Online Exclusives Interview with David M. Rubenstein on Profit, Purpose and Climate

4 November 2019,

Finance & Development (F&D)’s Rahim Kanani interviews David M. Rubenstein, cofounder and co–executive chairman of The Carlyle Group, one of the world’s largest private investment firms, on a new corporate reality that looks beyond profit, the role of business in tackling climate change, and what animates his philanthropy.

F&D: Where are we today in realizing this new kind of business model that looks beyond profit to include environmental, social, and governance (ESG) issues?

DMR: To use a baseball analogy, we’re probably in inning two of a nine-inning game. So we’re really at the beginning. But I think many European countries are ahead of the United States in some of these areas. For example, with respect to diversity, you will often find better diversity on boards of public companies in Europe than of those in the United States.

It’s hard to predict what the ninth inning will look like, but I would say that you’re likely to find companies in the future being judged on their ESG contributions and performance almost as much as on their financial performance. And the companies that perform well financially, but don’t do well on ESG concerns, may not be as highly valued on the market as they would be today.

F&D: What are some of the challenges that stand in the way of corporations’ embracing this evolution?

DMR: There are always challenges whenever you’re doing something different. For example, people will say, “I want you to be more sensitive to environmental issues, more sensitive to ESG issues, and that’s how I’m going to judge you.” But then sometimes when you’re making a presentation, the people to whom you’re presenting will say, “You’re very good on ESG factors, but somebody else has a 2 percent higher return on investment than you do.” If investors’ compensation is judged by getting higher returns on investment—as is the case with most investors—the investors will invariably select the investment vehicles that have a slightly better return, even if their ESG factors aren’t as good.

Nobody wants to feel as if they’re destroying the Earth, but how do you judge what is helpful and not helpful? There’s obviously a scale along the way. So it’s hard to know what is the best thing to do. But it takes a while to convince people that incorporating ESG issues into their analysis will increase performance. And I think it’s not yet 100 percent certain that people know how to judge and value ESG performance. It’s a balancing issue, and nobody has a perfect answer yet.

F&D: How do your peers in business and finance think about climate change in particular?

DMR: Everybody that I’ve talked to, with very few exceptions, accepts the fact that climate change is occurring. Some subset of that group, maybe 15 percent, are not yet convinced that it’s man-made as opposed to naturally occurring. That means, therefore, at least from the people I’ve talked to, 85 percent of them believe that man-made factors are contributing to climate change and that something needs to be done about human behavior. What is the best thing to do about this, though, is not easy to figure out.

One of the problems is that if you go through history, it’s rarely been the case that humans have said, “I’m going to take action that will be important for my great, great grandchildren, but I will not be alive to see the benefits, and maybe my children and grandchildren will not be alive to see them either.” In other words, reducing carbon in the atmosphere is a very good thing to do, but all the activity of all the people on the Earth today probably isn’t going to dramatically reduce the carbon in the atmosphere. It’s going to take a concerted effort over 20, 30, 40, or 50 years to make a meaningful reduction. It’s very hard to get people to conduct themselves in a way that will benefit unborn generations. That’s been proven to be the case over the history of the world, and it is probably still the case today. But we do have a moral obligation to try to change human behavior in this regard.

F&D: What can investors do today to genuinely move the needle on these issues?

DMR: The global climate change movement and those who are deeply involved in it have done a very good job of demonstrating the need to do something. This isn’t only about reducing carbon in the atmosphere. There are other things you can do and should pay attention to, like biodiversity. For instance, now that the extinction rate for species is a thousand times greater than it was hundreds of years ago or thousands of years ago, humans should try to conduct themselves in a way that decelerates species extinction.

Moving the needle is difficult, but making a gesture that is in the right direction is easier. In other words, it’s hard to know how much of a difference you can really make, given how big the Earth is, but if you’re investing in a company that facilitates the burning of forests in the Amazon, for example, that’s not a good idea. If you’re doing a lot in mining more coal, that too is not helpful. There’s no perfect metric, and there’s no one person who can, by himself or herself, reduce climate change. It will take a concerted effort of billions of people.

F&D: What worries you the most about tackling climate change?

DMR: What worries me is that there is a constituency that is still concerned about the economic implications of addressing climate change. I assume they’re worried that dealing with climate change will cost them money or reduce their profitability in some way. Otherwise, personally, they would support it.

The people in government not supporting action on climate change, or who are acting in the opposite direction by pulling out of the Paris Accord, presumably have some constituency too that believes this issue is overblown, not man-made, or something we can’t really deal with. And this is a percentage of the population that’s not yet negligible.

We need to educate people that in the long run, at least while they’re alive, not to mention beyond that, profitability will be better for those who take climate change into account in their conduct. And they should try to make sure that they meaningfully address these issues in their own conduct. Right now, I’m not yet sure if we have everyone convinced in the United States that dealing with climate change is essential for our species to survive.

F&D: Tell me a little bit about what animates your philanthropic endeavors.

DMR: First, I’m trying to give back to society, and particularly to my country, because I’ve been very fortunate to have risen from modest circumstances in this country. But to have the kind of wealth I now have might not have happened elsewhere. It happened here, and I am sufficiently grateful to want to repay the country in some way.

Second, I try to find things that I can realistically get started, can help finish, am likely to see the impact of in my lifetime, and have some intellectual connection with (so that I want to stay involved). I don’t have the wealth of Bill Gates. I can’t do all the things he’s trying to do, like take on health care in Africa. But I have enough money to have some impact on things that are more modest in size. A lot of what I do is something called “patriotic philanthropy,” which is trying to give back to my country in ways that remind people of our past and heritage, the good and the bad, which hopefully gets more people to learn about the history of the United States (and thereby avoid the mistakes we’ve made in the past).

F&D: How do you measure the impact of your giving?

DMR: It’s hard. I’m sure there are some people that are very, very conscious of metrics for giving, but I’m not that way. I don’t have a foundation. I don’t have staff. I do it all myself. So I’m probably not as attentive as others are in following up and getting metrics. But I generally keep up with how things are going and have a sense of whether I’m pleased or not. Every philanthropic gift doesn’t work out the way you want. Some work out better than others. But as a rule of thumb, I’m pretty happy with what I’ve chosen to support, which is typically projects involving medical research, education, culture, historic preservation, and civic education.

This interview has been edited for length and clarity.

The Harvard Association for Law and Business (HALB) recently hosted David M. Rubenstein, co-founder and co-executive chairman of The Carlyle Group, for a fireside chat with Heather Lee ’19, co-president of the association, as part of HALB’s Private Equity Roundtable series. Rubenstein discussed the co-founding of The Carlyle Group—one of the world’s largest and most successful investment firms with $216 billion of assets under management—and his views on philanthropy.

One of Harvard’s most engaged volunteer leaders, Rubenstein was elected to join the Harvard Corporation in 2016 as a Fellow of Harvard College, a role he assumed in July of 2017. In addition, Rubenstein serves as chairman of the Boards of Trustees of the John F. Kennedy Center for the Performing Arts, the Smithsonian Institution, and the Council on Foreign Relations; a trustee of the National Gallery of Art, the University of Chicago, Memorial Sloan-Kettering Cancer Center, Johns Hopkins Medicine, Lincoln Center for the Performing Arts, the Institute for Advanced Study, the Brookings Institution, and the World Economic Forum; and president of the Economic Club of Washington.

posted by gandatmadi46@yahoo.com

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