As a newly formed private equity firm, North Hudson Resource Partners LP (the “Firm” or “North Hudson”) believes that our environmental, social, and governance policy (the “ESG policy”) should be an integral part of our decision-making process within our Firm and at new and existing portfolio companies. This policy reflects our commitment to a high standard of integrity in our business conduct, a focus on workplace safety and inclusivity, our efforts to act as stewards of the environment, and is based on guidelines that are principally consistent with the United Nation’s Principles of Responsible Investment and The Private Equity Growth Capital Council Guidelines for Responsible Investment.1
North Hudson is a Houston, Texas-based middle-market energy-focused private equity firm. Formed in 2018, the Firm’s investment philosophy is anchored in creating long-term partnerships with top-tier management teams to acquire and develop assets in the upstream and midstream sectors in North America.
North Hudson’s investment strategy is anchored by an underwriting approach that seeks to focus on the intrinsic and fundamental value of the underlying assets of each energy investment in addition to partnering with high-quality management teams and/or companies. The Firm proactively targets opportunities where it believes it can “buy right” and seeks to conduct a thorough review of a potential investment’s risks2 by assessing the geology, infrastructure, land, cost structure, management team, and exit potential of potential investments and by incorporating ESG considerations, as North Hudson determines to be appropriate, into the due diligence (pre‐investment) phase of potential investments.
North Hudson understands that environmental, social, and governance-related issues can have a meaningful impact on our employees, portfolio companies, and partners. Therefore, we believe that it is our responsibility to strive to create both an ESG policy and culture that reflects our commitment to safety and stewardship.
We believe in taking a precautionary approach to the environmental challenges within the energy industry. Prior to considering an investment and as part of the Firm’s ongoing relationships with the portfolio company management teams, the Firm seeks to actively consider several factors to protect the environment which may include: working with responsible partners who have a track record of adhering to environmental protection practices, laws, and rules and regulations while focusing on reducing our environmental footprint. Likewise, the Firm seeks to diligently work with our management teams to reduce job-related injuries and safety violations by implementing safety management programs and training.
We believe that having the right “Tone at the Top” is a crucial factor in the overall success of any policy. This includes a focus on our hiring and development practices as well as our policies on privacy and data security, human rights, and anti-corruption at both the Firm and portfolio company level. As part of the Firm’s social responsibility, we seek to attract the best talent while embracing diverse backgrounds and perspectives. Moreover, the Firm understands that our employees are at the core of our success. Therefore, we look to create an environment that respects and values each individual employee contribution to the Firm through fair compensation, annual bonuses, and a generous benefits package.
We acknowledge the obligations that we have to the communities in which we operate and realize that safe, reliable, and environmentally compliant operations and supply chains guide our daily work. North Hudson also understands that it is important to give back to our community3. One of the ways we seek to achieve this is through our annual day of volunteering in which the Firm’s employees participate on-site at an employee-chosen local non-profit organization. In addition, North Hudson generally focuses its philanthropic giving along several key themes, including helping underprivileged youth and hunger relief in the Houston area.
North Hudson’s management team is responsible for the Firm’s ESG policy. The Firm seeks to maintain alignment of interest between the Firm’s management, our partners, and other stakeholders through regular communication and transparency. The Firm has a significant compliance program with quarterly reporting expectations for its employees. Moreover, North Hudson has detailed financial reporting requirements, including quarterly and annual audited financial statements that adhere to the Firm’s financial and valuation policies. Finally, the Firm’s management team provides levels of oversight that it believes is appropriate in the areas of risk management and potential conflicts of interest and regularly monitors its ESG policy for areas of improvement.4
At the portfolio company level, the Firm seeks advisory boards with industry experience as well as an understanding of ESG policies. The advisory boards meet regularly to review the company-level performance and ways to improve and/or address ESG issues. Likewise, management teams that do not adhere to the Firm’s ESG policy are subject to disciplinary action including suspension or termination.
Growingly ESG policies in the middle-market align specifically to United Nations‐backed Principles of Responsible Investment (PRI) and The Private Equity Growth Capital Council Guidelines for Responsible Investment. Explicit alignment with the former (e.g., ESG policy language to the effect of “this policy is based on guidelines that are principally consistent with the United Nation’s Principles of Responsible Investment”) is almost seen as a minimum even by LPs with only a shallow commitment to ESG.
Middle market funds are increasingly expected by LPs to be clearer about the process by which ESG is integrated into the investment process. The focus here tends to be procedural, not substantive. Specifically, LPs will look for a nod to integration into due diligence as well as some signaling on portfolio-wide reporting. In the absence of this procedural clarity, LPs will often send questionnaires that — ultimately — lead to a need to collect the same information.
The first paragraph here focuses entirely on “Social” within the fence line. Although the second paragraph broadens that focus to the community, it does so only in the context of charity and community service. A more standard (and widely expected approach) would be to acknowledge the “Social” impact of operations and investments on the diversity of external stakeholders, with a particular nod to human rights.
Two elements for inclusion here are (1) noting appropriate levels of oversight in the areas of risk management and potential conflicts of interest; and (2) demonstrating a recognition that ESG risks extend to the supply chains for both the Client and its portfolio companies.