How MiddleGround Reduced Financed Emissions & Increased Returns with Gravity

MiddleGround Capital is an operationally-focused private equity firm headquartered in Lexington, Kentucky that makes control investments in middle market B2B industrial and specialty distribution companies globally. With over $3 billion assets under management, MiddleGround is a control equity investor in 16 portfolio companies, including Dura-Shiloh, an automotive components designer and manufacturer, Lindsay Precast, a precast concrete manufacturer, and Banner Industries, a processor and distributor of metal bar products. 

MiddleGround’s motto is “Leaving the world better than we found it,” and ESG initiatives have always been top of mind for the founders and central to the firm’s culture. Their commitment is proven by the adoption of an ESG policy and internal ESG committee, data-backed annual sustainability reports, and their status as the first sub-billion industrial-focused signatory for the United Nations Principles for Responsible Investment (PRI). But they still wanted to do more.

Before working with Gravity, MiddleGround had visibility into their portfolio’s carbon footprint, but they felt they could do more to reduce actual emissions, while driving business value. “We really wanted to find a resource that could measure our carbon footprint effectively, and then take it to the next step of a decarbonization plan, which is where the benefit comes in,” said Madelyn Tutewiler, Director of ESG. “Being able to see implementation costs, the potential ROI, and how much carbon reduction to expect is really what led us to Gravity. We had seen a ton of different folks that measured your carbon footprint and that was it, but Gravity had the perfect footprint, the dashboard, and the ability to work with our portfolio companies to create a decarbonization plan and help implement those plans.”

Measuring Financed Emissions with Speed and Accuracy 

From the start, MiddleGround had an ambitious plan to measure their own operational emissions, as well as all of their portfolio companies’ Scope 1, 2 and 3 emissions. They began working with Gravity to measure its carbon footprint in April 2023 and completed the exercise in June to meet their annual reporting deadline. 

The portfolio companies were busy with day-to-day operations, so measuring emissions wasn’t always their top priority, which made it vitally important for Gravity’s process to be smooth and efficient. With Gravity’s automated software, data management was accelerated and they were able to measure emissions across fifteen companies in two months. Gravity’s quality assurance process also enabled proactive identification of discrepancies in underlying data that would have impacted the accuracy of their results.

Giving Portfolio Companies the Power to Respond to Disclosure Requests

During this year’s measurement process Tutewiler noticed a trend. “This year in particular, I noticed that our companies were getting more disclosure questionnaires from customers and more requests to fill out details about their ESG programs,” said Tutewiler. She estimates that half of MiddleGround’s portfolio companies have mentioned customer pressures to disclose emissions data. “Some of our companies thought that because of their industry, they wouldn’t be impacted [by disclosure requests]. We’ve been telling them this whole time that this pressure was going to come and it would come rapidly. Now they’re seeing it.” 

Fortunately, MiddleGround’s portfolio companies had the emissions data to respond to disclosure requests at their fingertips. With the click of a button using Gravity’s platform, they could share annual emissions data and meet disclosure requests in a timely manner.

Creating a Decarbonization Action Plan

Measuring financed emissions was table stakes. The MiddleGround team was far more interested in driving value through decarbonization – both in terms of emissions reductions and cost savings. “Companies are constantly asking me for tips and tricks to become more sustainable,” said Tutewiler. Because of that, one of the most impactful aspects of working with Gravity was creating customized decarbonization plans for their portfolio companies. 

The portfolio company Race Winning Brands saw immense value from this exercise. Headquartered in Ohio, Race Winning Brands is the leading manufacturer of performance parts for the automotive and powersports markets. They manage 20 individual brands, 23 facilities worldwide and sell to Tier 1 and Tier 2 OEMs, and they implemented several decarbonization projects within six months of working with Gravity.

After Gravity compiled a menu of decarbonization projects that would both reduce emissions and provide positive ROI, Race Winning Brands identified projects to prioritize. Since their  operations are complex, but their sustainability team is small, Sustainability & ESG Analyst Grace Dumot began by recommending one project at a time across all of their sites. 

The recommendations ranged from furnace insulation to waste heat recovery and more, but switching to LED lighting was the first project selected because Dumot had already seen proven results from making the switch at one facility. “We had already seen ROI in six months, so we knew it was going to be a success at other companies,” said Dumot. By being able to showcase the impact and ease of switching to LED lighting, Dumot could gain buy-in on additional decarbonization projects. 

Race Winning Brands also ran a project to improve waste heat recovery by installing more energy-efficiency air ducts. The project began as an effort to improve employee comfort and satisfaction, but ultimately lowered natural gas consumption by at least 5%. In winter months, the new ducts route hot air to parts of the building that run cold, and in summer months, warm air is sent directly outside. While the main intention was to keep indoor temperatures comfortable for employees, reduced heating costs and lower natural gas spend was an added bonus. 

Now Dumot is evaluating emissions reduction potential at the building-level. “We’ve been looking at retro-commissioning and electric heat pumps, and there are definitely things that they need to do, but sometimes their air compressor is only two years old and in tip-top shape, so each building will have its own specialized projects,” said Dumot. In these cases, she can use Gravity to track and organize projects on a site-by-site basis, and she can bookmark projects to come back to when the timing is right.

Overall, Gravity helped Race Winning Brands establish their baseline footprint and identify areas for incremental improvement. “For us, it’s about knowing where we are, then we want to make sure we’re chasing the right things and really putting our energy around the things that drive the most value,” said Brian Jackson, Chief Human Resources Officer at Race Winning Brands. Forward progress and creating value are always the goals.

The Business and Investment Value of Sustainability

Race Winning Brands is just one example of how MiddleGround has unlocked action within their portfolio. What excites Tutewiler most is that her team is able to show value on multiple levels. By pursuing cost-effect decarbonization, MiddleGround’s portfolio companies are able to operate more efficiently and help their upstream, often publicly-traded OEM customers meet their own carbon reduction goals. On the fund side, MiddleGround is able to reduce their financed emissions, while creating value and returns on their investments. “We’ve been able to find efficiencies, which is value creation, and it further emphasizes that we are making progress and should do this everywhere,” said Tutewiler.

MiddleGround Partner Justin Steil added that, “Increased focus on sustainability can no doubt drive immediate efficiency and profit enhancements — but we also believe it is bolstering our portfolio companies’ competitive positions over the longer-term as its benefits get passed along to valued customers as reduced cost inflation.”

Continued Partnership and Impact  

After just six months of partnership, MiddleGround has already seen immense value in working with Gravity. “This has been really comprehensive and very helpful. This is exactly what we were hoping for and looking for. You guys are the third group that we’ve worked with to do carbon footprints and by far have surpassed the expectations and really gone above and beyond, so we’re really excited to continue looking into decarbonization and moving forward,” said Tutewiler.