Mark Hauser Highlights Why Private Equity Firms Turn to Sustainable Investing

Private equity leaders like Mark Hauser know that sustainable investing is having a moment – one that is expected to last well into the future. While some trailblazing firms have been focused on socially responsible investing for more than a decade, this once exotic idea has gone mainstream, and more private equity firms are steering limited partner capital into such investments, especially those that support climate change and social inclusion. Over the past few years, a combination of factors has led sustainability to permeate almost every aspect of private markets.

Sharing his thoughts on the growth of sustainable investing and explaining the benefits it brings to today’s economy is Mark Hauser of Hauser Private Equity. Mark Hauser is an experienced, driven, and successful entrepreneur, investor, and business leader who has launched and grown several businesses during his career. He is the founder and managing partner of Hauser Private Equity, a hybrid private equity fund management firm based in Los Angeles, California. Mark Hauser is also the chairman of HAUSER, an insurance brokerage firm based in Cincinnati, Ohio.

The Adoption of Sustainable Investing

 Sustainable investing is “a means of investing in which an investor strongly considers environmental, social, and corporate governance (ESG) factors before contributing money and resources to a particular company or venture. The goal is to, whenever possible, use investment dollars to promote positive societal impact, corporate responsibility, and long-term financial return.”

Because sustainable investing is still a relatively new concept to many private equity firms, they have turned to the United Nations (UN) Sustainable Development Goals (SDGs) for help in navigating this uncharted territory, explains Mark Hauser. Adopted in 2015, the UN’s 17 SDGs with 169 corresponding targets and indicators were developed by global leaders and policymakers “to address global challenges such as poverty, gender equality, and climate change.” The goals include no poverty; zero hunger; good health and well-being; quality education; gender equality; clean water and sanitation; affordable and clean energy; decent work and economic growth; industry, innovation, and infrastructure; reduced inequalities; sustainable cities and communities; responsible consumption and production; climate action; life below water; life on land; peace, justice, and strong institutions; and partnerships for the goals.

Today’s financial decision-makers are asking more companies to seek sustainable investment solutions that can effectively guide the economy through an increasingly unpredictable future. Furthermore, regulators and governments are expanding their focus to incorporate sustainability into investment information and decision-making, encouraging more companies to identify goals to accommodate this shift.

The Growth of ESG

ESG – or environmental, social, and corporate governance – refers to the non-financial factors that investors use to measure an investment or corporate sustainability. Mark Hauser notes how ESG-focused investing has accelerated rapidly over the past 12 months. “Preqin reports that ESG investments now account for more than one-third (36%) of private capital under management with an estimated $3.1 trillion committed. The private equity asset class, specifically, leads the sector by assets, with $1.82 trillion invested in ESG funds. The pace continues to pick up with ESG managers raising $403 billion in the first nine months of 2021, compared to $506 billion in all of 2020.”

Like other experts, Mark Hauser believes sustainable investing has become increasingly popular among private equity firms due to a variety of factors, including improved performance among ESG-focused funds, changing ethical standards among investors, shifting consumer demand for sustainable products, emerging ESG regulations, and the reputational influence of diversity and inclusion policies. “The growing interest in impact investing … has come about because firms are starting to understand that investors value funds that offer positive environmental and social impacts given the now obvious fragility of our natural world and the fabric of our global society.”

Sustainable investing, however, doesn’t necessarily mean that firms must forfeit financial returns. In fact, according to Mark Hauser, growing evidence shows that when investors embed ESG considerations into their strategies, they achieve superior valuations and a host of positive outcomes. In fact, value creation is the leading driver of ESG activity right now, outpacing risk management. Mark Hauser agrees with Harvard Business School Professor Rebecca Henderson, who says, “there’s good reason to believe that solving the world’s problems presents trillions of dollars worth of economic opportunity.

