Carlyle’s Rubenstein: ‘Fiduciaries today have an obligation to help society as well’

Even amid a political backlash against ESG, 'the zeitgeist of society' compels investors to worry about more than just the rate of return, says Carlyle's co-founder and co-chairman in a video interview at NEXUS 2024.

The concept of ESG is here to stay, despite the fact it has become highly politicised in the US, according to David Rubenstein, co-founder and co-chairman of investment firm The Carlyle Group.

“Outside the United States, ESG is still very important and very prominent,” said Rubenstein during a video interview at last week’s NEXUS 2024, the private capital event hosted by PEI Group. In the US, ESG has become a polarising issue in a similar way to vaccines, he said: “Some people just don’t believe in vaccines and you’re never going to convince them, and they think it’s a plot against their health. And there’s some people that think ESG is a plot against capitalism. I don’t see it that way. I think ESG is an appropriate thing when measured in an appropriate way.”

There is a compelling commercial case for taking sustainability in investment seriously, said Rubenstein. Employees, clients and suppliers are all demanding high standards of sustainability of companies, including private markets firms. “Many investors around the world will not invest in private firms if they don’t have a real interest in ESG,” he said, “So I think ESG is not going to go away; it has some political challenges right now, but it’s not going away.”

“Around the rest of the world ESG is… moving forward, and the US is not going to allow itself to fall too far behind.”

ESG is typically defined as how an organisation takes environmental, social and governance issues into account as part of their operations. Detractors in certain US political quarters decry it as “woke capitalism”, whereby financial returns are sacrificed for the sake of some sort of progressive ideology. Private markets firms, Carlyle included, have refuted this by drawing a clear link between ESG issues and financial outcomes. The ESG political football may be in for more of a kicking as we approach the US Presidential election in November this year.

On inequality

Inequality in society in terms of income, wealth or education is increasingly referenced in sustainability discussions in private markets. When asked about this, Rubenstein acknowledged the growing problem specifically in the US. “We are technologically a very sophisticated country,” he said, “We have an enormous amount of wealth, but we don’t seem to be able to help people at the bottom.

“The American Dream, so-called, is not one that many people who are born at the bottom of the socioeconomic structure in our country believe in as much as they did 30 or 40 years ago,” he continued, “You’ve got the haves and the have-nots, and that’s been one of the problems with capitalism all along. It doesn’t really treat people in the bottom quite as well as other economic systems do.”

This raises the question of whether the growing problem of inequality should be the concern of investors. Should they be part of the solution or neutral? The answer, according to Rubenstein, depends on who’s money is being invested.

“If you’re investing your own money, you should worry about what’s good for yourself, to some extent, but you should have some concern about society,” he said. “If you’re a fiduciary, I think you have a bigger obligation to worry about things other than just the rate of return. Because even though you’re a fiduciary of other people’s money, people want a concern about these kind of issues to be reflected in the investments that are being made on their behalf.”

“I think fiduciaries today have an obligation to help society as well,” he continued, “Remember, if you’re a fiduciary, your responsibility shouldn’t be only to get the highest rate of return, no matter what activity that the organisation you’re investing in does.”

“The zeitgeist of society is only going to move past you if you are only worried about the rate of return.”
Watch the video above to hear additional thoughts from Rubenstein on the climate crisis (“the words climate change don’t scare people enough – I use the words human extinction”), the Inflation Reduction Act (“the Act’s name is not laughed at as much as it was initially”) and the merits of industrial policy (“I have a wary view”).