Since its founding, MSD Capital, L.P. (together with MSD Partners, L.P., “MSD”) has had a Firm Mission Statement1 emphasizing our focus on generating long-term, risk-adjusted returns. MSD believes that consideration of environmental, social, and governance (“ESG”) factors is essential to fulfilling our Statement and making a positive impact on society.
Our Business Principles2 highlight the importance of our people and treating everyone fairly. These principles also emphasize doing what is right and constantly seeking to improve and be more efficient.
MSD’s Mission Statement and Business Principles are integrated into everything that we do, with each new hire learning them starting on their first day. When making key firm decisions related to investments or operations, these statements and principles help determine the path we take.
Our ESG efforts were born out of these statements and policies as well as our Firm ethos. We believe these efforts help us understand risk, make more informed investment decisions, and improve our returns to investors, while making the world a better place. We expect to be judged on our actions and not just what we say on ESG.
Each investment team is working on incorporating an ESG operating model that covers practices and tools for pre and post investment phases of a deal, including sourcing, due diligence, monitoring, and engagement. This will ensure that ESG considerations are integrated throughout the investment decision-making process and post-investment. We recognize that each business and deal is different, so we aim to tailor our ESG approach to focus on matters where we have the most impact given our level of control.
Screening & Due Diligence
Investment opportunities will be pre-screened based on a list of agreed upon high-risk ESG sectors and activities. As part of our ESG integration efforts, high-risk ESG sectors and activities will have specific additional guidance and policies to guide the teams. MSD aims to invest responsibly and work with our portfolio companies to drive impact from the very start, which we do by having clarity as a firm about where MSD will and will not invest.
Potential investments will be evaluated based on a list of material ESG risks and opportunities that are most relevant. We recognize that ESG standards are rapidly evolving, and we will look to continuously learn from leading best practices and improve our approach to ESG issues. We ground our thinking on established industry frameworks and continually work to stay abreast of key developments in the global ESG community. We are building out checklists based on frameworks such as the Sustainability Accounting Standards Board (SASB) to help inform areas of focus for ESG due diligence and validate that relevant ESG issues have been evaluated. As needed, third party experts will be hired to conduct the ESG due diligence at this stage. For certain deals, reputational risk will be reviewed using third party data providers.
Evaluating ESG criteria is integrated into the diligence process and as such, key risks and opportunities are presented in Investment Committee materials. Each team is constructing a customized template to report on relevant ESG factors and to provide a succinct articulation of the risks based on defined criteria. We are working to include an ESG section in all Investment Committee memos and have already started including one for recent control deals.
For certain control investments, expectations are established with portfolio companies and their management teams on the ESG information that MSD expects to receive on a periodic basis.
Active Management & Influence
For control deals, we are working to include ESG risk-mitigation and value creation opportunities in guidance provided to portfolio company management teams promptly after MSD’s investment. Guidance for management teams is based on findings from due diligence and potential value creation opportunities identified by the investment team and its advisors. When on the board of a portfolio company, MSD is increasingly leveraging its influence with the board to discuss ESG issues at board meetings and to establish a formal accountability structure with respect to ESG items. Our long-term plan is to require our controlled portfolio companies to respond to ESG questionnaires on an annual basis to ensure that we have regular visibility on where the companies stand with respect to their ESG efforts.
For non-control deals, where we have board influence and access, we look to have regular check-ins with the boards of the companies to encourage them to make progress on ESG opportunities identified during due diligence. We will also educate management on ESG best practices where they are not being met.
We conduct all business with the highest level of integrity, honesty, and discipline. We provide all employees with extensive new hire and annual compliance training. We maintain open communication lines with employees to ensure our Business Principles, which drive the policies and procedures in our Compliance Manual and Code of Ethics, are reflected in everything we do. Furthermore, we are honest and fair with each other and with our counterparties. We recognize that our reputation is our most valuable asset and we don’t compromise our values to make a few extra dollars.