ESG Challenges: Monitoring and Measurement

Despite the very real business opportunity presented by sustainable investing, significant challenges still exist, especially when it comes to monitoring and measurement. While public companies have been publishing ESG data in their financial reports for some time, making it easy for investors to track their performance, private equity firms are not required to report such data. Mark Hauser agrees with Gary Gensler, chairman of the Securities and Exchange Commission (SEC), who suggests that “fund managers need to do a better job of reporting and disclosing more data when it comes to their performance on environmental, social, and governance issues.” Private equity firms that pursue ESG initiatives should assess potential investments on both a fund and firm level, as well as consider ESG factors during fund screening, due diligence, and portfolio management.

Mark Hauser notes that private equity firms have already started turning to the United Nations for guidance in this area. Many investors and companies have discovered that the UN’s Sustainable Development Goals provide a useful framework for realizing positive social outcomes with a certain degree of rigor. Indeed, the private sector has an opportunity to play a critical role in achieving the 17 SDGs through collaboration and by developing a common approach to investing in and measuring the success of ESG initiatives.

The UN’s Principles for Responsible Investing

In addition, Mark Hauser notes, more companies are joining the UN’s Principles for Responsible Investing (PRI). The PRI initiative was launched in 2006 after former UN Secretary-General Kofi Annan brought together a group of the world’s largest institutional investors, academics, and other advisors to draft a set of sustainable investment principles. At the heart of the PRI is the premise that investors have a duty to act in the best long-term interest of their beneficiaries, which means they need to consider ESG factors.

The PRI is the world’s leading proponent of sustainable investing. It provides a framework for helping investors build ESG issues into their investment process, improving long-term returns, and creating more sustainable markets. The principles were developed by and for investment managers. According to experts like Mark Hauser, “The number of companies signing up to the United Nations’ Principles for Responsible Investment is on the rise, and many [private equity] firms are making high-level hires to guide their ESG programs.” This is yet another indication that sustainable investing is here to stay.

The Future of Sustainable Investing

Such moves by private equity firms have not gone unnoticed. In fact, Mergers and Acquisitions magazine declared 2021 to be “the year of ESG” and announced its inaugural 2021 PE Innovators in ESG. Forbes magazine has also decided to spotlight venture- and private-equity-backed startups and businesses that are deploying “the creative tools of capitalism with an outsized positive impact.”

Sustainable investing is not only helping shape the world by contributing to positive social change, but it has proven that both individuals and businesses, including private equity firms, can benefit financially by seeking to make their investments more sustainable. As Mark Hauser points out, analysis shows that private equity firms that choose to overlook the need for sustainable investing are likely to become obsolete in the future. The moment is now for private equity firms to move from high-level ESG policies to tangible performance-based processes and actions. 

About Mark Hauser

Mark Hauser is a private equity investor and fund manager with more than 35 years of investing and operating company experience. He is the founder and co-managing partner of Hauser Private Equity (HPE), which invests in private equity funds and directly in privately owned businesses. The firm’s four funds have invested more than $300 million in capital in privately owned businesses nationally across a diverse set of industries. Early in his investment career, Mark Hauser was vice president of Cincinnati-based Reynolds Dewitt Securities.

While there, his work in merchant banking resulted in public offerings of Mid-American Waste Systems, Future Healthcare, and Health Images. During his investing career, Mark Hauser has served on the board of directors for consumer goods and food and beverage brands. He has also served on boards for government-contracted security and defense businesses, as well as digital advertising and textile manufacturing.

About Hauser Private Equity

Hauser Private Equity is a Cincinnati-based hybrid private equity fund management firm. Founded in 2008, the company is an outgrowth of the highly successful Hauser Capital Partners. Hauser Private Equity focuses on direct co-investments in the lower-middle to middle markets. Specifically, the firm forms collaborative partnerships with control buyout funds. Other beneficial partners include managers of growth equity, subordinated debt, or special situation funds. Hauser Private Equity’s co-investment partners generally include funds ranging from $250 million to $2 billion. Ideal partner candidates are North American-based funds with investment models that provide operational leadership to similarly domiciled portfolio businesses.