Sustainability in the US: Sidelined as a talking point, but still material

Sustainability was a sideline issue at NEXUS 2024, until CalSTRS' Chris Ailman planted it firmly on the agenda.

For someone operating in the sustainability bubble, spending a week in Florida for NEXUS 2024 was a reality check. The event, hosted by PEI Group, brought together more than 500 investors, managers and advisers to connect and hear thoughts from many of the biggest names in private equity.

One heavyweight after another took to the stage. Blackstone president and COO Jon Gray spoke to M&A activity and market timing; KKR’s co-CEO Scott Nuttall described the firm’s approach to artificial intelligence and how Japanese buyouts were high on his to-do list; Oaktree Capital Management founder Howard Marks talked interest rates; Thoma Bravo founder Orlando Bravo talked realisations. Large investors’ PE chiefs like Allen Waldrop of Alaska Permanent Fund Corporation and New York City Comptroller’s Eneasz Kadziela discussed alignment and fundraising (you can read about much of these comments on our affiliate titles like Private Equity International – registration or subscription required).

Listening to the luminaries’ keynote interviews, pen poised, for a mention of ESG or sustainability, however, yielded little. One exception was Britt Harris, veteran LP and acting CIO and CEO of the Texas Permanent School Fund; he spoke against UN-driven global decarbonisation plans as being “too fast and impractical, and not compassionate”.

When asked on stage for his assessment of ESG, Carlyle co-founder and co-chairman David Rubenstein said while he recognised that there is an ongoing backlash against it, ESG is “not going away”. But it is more “politically tinged in the United States than elsewhere”.

Don’t get us wrong: there was plenty of sustainability-centric insight to digest in the New Private Markets work stream and on the conference sidelines (catch up on much of that here). But in the spotlight of the main stage, ESG was off the agenda.

And then Christopher Ailman appeared. Beamed into the auditorium over video conference for an interview with senior reporter Carmela Mendoza, the influential California State Teachers’ Retirement System CIO put sustainability front and centre.

Ailman, who has announced his forthcoming retirement this year from the pension after 23 years as CIO, started with the pension’s climate strategy (“Mother nature is slapping us in the face; I think this year will be another hard slap”). He covered how the pension has collaborated with a network of other sustainability-forward pensions around the world (“I’d rather be with CPPIB than against them”) and he discussed the political backlash against ESG.

Ailman also voiced support for the emerging trend in private equity to share more of the financial upside from investments with portfolio company workers: “We have started to see some of the larger firms start that effort and find that it actually is very powerful.”

Side note: while Ailman was saying this on the main stage, three subject matter experts in the New Private Markets breakout room were briefing delegates on how ESOPs (employee stock ownership programmes) represent a private equity opportunity.

Whether you call it “green hushing” or “impact whispering”, the quietening of sustainability in private markets was clearly evident at NEXUS 2024. This feels like a fair reflection of the wider market; as Anna Totdahl, ESG and sustainability investment officer at the Oregon State Treasury, put it during a New Private Markets breakout session at the event, the letters “ESG” are often now left out of managers’ pitchbooks. This is fine, she said: “We don’t have to use the word; we can talk about ‘good business sense’.”

Such is the materiality and relevance of sustainability, it will continue to be part of the discussion about investment, even if investors – or journalists – have to be the ones to bring it up.