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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable One.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable One Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy. Today, we're celebrating two important milestones for the ESG Insider podcasts. Over the past week, we surpassed 0.5 million downloads. And today, we're releasing our 100th episode.

Esther Whieldon: That success wouldn't be possible without our amazing producer, Kyle Cangialosi; our regular contributor, Jennifer Laidlaw; and our many guests who have so kindly shared their time, knowledge and expertise to explain the ESG and sustainability movement in plain English.

Lindsey Hall: You know, Esther, we've come a really long way over these past 3 years. If you recall, when we started out, I literally did not know how to speak into this microphone.

Esther Whieldon: Same here.

Lindsey Hall: Right? And then we record it all through the pandemic, where I was mostly hiding in the closet to record while my kids did their virtual schooling. So a big thank you also to our dedicated listeners for sticking with us, and here's to 100 more episodes. Okay. Now back to today's show. Esther?

Esther Whieldon: In recent years, we've seen an explosion in interest in ESG investing and private equity firms are part of that trend. We discussed this in a recent episode of the podcast. When I interviewed Josh Green, the Co-Founder and COO of technology platform, Novata. As Josh said in that episode, private companies have an important role to play in tackling climate change. He told us that "If all the public companies in the world are fantastic in reducing their carbon emissions, but private companies keep doing business as usual, we are not going to solve our climate problem". We'll include a link to that episode in our show notes, if you'd like to hear the full interview. We wanted to understand how PE companies are adapting their strategies to their growing interest in ESG and sustainable investing. So for today's episode, we're talking with one of the largest private equity firms in the U.S., Apollo Global Management. I talked with Lisa Hall, Impact Chair at Apollo Global Management, which has $498 billion of assets under management. In September 2020, the firm launched a new impact investing strategy called Apollo Impact.

Lindsey Hall: I'll jump in with a quick explainer here. There are many different and sometimes overlapping terms used to describe ESG investment strategies. Sometimes you'll hear people talk about sustainable investment or responsible investing. And within those broad buckets is an investment strategy called impact investing, which we'll be diving into more today. In simple terms, impact investing is a strategy in which investors aim to create a measurable positive environmental or social impact, in addition to creating sustainable financial returns. And the impact investing market appears to be growing. Nearly $2.3 trillion of investments could be considered impact investments if we're using a broad definition. And this is equivalent to about 2% of global assets under management. That's according to the International Finance Corporation, which is a sister organization of the World Bank. Okay. Now back to you, Esther. What did you talk about with Lisa?

Esther Whieldon: Well, Lindsey, I started off by asking her to describe Apollo Global Management and her role within the Apollo Impact strategy. Here's our interview.

Lisa Hall: So Apollo Global Management is an alternative asset manager. And one of our strategies is private equity, and that's where our impact investing effort sits is within the private equity platform. But we also manage credit assets as well as real estate assets and all types of alternatives. But absolutely, the impact strategy sits within the private equity platform. I am the Impact Chair at Apollo Global Management, which is a wide-ranging set of responsibilities. But primarily, I work on the impact strategy where we are focused on making investments that meet the principles of impact investing, including additionality and intentionality and where we are approaching this strategy from a belief in collinearity, which is an alignment of both impact performance and financial performance. And so in my work as Impact Chair, I oversee the impact strategy and work closely with the investment team on evaluating companies and doing due diligence on portfolio companies and then ultimately, over time, our tracking and monitoring of impact objectives.

Esther Whieldon: So how does the impact strategy build on or differ then from what Apollo Global Management has been doing already?

