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In response to its concern about workplace conditions in assets held by private equity funded by New York’s Common Retirement Fund (CRF), New York State Comptroller Thomas P. DiNapoli announced the Fund’s adoption of its Responsible Workforce Management Policy and Principles. According to the policy, which applies to CRF’s “private equity asset class investments, other than funds of funds, secondary funds, and funds that don’t have a strategy of independently making equity investments”:

“The CRF believes that investment managers in its private equity asset class (PE Managers) should develop robust workforce management practices at companies where they have made an equity investment (Portfolio Companies) that prioritize workers‘ rights and protections, health and safety, fair compensation, skills development and training, and health and retirement benefits.”

The Policy establishes 12 Responsible Workforce Management Principles that CRF’s Private Equity General Partners and investment managers are expected to “encourage the management of their Portfolio Companies” to adopt. Among them is this:

“Adopt policies and practices to protect their workers’ international human rights as defined by the Core Conventions of the International Labor Organization (ILO), the ILO Declaration on Fundamental Principles and Rights at Work, and the UN Universal Declaration of Human Rights, including, but not limited to, eradication of all forms of forced or obligatory labor, effective abolition of illegal child labor, freedom of association, including non-interference, the right to collective bargaining, and elimination of employment discrimination. If portfolio companies adhere to specific international human rights standards, in keeping with those standards, where national law and international human rights standards differ, portfolio companies should follow the higher standard. Where they are in conflict, portfolio companies should respect local law, while seeking to respect the principles of internationally recognized human rights.”

The Policy also established CRF’s associated due diligence process that includes a “review and consideration of the workforce management policies and practices of PE Managers” along with CRF issuing “written investment recommendations” that

“address, along with the evaluation of other relevant investment factors, the PE manager’s workforce management policies and practices, focusing on the risks and standards relevant to the investment under consideration. That analysis will be considered with other investment factors in the investment decision making process.”

It is important to note that the policy and due diligence efforts apply to the private equity manager/funds’ investment policies and practices – not directly to individual portfolio companies. At some point in the future, I can envision CRF’s due diligence process extending into the GP portfolio company operations to validate conformance to CRF’s PE policy. For now, however, this first step is likely to spur other major PE funders to implement similar policies and practices.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile