requires you to wear different hats and speak different languages, uh, uh, professionally, and I think there is something about.

[00:42:31] JENN: The arts that helps us to sort of take a step back, yes. You know, maybe connect with a different way of experiencing things, but also maybe reflect in an abstract way that helps us come back to our work with, uh, with a different perspective. I don't know if that resonates, but I love the Ft. Life and life in, uh, 

[00:42:51] EVAN: arts.

[00:42:52] EVAN: Yeah. And, and by the way, I'm not too much in the philosophy domain, but it's a great connector of human history and, and humans. Throughout, uh, time is the arts, right? Um, and so it just gives you a better understanding of better per perspective as to to, to where we are and where we've come from. But it, but it also may just be because I have an inability to play any musical instrument nor band or sing, nor any of that stuff.

[00:43:14] EVAN: So may, maybe that's the draw to witness it through others who have, uh, much, much greater gifts in that domain. 

[00:43:20] JENN: And my final question for you, Evan, if there was one book that most shaped the way you think, what book would that be? 

[00:43:27] EVAN: Well, it's generally the last book I read and the last book I read was the Very Hungry Caterpillar to uh, uh, my, my Youngest Child.

[00:43:35] EVAN: But that book, I read it last night. If you take a step back, have you read this book? The very, is it Kinda The Hungry? 

[00:43:42] JENN: I think when I was little I read The Very Hungry Caterpillar. I think I can picture it. 

[00:43:48] EVAN: Yeah. And, and I'm not even sure I, by the way, I read it last night, but I don't know if it's The Hungry Little Caterpillar or the Very Hungry Caterpillar, but it's such an interesting book.

[00:43:56] EVAN: Right? So Caterpillar's hungry, he eats, he eats some healthy food, then he eats some junk food that he doesn't feel well, and then he has this metamorphosis into the butterfly eventually. But it's really remarkable when you think about that, uh, metamorphosis. Can you imagine being a caterpillar and then all of a sudden transitioning to a very different physical being than what you were?

[00:44:19] EVAN: Um, but, but again, I think it gets back to what we said in the arts. It's just this intriguing of what we have here. Um. Uh, on this planet and, uh, uh, the various species that we behold. Um, and just the raw simple needs that we all need, uh, to eat, to grow, to develop, to learn, and to fulfill, uh, what whatever path that we've been set on.

[00:44:42] JENN: I love it. I just looked it up. I absolutely had this read to me when I was small and I do it. Maintaining that childlike wonder of nature and beauty is such a great note to end on. Evan, thank you so much for joining me. 

[00:44:56] EVAN: Thank you, Jennifer. The pleasure has been mine.

[00:45:05] JENN: The Future and Sound Podcast is written and hosted by Jen Wilson and produced by Chris Attaway. This podcast is brought to you by Ricoh, a tech powered advisory company helping private market investors pursue sustainability objectives and value creation in tandem. If you enjoyed this podcast, don't forget to tell a friend about it, and if you have a moment to rate us in your podcast app, we'd really appreciate it.

[00:45:30] JENN: Until next time, thanks for listening.