A partner of impact investing and ESG, Justin Kulla develops ESG frameworks to help TZP Group’s lower middle-market portfolio companies to de-risk and identify new approaches for long-term value creation. TZP Group has developed ESG 360°, a customized program that helps companies unlock value within the full range of stakeholders including management, employees, partners/suppliers, customers, community, the environment and investors.
Russ Prince: Tell me about TZP Group and why the firm created an impact investing strategy and ESG framework for lower-middle market companies.
Justin Kulla: TZP Group is a 15-year-old private equity firm that invests in lower middle-market companies based in the U.S. and Canada. We invest both in businesses seeking acquisitions and growth equity. It has always been important to TZP to be a “Partner of Choice”—where we invest in closely held companies with owners and/or management teams that want to maintain a significant stake and partner with an investor who offers complementary strategic, operating and financial skills. We’ve built a significant portfolio operations group of seasoned executives, which is designed specifically to help our companies navigate the challenges and opportunities that are common to lower-middle market companies.
As a firm, we have a long history as a responsible and value-oriented investor, and we formally launched our ESG 360° program because we think it helps build better businesses over the long term. We wanted to take a pragmatic approach that is practical and fit for small and mid-stage companies.
Along with the firm-wide ESG 360° program, we launched our impact investing fund strategy because we noticed the generational shift toward companies that address global problems and because it aligns with our values.
Prince: How is TZP Group setting a new standard for PE firms and portfolio companies in the lower-middle market space?
Kulla: ESG and impact investing are new and evolving areas in general and especially within the lower-middle market. TZP has invested significant resources to design its ESG 360° program and impact investing strategy specifically for companies in this segment. Our businesses have an interest to incorporate best practices for their stakeholders—employees, community, etc.—but they are all busy with so many other priorities, so ESG needs to be understandable, practical and pragmatic. We developed a customized framework called ESG 360° for our businesses to employ. ESG 360° is straightforward; every business has seven stakeholders—management, employees, partners/suppliers, customers, community, environment, and investors, and for each of these, there are risks, strengths and opportunities to unlock value. Like all of the ways we support and help our portfolio companies, we’ve designed the ESG program so it's fit for purpose for growing companies.
Prince: Can you share some examples of recent investments, and how these growth stage companies are utilizing ESG 360˚?
Kulla: Knix is a direct-to-consumer intimate apparel brand that is re-inventing intimates for every stage of life. Through innovative products and a community-first approach, Knix is on a mission to empower people everywhere to live unapologetically free. Every product, campaign, and image that Knix puts into the world is tied to this mission and has been embedded in the company’s DNA since day one.
Since its inception, Knix has been size-inclusive, offering sizes XS to XXXXL, and has focused on using real customers on its website, ad campaigns and social media with body-positive marketing. Knix also takes an inclusive and equitable approach to hiring. The company believes strongly in the fact that diverse and inclusive teams make better decisions and inspire innovations that will allow them to better serve their customers and community. Knix’s hero product, leak-proof underwear, reduces preventable sanitary waste from going to landfills, which aligns directly to United Nations Sustainable Development Goal 12.5.
Xero Shoes is another portfolio company that closely evaluates opportunities to reduce the impact of products and sales policies on the environment. Early on, the company’s management team decided to make its products with classic styling and to be as durable as possible to reduce the carbon footprint from original manufacturing—in contrast to fast fashion and traditional running shoes, which are designed to either go out of style or be replaced frequently. This is the reason why all of Xero’s shoes come with a 5,000-mile sole warranty.
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