In Its 5th Citizenship Report, KKR Reaches Beyond ESG

This post is part of an EDF+Business ongoing series on sustainable finance, highlighting market mechanisms and strategies that drive environmental performance by engaging private capital. EDF is actively engaging leaders with the capital and expertise needed to catalyze sector-wide changes—from accelerating investment in energy efficiency and clean energy, to protecting tropical forests, restoring depleted fisheries and saving habitats of endangered species.

Sustainability pioneer and inspiration to many of us at EDF, Ray Anderson frequently talked about his company’s efforts to scale the seven faces of Mount Sustainability and develop a more responsible company along the way. Summiting a mountain is a good analogy for a company’s journey to improve its environmental performance. To succeed you need a plan, commitment, resources, and the ability to change direction if there are obstacles in your path.

In the case of a private equity firm like KKR & Co. L.P. – with over 56 portfolio companies participating in value creation programs linked to its environment, social and governance (ESG) strategy since 2009– the journey is more akin to traversing an entire mountain range, whose contours keep evolving as companies enter and exit their portfolio.

That changing landscape is what’s driven KKR to continue to adapt how it manages ESG challenges and opportunities. KKR’s recently-released 5th annual ESG & Citizenship Report details how these programs have continued to evolve since our initial partnership in 2008.

Our work together helped drive KKR’s Green Portfolio Program which, six years later, has added a cumulative $1.2 billion to its portfolio companies’ bottom lines while avoiding more than 2.3 million metric tons of greenhouse gases and reducing waste by 6.3 million metric tons and water use by 27 million cubic meters, according to results announced last fall.

kkr_logo_13932KKR’s latest report documents the firm’s progress in advancing ongoing efforts, including measuring and improving ESG performance at key portfolio companies, rolling out a publicly available ESG policy across its global private equity staff, contributing its expertise to the Sustainable Accounting Standards Boards’ development of ESG disclosure guidelines, bringing together sustainability professionals and other experts at its first Sustainability Summit last year, and hiring a full-time energy expert and two EDF Climate Corps fellows to help its portfolio companies more systematically adopt solutions for better energy management.

In addition, something new caught our eye. KKR plans to refocus its investment efforts through one of three lenses – responsible investing, solutions investing and impact investing.

  • Responsible investing incorporates ESG metrics and analysis into investment decisions.
  • Solutions investing refers to investments made in companies that have an intentional focus on solving a societal challenge and deliver traditional returns to investors, such as providers of reusable bulk shipping containers, developers of environmentally-responsible office buildings in Korea and microfinance groups increasing access to capital for business owners in rural and semirural India.
  • Impact investing goes beyond the other two, focusing on investments in companies that put environmental and social impacts on par or even ahead of financial impacts. KKR began advising two impact businesses in 2013 by providing technical assistance, helping the companies scale their businesses and secure additional funding. Moving forward, KKR will consider investing in such businesses.

At EDF, we believe that private capital can and must be part of the solution to our biggest environmental challenges. We’re encouraged to see major investors like KKR expand their investment strategy as the next step in this journey and eager to see the environmental and financial results it delivers.

Companies Hail Triple-Bottom-Line Benefits of Cleaner Trucks

Ben and Jerry’s became the latest corporate voice calling for strong fuel-efficiency and greenhouse gas standards for heavy trucks. In a Guardian op-ed, CEO Jostein Solheim made a compelling triple-bottom-line case for protective standards for new trucks.

holycowinc_2265_2844729Mr. Solheim noted that seventeen percent of the company’s carbon footprint is associated with transporting products. This includes bringing ingredients to manufacturing facilities (three percent) and moving the finished products to distribution centers (fourteen percent).

Like packaging, transportation and distribution is a consistent, significant carbon footprint component of every product: six percent of H&M clothes; twenty-five percent of the carbon budget from Mars; and thirty five percent of Philips operations, for example. And, trucks are the largest single component of distribution emissions, accounting for 57% of the collective impact. Therefore, it is in the interest of every product manufacturer and brand in the U.S. to see these trucks use less fuel.

Freight-share-GHGsThe single most impactful thing we can do today to reduce emissions from product distribution is to build more efficient trucks. We have the technical know-how to cost-effectively double the efficiency of freight trucks. We also know that having well-designed standards in place is a necessary step to bringing these solutions to market at scale. Read more

EDF Climate Corps Proves its ROI for Private Equity Firms

As summer officially gets underway, the 2015 EDF Climate Corps fellows are already off to the races seeking out energy and cost-saving opportunities for some of the world’s largest companies and organizations. Among those participating, we are pleased to place 13 fellows with private equity firms and their portfolio companies, the largest such cohort in a single summer, besting last year’s record of 12 fellows. This brings the grand total up to 57 EDF Climate Corps fellows who have worked in the private equity sector (including with portfolio companies) to date.

EDF Climate Corps fellows Yien Huang (left) and Jiamu Lu (right) collaborating at the fellow training

EDF Climate Corps fellows Yien Huang (left) and Jiamu Lu (right) collaborating at the fellow training

Since 2008, EDF has worked with the private equity sector to drive environmental results, beginning with a partnership with KKR & Co. L.P., and later with The Carlyle Group and Oak Hill Capital Partners. Resulting from this work was a suite of free tools designed to help firms identify and manage environment, social and governance (ESG) issues. EDF Climate Corps offers private equity firms a powerful resource that continues to deliver environmental benefits alongside real financial returns.