Lisa Hall: What we plan to achieve in the work of our impact strategy is really demonstrating through the measurement of net positive impact and looking at not just the positive impact that's being created, but also what types of negative externalities are associated with an investment and measuring both of those things and making sure that on a net basis, we're producing and creating positive environmental and social outcomes. And so that intentionality and commitment to measurement is something above and beyond what we do in our basic ESG tracking and monitoring. We do apply ESG principles and factors to all of our private equity companies that we own and operate. And in the impact strategy, we're going one step more in measuring net positive outcomes. The other difference between what we're doing in the traditional flagship funds and what we're looking at in our impact strategy is that we have a commitment to additionality and really seeking to address underserved markets, and that's particularly true in education, health, safety, wellness and economic opportunity, where we very clearly are providing services and products that certain markets have not traditionally had access to or haven't had access to in an affordable manner. And that additionality and focus on underserved markets is something that we haven't explicitly or intentionally done in the traditional flagship funds that we are doing with a great deal of intention in the impact strategy.

Esther Whieldon: So what makes Apollo different from other impact investors here?

Lisa Hall: One of the key elements of our investing in private equity is the scale at which we do it, kind of the breadth of resources at our disposal and the fact that we are investing mid-market, but at an average investment size of $100 million, which is much greater than the typical impact investor. And so I think we are really helping along with some of our peers in private equity who have also launched impact strategies. We are helping to bring the field of impact investing to scale. And for me, having been in this business for 20 years, I'd like to say I've been doing impact investing since before they called it impact investing. It is just so exciting in such an amazing time to see the industry grow, to see it reach scale, to see ESG as table stakes being broadly accepted across all industries and all types of investing that there is a level of scale that we are reaching now that I think would not be possible without firms like Apollo Global Management coming to the table.

Esther Whieldon: So can you give me a little more, you mentioned this idea of collinearity, can you give me an idea of how that actually plays out, how to ensure investments are providing that?

Lisa Hall: Yes, absolutely. So we're looking for investments that are generating social and environmental outcomes that can truly be measured. And we're looking for investments across several impact thematics, including economic opportunity, education, health, safety and wellness as well as climate and sustainability. And in each of these areas, we've sought out companies at their later stage, we are a buyout control stake strategy. And we believe that in the best-performing impact deals, they will also have the best financial performance and that these are really linked, that as the impact expands and grows and we create value around impact, that we will also be creating financial value and that the financial performance is directly tied to the impact that's being created in the company.

Esther Whieldon: You mentioned that you're looking for investments that can truly be measured. What do you mean by that? Can you give me sort of an example of what truly -- being able to truly measure something means there?

Lisa Hall: Absolutely. And part of the intentionality of impact investing is a commitment to measure the level of impact over time. And the field of impact investing has grown and become much more sophisticated over time, so that now there are an array of impact metrics that can be used and very specific impact management process to measure impact. So to give you an example in climate and sustainability, we can actually very precisely measure the impact in reduction of greenhouse gas emissions or in energy efficiency and the use of energy or in wastewater and the reduction of waste that comes from water processes. And one of the things that's very exciting about how the field has evolved is there's also been a real push for measuring outcomes, not just outputs. And so historically, when you look at something like education, we were measuring in the field of impact investing. We were measuring outputs like number of students served or the number of curricula that was provided in a particular program. And now we look to measure outcomes as well to know if the students actually learned anything. If the curriculum actually had a positive impact on literacy or the ability of the person receiving that instruction to increase their wages, for example, in a training program. Similarly, in health, we used to measure just the number of patients that were served and now we're looking more closely and did that patient, actually did their health improved. What was the health outcome of the intervention or health service that was provided. So we're really pushing and impact investing when we are measuring and when we have a commitment to measure the level of impact over time to be quite specific in metrics and specific in the outcomes that are being created.

Esther Whieldon: Does this need to be able to measure the outcomes limit the pool of options you have in some way? Because I know in general, in the ESG world overall, access to data is a challenge. So just wondering how that might affect where you end up picking to invest in.

