Q&A with Jamal Hagler: ESG trends, policies, & guidelines

Goby recently had the opportunity to sit down with Jamal Hagler, Vice President of Research at the American Investment Council (AIC). Here are some of his thoughts on trending investment topics, non-ESG trends, ESG policies, regulations, and disclosures, and the new AIC guidelines currently in process.

Thanks for taking the time to speak with us, Jamal. To start, can you please tell us about yourself, your background, and what you do in your current role?

I’m the Vice President of Research at the American Investment Council. AIC is the leading advocacy and education organization for the private equity industry in the United States. In previous roles, I handled a lot of research on public policy, and that’s how I transitioned from my previous position to this one. I lead our research team at the American Investment Council and keep abreast of a variety of issues facing the private equity industry. I also examine new research as well as develop and produce research that showcases the positive benefits and work within private equity. Much of my role centers around educating policymakers on the benefits of private equity and private credit, because we advocate for private credit investors as well.

Tell us about recent research and trending topics you’re covering

We’re currently doing a lot of research in the healthcare space and looking at the benefits private equity investment has brought to these companies. We’ve just released a paper that highlights how private equity firms’ investments are helping expand access to healthcare in rural communities for people who typically have very limited access to hospitals, healthcare coverage, and doctors. It also discusses some of the investments private equity investors have made in life sciences and how those investments have helped to develop and produce pharmaceuticals. They also ensure that drug trials are able to mature, especially ones that aren’t prioritized by generic pharmaceutical companies. So that’s an example of some of the current research that we’re doing. And, of course, we’re always researching current trends in the industry. We examine where capital is flowing to and how that capital is being used for investments as well as guiding industry and company trends.

Can you tell us about the non-ESG trends you’re seeing now?

There has clearly been a lot of overall investment in technology companies. A lot of private equity capital deployed at a pretty rapid rate in the technology sector. For example, we’ve seen an uptick in investments in real estate data centers. We’ve also seen technology investments in the healthcare space that will help practitioners communicate better with each other as well as with their patients to improve the level of care.

In terms of ESG, can you speak to the policy and regulations that are driving the demand for ESG data?

I think the limited partners are one of the biggest drivers for the demand of ESG data. As the world begins to recognize the ESG issues, such as the climate and our environment, there has been a desire for regulation, particularly by European investors. But it’s becoming more critical for U.S. investors as well. They want more ESG data to make sure their investments are not contributing to, or worsening, the environmental issues we’re currently facing, like extreme weather, rising sea levels, so on and so forth.

Do you have any predictions for new mandates and regulations? Do you hear anything from the market or your research that points to something specific?

There’s no one size fits all mandate for any industry or investment. I think all investments are different. Some places will install LED lights and have the LEED certifications in their buildings. Others will track KPIs on carbon emissions. I think it all depends on what the business does. Some businesses have reduced their packaging to save and reduce waste. There is recent research that shows when private equity invests in oil and gas companies there is a reduction in emissions and some of the environmental dangers that come from some of those investments. But everything needs to be looked at on a case-by-case basis depending on the company and the investment mandate of the fund or investor.

Disclosure demands that were common in public companies are becoming more common among private companies. Can you talk about the drivers and why this is happening now, specifically with private companies?

I think some of the trends in Europe are definitely showing up in the United States. A lot of the investors are asking more questions about how investments are affecting workers, how investments are affecting the environment, and making sure that their investments are not doing harm to the constituencies of folks that live in the community. I also think that, as some of the extreme weather issues continue to grow, folks are starting to recognize something needs to be done, that we can’t continue in the same way that we’ve been going permanently without causing tremendous damage to the environment and potentially other areas. Additionally, I think there’s been more focus on this in the news. The media has put a spotlight on what happens at these companies after investment. That’s driven more interest from limited partners to know what’s going on, to understand the inner workings of some of their investments and the impact of those investments.

If a private equity firm, chooses not to have an ESG program or doesn’t have one yet, what are the risks? What would be the implications in the shorter and longer-term in your opinion?

One aspect we’re seeing more and more is that limited partners are very interested in making sure the firms that they invest in have some sort of ESG program. Now, every firm will have a different ESG program, it depends on size and scope. Some firms will have larger ESG programs, others will be smaller programs. But in the grand scheme of things, limited partners are taking notice. Today, one of the risks of not having an ESG program of some kind is that investors will not want to commit capital to their funds.

How are GPs engaging with LPs on ESG topics today? We already talked about awareness, but what are the main channels and the main programs or actions that drive interest from LPs?

The main driver is wanting to make sure that their investments are not harming the environment or harming workers and making sure that their investments are doing good. I think the other driver is that there’s a wealth of research that shows complying with ESG metrics will improve your investments, so I think there’s a two-fold area there. When you start to plan an exit, you have to make sure that your investment is sound and ensure that there’s demand for it. And so, that is another key driver.

Let’s talk about the responsible investing guidelines for AIC; these were written initially in 2009, right? What’s driving the need for change now?

Correct. First off, the world has changed quite a bit since 2009. There is a lot more awareness around social justice issues and environmental issues. There’s a stronger desire to make sure businesses and firms are diverse and include people who have not been historically represented. I think that is certainly one of the main aspects driving the need for a refresh. The guidelines aren’t finished yet, but I will say that we’re examining a few topics and thinking about broadening them to highlight diversity and inclusion as well as broaden the impact of the investments beyond just shareholders. We're looking at more stakeholders when we make investments. Those are the two areas that we’re currently focused on.

Which stakeholders?

One thing we’ve noticed is there’s been a lot of criticism around how private equity impacts workers. While we don’t agree or think that’s true, we wanted to look at that, especially given the social justice lens. We want to make sure that the impact of an investment on the workforce is thought about prior to the investment being made. Another change is to make stronger efforts to have a diverse and inclusive workforce.

Would you say the focus on diversity and workforce will have the greatest impact on change in perception of the Private Equity industry?

Responsible investing is broad and there are lots of ways to be a responsible investor. But we want to take these things into account for our membership and for the industry at large as they consider investments. We're not necessarily mandating anything, but we want to make sure investors understand what is going to happen, three or four years from now, when making an investment. And I think that’s crucial even when you’re thinking about exiting, making sure your workforce is inspired and wants to come to work every day and work hard, because that can help produce better returns for the investors in the end.

What's the methodology for this revamp?

We’re talking with the membership, finding out what they think, what are they’re noticing, what are people asking for, what they think has added value, and what they think is missing. Those were just two of the big topics that we wanted to be sure was include and be more explicit about.

What was your biggest challenge with this project?

I think the biggest challenge has been gaining consensus about the need for a refresh and expansion given our wide membership.

But sounds like this is a good time to do it. Two years ago, it may have been harder to get everyone on board, right?

Yes, definitely. We’ve certainly seen a shift in views. I also think that’s because limited partners are interested in a lot of these metrics as well.

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