Here’s Why TPG Turned Down Vaping Startup Juul

Though it has raised ethical hackles across the investing sphere, it’s hard to deny that the fast-growing e-cigarette company Juul seems irresistible to investors.

But one of the world’s largest private equity firms, TPG, is steering clear of the company, despite an existing relationship with the e-cigarette maker’s CEO, Kevin Burns. Burns is an alumnus at the PE firm who helped turn around greek yogurt maker Chobani.

“We had an opportunity to invest early on,” TPG Co-CEO and Founding Partner Jim Coulter told Fortune Tuesday following a Reuters Breakingviews event. Namely, the firm looked into Juul at the start of 2018 but decided against making an infusion over concerns about the morality of such a call.

The comment comes as Juul has seemed to reel in major investors at the same pace it has attracted vehement critics in recent months. The firm’s stellar growth alongside funding from giants such as mutual fund Fidelity Investments, investment firm Tiger Global, and tobacco maker Altria have pushed its valuation to $38 billion. But Juul’s detractors claim the e-cigarette company markets toward minors and understates the addictiveness of its goods. In response, Juul has argued that its e-cigarettes are a healthier alternative to cigarettes, and can help with tobacco addictions.

“TPG does not invest in tobacco or tobacco products. JUUL is regulated as a tobacco product and therefore didn’t meet our (Environmental Social Governance) standards as an investment,” a TPG spokesman added in a follow-up email.

In a sense, TPG has also saved itself from a string of troubles. While Juul has been an attractive rarity in the investing world with revenue growth of about 700% in 2017, it has faced a regulatory crackdown over claims that the product is a lure to teens. In October, the Food and Drug Administration conducted surprise inspection of its headquarters. A month later, the firm agreed to remove what is thought to be a major contributor to the e-cigarettes popularity among teens, several types of e-cigarette flavor pods, from stores.

But earlier this month, the FDA reportedly accused Juul and Altria of reneging on promises to steer clear of minors, The New York Times reports.

TPG also is not the only investment firm to stay away from the company. Om Malik of True Ventures for instance has dubbed investing in Juul an act of “pure greed.”

On Tuesday, TPG Co-CEO Jon Winkelried discussed the benefits of making ESG a key part of a company’s operations.

“Today more so than ever, having a set of values I think is a very attractive feature for an organization,” said Winkelried. “We’re trying to be more mindful of that and have a position on things.”

As a result, TPG has also stayed away potential investments in firearms, marijuana, alcohol, and tobacco.

A TPG spokesman later clarified that the firm doesn’t have a policy against investing in alcohol companies as there is with tobacco and firearms firms.

The comments also come following Bloomberg reports that TPG has been seeking roughly $3 billion for its second impact investing fund.

But at a time when the financial world is deeply interlinked, navigating on those ESG principles will not be so cut and dry. In October, startups and the investing world were called to distance themselves from Saudi Arabia’s massive sovereign wealth fund. That came after the alleged murder of journalist Jamal Khashoggi at the Saudi consulate in Instabul—an assassination that the CIA says was carried out under the orders of Saudi Crown Prince Mohammed bin Salman.

Despite the furor over the death, Wall Street and startups have found it difficult to financially divorce the Middle Eastern nation. Saudi Arabia has made billions of dollars worth of investments in firms including Uber and Lyft. Meanwhile, the Saudis have also pledged to contribute up to $20 billion for a Blackstone infrastructure fund.

TPG too counts the Saudi sovereign wealth fund among its investors.

It has however sought to distance itself from the country—at least on the surface. TPG co-founder David Bonderman was slated to appear at a much anticipated investing conference in Saudi Arabia. Following the murder, many high profile executives such as BlackRock’s Laurence Fink and J.P. Morgan’s Jamie Dimon dropped out. Bonderman was among them, sources with knowledge of the matter say.

Juul did not respond to requests for comment.

Update Jan. 11: Added TPG clarification regarding policy on investing in alcohol firms.

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