This year, as in past years, we continue to see a diverse range of participating companies and projects:

  • In 2015, we welcome new hosts Guitar Center, NBTY (vitamin/food supplement supplier), Ortho Clinical Diagnostics (medical equipment manufacturer), Pharmaceutical Product Development, and Gelson's Markets (a grocery chain in southern California).
  • Among returning companies, we’re excited to welcome back Floor & Décor, Philadelphia Energy Solutions, Avaya, and Caesars Entertainment, the last of which was featured in episode 7 of the Showtime series Years of Living Dangerously (now available on Netflix, Hulu and Amazon Prime), which profiled the efforts of EDF Climate Corps.
  • HCA Healthcare will also be returning, marking the company’s sixth straight year of participation.
  • KKR & Co. L.P., Carlyle Group, and Hellman & Friedman will have fellows working at the firm level this year.

The work that these fellows will engage in this summer ranges from energy benchmarking and efficiency upgrades to demand response assessments and green revolving loan fund design. We’ve written previously about the myriad ways that fellows can add value both at private equity firms and portfolio companies and we’re excited to see new stories unfold this summer. Watch this space as well as our Climate Corps-specific blog, where fellows across a variety of sectors will share their experiences and accomplishments.

Investor Ranks Top $1.5 Trillion in Support of National Methane Standards

California public school teachers. Religious charities. New York police officers and firefighters.

investorsWhat do all of these groups have in common? Investors representing them — who manage $1.5 trillion in retirees, current employees’, and others assets – are standing together and calling for strong rules limiting harmful methane emissions from the oil and gas sector. This level of outpouring – from diversified investors with holdings in the oil and gas industry – represents five times the support investors expressed for methane rules last year. A trend is emerging.

The investors, including the largest retirement funds in California and New York, issued a powerful statement in support of the president’s methane proposal aimed at cutting emissions nearly in half in a decade. A centerpiece is regulation of methane, the primary ingredient in natural gas, which has over 80 times the warming power of carbon dioxide in the first 20 years after it’s released and is responsible for 25 percent of the warming we are feeling today.

From their vantage point as long-term stakeholders, the “serious threat” methane poses to climate stability compels them, as fiduciaries, to support action to cut emissions and avoid near term threats to “infrastructure and economic harm that will weaken not only the companies we invest in, but the nation as a whole.” Market pressure like that is difficult to ignore. Read more

Improve Freight Capacity Utilization to Reduce Truck Emissions

Whether it’s a trailer, a container or a boxcar, better capacity utilization reduces the number of required freight runs and reduces truck emissions.

Despite the fact that most logistic professionals understand the value of building fuller truck-loads, recent research showed that 15–25 percent of U.S. trucks on the road are empty and, for non-empty miles, trailers are 36 percent underutilized.

Source: Homayoun Taherian, Cnergistics, LLC

Source: Homayoun Taherian, Cnergistics, LLC

Capturing just half of this under-utilized capacity would cut freight truck emissions by 100 million

tons per year – about 20 percent of all U.S. freight emissions – and reduce expenditures on diesel fuel by more than $30 billion a year (CELDi Physical Internet Project).

Nearly every company can improve trailer capacity utilization. Here are some real-life examples:

Kraft Foods: Because of the variety of products either cubing-out trailers (reaching the volume limit) or weighing-out trailers (reaching the truck weight limit), Kraft’s refrigerated outbound shipments were averaging only 82 percent of weight capacity. Kraft used specialized software to convert demand into optimized orders to maximize truck usage without damaging products. As a result, Kraft cut 6.2 million truck miles and reduced truck-load costs by 4 percent.

Trailer Orientation

Walmart: The world’s largest retailer was able to increase the number of pallets shipped in a truck from 26 to 30 simply by side loading pallets.

Stonyfield Farms: This dairy product manufacturer worked with its clients to help them decrease the use of dunnage (inexpensive or waste material used to protect cargo during transportation), allowing the company to maximize the available space per trailer.

What’s your load factor on outbound trailers?

To improve trailer capacity utilization as well as source other ideas to create a more sustainable freight operation, download EDF’s free Green Freight Handbook.

GF-Handbook-CTA

 

The Role of Buildings in a Low-Carbon Future

Zpryme talked with Ellen Bell, Senior Specialist, Environmental Defense Fund, for her thoughts on the role of buildings in a low-carbon future, the rise of microgrids, and how graduate students in EDF’s Climate Corps program get her excited about energy.

ZP: What do you look forward to the most in your business day?

ellen_bell287x377Bell: We’re tackling something big—creating a new, low-carbon energy system—but we’re doing the practical, “in-the-weeds” work of doing it in individual buildings. Because of that, I look forward to two things: 1) working with great people—like building management and their engineering staffs, and 2) implementing our approach of finding the business case for operational efficiencies in energy management.