Lisa Hall: So access to data, for sure, is a challenge, but it is less of a challenge than we have seen in the past because ESG is really starting to be considered table stakes for most investors. And at Apollo, we look to collect ESG information and data for all of our companies, not only the companies in the impact strategy, but across our traditional flagship investing as well, we're looking to measure across environmental, social and governance factors. Specifically for impact, we are seeking to measure outcomes, and we are working closely with our portfolio companies if they do not already have the infrastructure in place to help them create that infrastructure around data collection. All of the companies under our impact strategy will be using the B Impact Assessment, which is a measurement for impact that actually results in a score that was created by the B Lab organization that is well known for their work in benefit corporations and really promoting that concept. And the B Impact Assessment tool is a way to be able to measure across not only ESG, but other more specific metrics around social and environmental outcomes. And we use that tool together with portfolio companies where they have not necessarily used the tool before to support and help them apply that type of measurement to their company.

Esther Whieldon: You mentioned 2 areas where you look for the results from education and health. Can you give me some more examples of what kind of change and you also mentioned like electricity, like emissions reduction or efficiency improvement. What are some other types of metrics you look for in different areas?

Lisa Hall: So another area that we're focused on is economic opportunity. And so in that category, their metrics around improved wages, job generation, quality of job, what type of improvement in quality of living around housing and affordable safe housing. There are many, many measures you can look towards in the area of economic opportunity. We also are very focused on investments in climate and sustainability. And there is quite a rich, robust set of metrics in that thematic, in that industry focus. And we also have been thinking about something we call Industry 4.0, which is looking at how does technology enable impact, and that could be through patented solutions and IP that is really contributing to positive social and environmental outcomes.

Esther Whieldon: Great. Now I noticed on the website for your group that SDGs or sustainable development goals were mentioned as sort of one of the areas you like to align with. Can you talk about some of the ways in which you do that?

Lisa Hall: Absolutely. So the United Nations sustainable development goals is an excellent framework for thinking about the impact that you are creating. And the industry themes that we are focused around with our impact strategy very intentionally aligned with the SDGs. And so in thinking about education, thinking about climate, thinking about health, these are all elements of the sustainable development goals. And we really do start there with each investment or each portfolio opportunity when we are evaluating and doing our due diligence to place the company and its activities and its operations and its mission to place it within one of the sustainable development goals.

Esther Whieldon: Thank you. That's very interesting. I also noticed a term that I'm on your website that I'm hearing more about from all different sectors, which is circular economy or circularity and the need to sort of stop using new fresh virgin materials, right, and reuse what's already been at hand to the extent that's possible. How are you guys involved in helping advance that effort?

Lisa Hall: So our very first deal, Esther, was Reno De Medici. It's an Italian-based company that is a leader in recyclable packaging in Europe. And we were very attracted to this deal because the management team and ownership was already very committed to sustainable operations and achieving environmental goals. And so they were an ideal team to partner with, looking to take private that part of the company, which had been previously held by a public company. And so in that transaction, the company's purpose and activities itself are taking existing cardboard and recycling it for new carton board packaging. And so it's a great example of the circular economy where you're taking an input or a material that would otherwise go to a landfill will contribute to waste and recycling it to use it for new packaging. And what this company has been able to achieve in terms of eliminating the use of virgin fibers for the production of carton board is really exceptional, and they now source all of their materials 100% recyclable. And we think it's a great example of circularity, and we think that this is a growth area, not just in terms of the resource materials and having available inputs and materials, but in the demand for recyclable packaging, which is growing every year. And so it's also a great example of collinearity where as demand grows and they produce more, they are contributing more to a better environment and a better world.

Esther Whieldon: Okay. And so how are you serve -- give me an example or 2 of how you are serving sort of the underserved markets? And particularly, I'm curious about economic development opportunities.

