James Murray at Green Business News writes an interesting article on Private Equity from the merit of Green Business Strategy.
The Private Equity world has taken the world by storm from the America’s to UK, Europe, to Australiasia. There is growing concern in different parts of the world on the dangers of private equity especially with their cost-cutting and job destroying strategy nicknamed “The Barbarians at the gate”. In Australia for example, the bid for Qantas is raising questions all the way to the Prime Minister.
However, Murray concentrates on the private equity vs public companies and its effect on taking green decisions.
But amidst all the talk about the different levels of job security, innovation and growth provided by opposing ownership structure little attention has been paid to which model is most likely to deliver environmental sustainability.
Advocates of public ownership argue that being listed on the stock exchange with its quarterly reports and numerous regulations encourages environmentally responsible behaviour. Moreover, the recent increase in shareholder activism – as evidenced by organisations such as Ceres – has introduced another layer of environmental accountability for many firms.
However, these benefits have to be offset against the short termism and obsession with quarterly figures that critics claim define many listed firms. The need to constantly answer to Wall Street analysts and meet their expectations is often seen as an anathema to good long term management and makes it harder to justify investments that will take time to deliver a return. This problem is particularly acute for green investments, such as building insulation or solar panels, as they tend to be expensive up front and can take years or even decades to pay for themselves.
Private equity backed companies, in contrast, do not face these problems – or at least not to the same extent. While still evident the pressure to deliver quarter-on-quarter is less apparent, arguably making private firms a better place to develop and execute long term plans.
Such a climate is likely to favour environmental investments, and it could be argued that the $44bn buy out of TXU provides ample evidence of this, with the private equity groups behind the bid Kohlberg Kravis Roberts and Texas Pacific Group pledging to slash carbon emissions at the company and scale back plans to build more coal-fired power stations.
Do go ahead and read the entire blog post. Murray at the end raises the vision paper from the International Audit Networks which is arguing for real time reporting and according to him may provide the basis for greater long term investments for public companies.