Elevating Responsible Investment

A Long-Standing Commitment

Berkshire Partners’ mission to build enduring value has been central to our investment approach since the firm’s founding. In 2022, Berkshire Partners identified high impact environmental and human capital initiatives aligned to this mission and consistent with our commitment to create value and support management teams. We also expanded our capabilities to measure progress in these areas and report results to our stakeholders. In 2023, with continued leadership and resourcing, we plan to build on the foundational initiatives detailed below.

Climate Strategy

A Bold-Yet-Practical Approach

Climate change poses a threat to global economic stability, societal wellbeing, and the health and diversity of our ecosystems. We expect the effects of climate change will generate both risks and opportunities for the companies in which we invest. In our role as a trusted partner, we collaborate with management teams to navigate a range of challenges and identify potential opportunities for the businesses stemming from those challenges. Our approach in the context of climate change is no different.

Key steps in development of our approach

Formed a Climate Strategy Steering Committee, consisting of firm leadership across business lines, to ensure executive level input and buy-in across the organization.
Collaborated with external experts to provide specialized data & analytics in areas such as:
- Decarbonization pathways for key industry segments in which we invest.
- Greenhouse gas (GHG) emissions accounting at the firm and portfolio company level, utilizing the broadly adopted Partnership for Carbon Accounting Financials (PCAF) methodology.

Berkshire’s Climate Goal

For its future funds, Berkshire Partners intends to empower companies over which it has effective control to set decarbonization targets by the end of 2027, and within two years of Berkshire’s investment for companies acquired after 2025.*

Pursuit of these targets across our portfolio, with a goal of net zero greenhouse gas emissions by 2050, is intended to help limit global temperature rise to 1.5 degrees. We will encourage our private equity portfolio companies to set decarbonization targets for their Scope 1 and Scope 2 emissions and also adopt meaningful plans to measure, track, and reduce their Scope 3 emissions**. We will seek to engage with companies over which we do not have effective control to advocate for a similar approach and share across our portfolio emissions-reduction resources and best practices.

Carbon offsets to neutralize residual emissions will be considered only after all feasible steps have been taken to reach net zero.

* Any ESG or impact, targets, programs, commitments, incentives, initiatives, or benefits referenced in any information, reporting or disclosures published by Berkshire Partners are not being promoted to investors and do not bind any investment decisions or the management or stewardship of any funds managed or advised by Berkshire Partners for the purposes of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector unless otherwise specified in relevant fund documentation or regulatory disclosures. Applying ESG factors to investment decisions is qualitative and subjective by nature. There are also significant differences in interpretations of what positive ESG characteristics mean by region, industry and topic. Berkshire Partners’ interpretations and decisions are expected to differ from others’ views and could also evolve over time. In addition, in evaluating an investment, Berkshire Partners expects to depend upon information and data provided by a number of sources, including the relevant investments and/or various reporting sources which could be incomplete, inaccurate or unavailable, and which could cause Berkshire Partners to incorrectly assess a company’s ESG practices and/or related risks and opportunities. Berkshire Partners does not intend to independently verify all ESG information reported by investments or third parties.

**Scope 1: Encompasses all direct emissions that result from a company’s operations. These include emissions under a company’s control such as onsite fuel combustion, company-owned vehicles, and in-house processing equipment.

Scope 2: All indirect greenhouse gas emissions that result from purchased and consumed electricity, heat, steam, or cooling.

Scope 3: Represents all other indirect emissions from value chain activities. These emissions occur from a company’s operations but are produced from sources neither owned nor controlled by the company. Examples include emissions generated by suppliers, employee commute and business travel, and landfill waste disposal.

Source: Schneider Electric

Diversity, Equity & Inclusion

Diverse Perspectives, Better Decision Making

Our commitment to diversity, equity, and inclusion (DEI) is central to our core beliefs and purpose to build enduring value through exceptional teams. In 2022, we continued to execute on initiatives that are foundational to advancing this purpose.

2022 DEI Developments

Pulse checks on culture via anonymous survey to track measures of inclusiveness.
Cultural celebrations such as Women’s History Month, Pride Month, Black History Month, and Asian-American Pacific Islander Heritage Month.
Annual analysis to ensure equitable pay in the Berkshire organization.
Support of DEI in the portfolio through diversified board membership and establishment of a DEI standard for portfolio companies.

2022 Private Equity Portfolio Diversity

22%

percentage of portfolio company* board members who are female or diverse

38%

percentage of portfolio company* independent board members who are female or diverse

The representation of portfolio company board members who are female or diverse doubled from the time of Berkshire’s investment through the end of 2022.*

*Includes current portfolio companies acquired between 2017-2021.

Diversity, Equity & Inclusion

Ownership Works

Berkshire Partners has a long history of supporting broad-based ownership of companies in which it invests. We formalized this commitment in 2022 as a founding member of Ownership Works, a nonprofit organization that partners with companies and investors to provide all employees with the opportunity to build wealth at work.

In our experience, broad-based employee ownership programs that create meaningful income opportunities for workers and their families have the potential to reinvigorate corporate cultures and support business performance through strong employee motivation, retention, and the ability to attract talent. Ownership Works members, including Berkshire, are developing ways to measure and better understand the correlation of these impacts with broad-based employee ownership programs.

In 2022, we established broad-based equity plans at five companies, exceeding our Ownership Works commitment of three companies by the end of 2023.
Overall, approximately 6,750 employees of our portfolio companies have received awards under these broad-based plans.

Measurement & Reporting

Accountability to Our Stakeholders

We continue to invest in data gathering capabilities and refine our set of responsible investment KPIs with the goal of measuring and communicating to stakeholders our progress. Our annual survey of responsible investment practices has five objectives:

Identify material issues at the company level, eliminating noise and focusing action
Build a foundation for future disclosure and a roadmap for action at the company level
Close data gaps to expand insight into risks and value creation opportunities
Elevate best practices and enable cross-company knowledge sharing
Meet growing market demand for measurement and transparency on environmental and societal issues

Private Equity Portfolio Company Survey of Responsible Investment Practices

Our survey includes metrics in the following five areas:

Policy and Governance (policies, disclosures, oversight)
Environment (environmental initiatives, climate strategy, energy management, waste)
Social (human capital management, health & safety, community & philanthropy)
Supply Chain Management (sustainable sourcing, codes of conduct, location of suppliers)
Diversity Statistics (at the board, management, and workforce levels)

In addition to our reporting under the United Nations-supported Principles for Responsible Investment (PRI), Berkshire plans to report data in 2023 as a member of the ESG Data Convergence Initiative (EDCI).*

* ESG practices are evolving rapidly and there are different principles, frameworks, methodologies, and tracking tools being implemented by other asset managers, and Berkshire Partners’ adoption and adherence to various such principles, frameworks, methodologies and tools is expected to vary over time.