Lisa Hall: Yes. So I could give you some examples of economic opportunity. But let me start by sharing one of the deals that we're doing in the health, safety and wellness category. And that will be supplemental health, which is a nursing staffing company. And as you are probably well aware, there is a really difficult, really challenging nursing shortage in this country. And our investment in supplemental is looking not only to make sure that nurses are being trained and developed but that we bring new people to the field of nursing who may be in adjacent lines of work that with training and support from supplemental will be able to transition into nursing thereby actually growing the number of nurses and therefore, addressing the shortage of nurses throughout the country. What's also been found to be true is that the quality of nurses directly links to the health outcomes for patients. And so this model that supplemental health has of providing ongoing training for its nurses that it is delivering to hospital providers, but also to nursing care facilities and providing home health aid that those nurses and health professionals are getting the type of training and support that will result in better health outcomes for their patients.

Esther Whieldon: That's a great example. And I know there's just workforce shortages everywhere, right, in every sector, but certainly the health workers have definitely been overworked and put to great tests in the last 2 to 3 years. So it's great you're working in that area. I have a very basic question. This may be too basic. But I'm just curious, what is your process for finding who to invest in? Do you have a committee or people who kind of search the web or kind of how do you track these groups and organizations down? Do they come to you, that kind of thing?

Lisa Hall: So one of the things that drew me to Apollo is the breadth and depth of its platform, which includes sourcing resources and sourcing relationships that go far beyond the typical impact strategy or impact investor. And we're able to tap resources globally around potential portfolio companies. And a large part of what we did in the early days of launching this strategy was to promote and go around the company talking about what we were doing and how we were doing it, and therefore, putting it in the minds of our colleagues when they see deals that might not have historically fit because of the size or because of the nature of the company's activities to consider impact if it was a fit. And so we have had some deals that have come our way that would have normally been too small for the flagship fund. And we also have had deals that we have co-invested with other parts of the platform that have been willing and interested in meeting our monitoring and tracking for impact requirements.

Esther Whieldon: It sounds like you're able to sort of fill in the gap of stuff that needs funding but wouldn't quite fit, right, for the bigger organization?

Lisa Hall: Absolutely. And then also, we have a tremendous network with bankers and sponsors and have been doing private equity investing for 30 years. And so lots of relationships throughout the firm that are serving us well as we build out this impact strategy.

Esther Whieldon: So let's look forward. What's next or what's the next big challenge or next big project for you guys going forward here?

Lisa Hall: Wow, what's next? That is a great question. And we've been so busy building this current strategy that I don't think we're yet at next. And I would say that one of the most exciting things going on across the firm is our decarbonization and energy transition commitment. And although we've already announced it, I think there's a lot of work to get to the $50 billion that we've committed to in the next 5 years. And then the $100 billion that we've committed to by 2030 around decarbonization and energy transition. So there's a lot to do under that umbrella and the impact strategy will be part of that work, but it's obviously a broader effort than just the impact strategy. And so that's an exciting part of what's next. I think the other part of what's next is figuring out how we integrate a lot of efforts throughout the firm that are focused on making the world a better place. We've got amazing diversity, equity and inclusion efforts, including $100 billion diversity supplier commitment that we announced earlier this year. We are doing incredible work through our citizenship efforts, including having launched a new Apollo Opportunity Foundation and work that we're doing around career pathways for underrepresented people and young people specifically in the alternatives arena. And there's just a great deal of work that's being done across the organization that I think in the future will be even more integrated than it is now across sustainability, across DE&I, expanding opportunity. All these efforts have really bloomed over the last couple of years and I think have been turbocharged under the leadership of Marc Rowan, our current CEO, and I can see a next step for Apollo in kind of bringing all of those efforts together to fuel them even more.

Esther Whieldon: So as you can hear, Lindsey, impact investing platforms such as the one Apollo Global Management has created can offer new ways to target education, health, safety, wellness and economic opportunity with services and products that certain markets have not traditionally had access to in the past.

Lindsey Hall: And as we've talked about on this podcast, these are all areas that are garnering increased attention across really all aspects of the ESG space. Please stay tuned as we continue to track different ESG and sustainable investment strategies. Thanks so much for listening to this episode of ESG Insider and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.

 

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