Diversity, Equity, & Inclusion ("DEI")
We seek to create a workforce that more accurately reflects the representation of the world in which we operate. We look to use the resources of MSD to attract, employ, train, develop, and empower individuals, including those who have historically been underrepresented in the financial services industry. We view this effort as one that will require discipline and long-term commitment to make systemic, sustainable changes. Since 2019, MSD has been working to find new opportunities and push for progress in this area. For instance, within our internship program, we’ve been successful at achieving gender balance and more diversified racial/ethnic representation in recent years. MSD not only seeks to attract and develop a diverse workforce, but also to continue to create an inclusive culture to support and encourage employees of diverse backgrounds. We are developing a separate Firm DEI Policy which goes into greater depth on this important responsibility. The Policy walks through MSD’s DEI journey to date and the goals of the Firm’s DEI Committee. Our DEI initiatives are a top Firm priority for our CEO and Partnership and touch all aspects of our business.
Our new headquarters, in New York City (“NYC”), at One Vanderbilt Avenue (OVA) has an LEED Certification Gold rating and energy consumption is 26% below the ASHRAE 90.1-2007 baseline, resulting in one of the lowest carbon footprints in NYC.3 We have significantly reduced office waste by moving away from damaging single-use items and towards reusable solutions.
We are constantly looking to implement initiatives to improve the sustainability of our business, specifically focusing on energy efficiency, waste reduction, and lessening the environmental footprint of our employees.4 We also focus on the health and wellness of our employees by providing high quality insurance options at low cost to our employees, as well as including a gym on site in our NYC headquarters and hosting an annual health and wellness fair.
Philanthropy has always been a critical part of the MSD employee experience. We create opportunities for our employees to invest in and engage with the community, including matching charitable donations and promoting volunteering opportunities that have an impact in our local community. Through the Michael & Susan Dell Foundation, we provide employees with a donation matching program, which has matched over $25 million in employee donations since its inception in 2005. We invest the capital of our charitable limited partners including the Michael and Susan Dell Foundation, which creates opportunities for millions of low-income students and improves the health and wellness of millions of children and their families. Our employees take part in annual Philanthropy Committee events including raising funds for cerebral palsy research through STEPtember, participating in the Abbot House's annual Holiday Gift Drive, serving dinner to underprivileged families through the Hudson Guild, and packing backpacks for children in need as part of Operation Backpack. We work not just for ourselves, but to create resources so we can help others. We call this “change capital” because we believe in using our capital to change the world for the better.
We are developing a Vendor Code of Conduct (“Code”) that outlines our expectations for our vendors with respect to several important ESG matters. When working with our major vendor partners and evaluating new ones, MSD will share our Code and send out DDQs to understand what our vendors are doing with respect to ESG. We want to understand whether our partners or potential partners are aligned with what we outline in our Code and, if not, share best practices and encourage improvement.
Governance of this Policy
The CEO and Partnership are the main sponsors of MSD’s ESG Policy and will oversee MSD’s ESG Committee. The Committee will be responsible for reviewing and, where necessary, updating MSD’s ESG Policy and operating models to reflect relevant best practices and standards. The Policy will be periodically reviewed and updated at least annually. Over the long-term, the Committee will also strive for increased transparency by requiring periodic reporting from our investment teams and controlled portfolio companies to evaluate the effectiveness of our ESG efforts.
1 MSD's Mission Statement
2 MSD's Business Principles
3 As winner of the 2021 Urban Land Institute NY Award in the "Office Development" category, OVA has been recognized for best-in-class development that reflects the responsible land use practice and creation of sustainable, thriving communities.
4 For example, we eliminated the 20,000+ single-use plastic bottles per year from Firm beverage offerings and issued a re-useable metal bottle to each employee instead. When designing our new headquarter office at OVA, we optimized office layout, hot desking, lighting, technology, and paperless solutions, all with the goal of being more efficient and having a lighter environmental footprint.