ZP: How does EDF fit into the Midwest energy ecosystem?

Bell: The Midwest has a large and thriving energy ecosystem of technology entrepreneurs, dedicated academics, innovative non-profits, utility partners, etc. While this network can be complex to navigate, all of these stakeholders are dedicated to working together to make the right decisions that will shape energy use in our changing world. EDF is proud to be a part of this alliance and dedicated to bringing our expertise through the Clean Energy program and our boots-on-the-ground talent in the form of EDF Climate Corps. We’re all about driving market adoption of the most effective solutions.

ZP: What is the role of commercial real estate in smart energy?

Bell: Buildings account for approximately 70% of all emissions in the City of Chicago, so focusing on decreasing those emissions makes environmental sense. But the infrastructure changes that lead to reductions also lead to fiscal savings that can impact how a building is marketed, how it interacts with its tenants and what those tenants may share with other offices across the country. So the commercial real estate industry has a unique opportunity to bring together the right stakeholders with the newest technology and best practices in energy management and tenant engagement—all of which can influence audiences with unparalleled reach.

ZP: Where do you see microgrids going in the next five years?

Bell: Because of concerns about reliability and the desire for more clean distributed generation, microgrids are poised for rapid expansion. Within the next five years, developers will experiment with a variety of business models that enhance the grid’s flexibility and efficiency.

ZP: What individuals (i.e. thought leaders) get you excited about energy?

Bell: Personally I am inspired every year by the brilliant graduate students who sign up to be part of our Climate Corps program. Individually they are all incredibly different, they come from diverse backgrounds that include degrees in everything from mechanical engineering to finance to urban planning, but they share a dedication to the desire to change the world through understanding how energy efficiency and making the business case for advanced energy management will transform not only the organizations where they spend the summer but the world at large. They apply a unique perspective to the questions at hand and I think of each of them as thought leaders because their fresh approaches to the issues and opportunities that face the energy industry drive the innovations that change the world.

Ellen Bell will be speaking at Zpryme’s ETS@chicago event, July 22-23 in Chicago. To learn more about the ETS@chicago and all of its speakers, please visit ets-chicago.com or contact info@zpryme.com.

This post originally appeared on Zpryme's Energy Thought Summit blog.

Bringing The Pope’s Climate Encyclical to Life, a Church at a Time

Last week’s papal encyclical on climate change galvanized those of us who already see responsible stewardship for the earth as both a moral mandate and business imperative. In the 184-page document, Pope Francis calls for a sweeping overhaul of political, economic and individual practices to halt the degradation of the environment and protect our planet for the long term.

The pope's sweeping vision is sure to prompt churches, people of faith and a whole range of organizations to rethink their actions with regard to use of energy, water and other natural resources. But already, religious organizations have been working quietly and steadily to effectively manage their environmental impact, in keeping with the established theological tradition of moral economic development and use of resources.

(Credit: Sacred Heart)

(Credit: Sacred Heart)

Take Gene Murphy of Prescott, Ariz., as a prime example of someone sitting at the intersection of religion, sustainability and business. As the business manager for the Sacred Heart Parish in the Diocese of Phoenix, Gene has developed scalable solutions for his church and school that could and should be replicated across all churches, schools and relevant organizations.

The church performed a clean energy retrofit covering lighting, windows, waste and solar power that dramatically reduced their utility spending from $94,500 a year to $37,000, or $157 in daily savings and transformed the 32,000 square foot school into a near net-zero building. The solar project alone reduces more than 230,000 lbs of CO₂ per year, and the building is now lit with 97 percent LED lights. Gene is already drafting a template for similar organizations to use in analyzing their opportunities in light of new technologies, regulations and methodologies.

At EDF, we see Gene and the Sacred Heart Parish as a real-life example of the kind of pragmatic stewardship the pope is calling for, and we got on the phone with him to get some deeper insights into the parish's transformation. Read more

Accelerating the Shift to More Efficient Trucks

Freight transportation is the work horse of the global economy, ensuring that the products consumers want get on the shelves where and when they want them. With 70 percent of U.S. goods being moved by truck, freight is a key source of U.S. fuel consumption and corporate greenhouse gas (GHG) emissions. Today, freight also offers companies a key opportunity to drive us toward a lower carbon future.

pepsico-logoIn a Wall Street Journal op-ed with EDF President Fred Krupp, Pepsico Chairman and CEO Indra Nooyi voiced the company’s strong support of the new fuel efficiency and GHG standards for medium and heavy duty trucks released June 19th by the U.S. Environment Protection Agency and Department of Transportation. Over the life of the program, these robust standards will cut fuel consumption in new trucks by 1.8 billion barrels of oil and reduce carbon emissions by one billion metric tons.

Leading companies like General Mills, Walmart and Anheuser-Busch have made reducing fuel use and emissions from freight a priority in setting their internal supply chain performance goals. But Pepsico’s willingness to step forward with this op-ed is a prime example of how companies can extend their leadership by aligning their public policy stances on with their sustainability goals – what EDF has been referring to as the business-policy nexus.

Freight affects all of us, but business is in the driver's seat

EDF - Building better trucksFreight transportation exists to serve companies that make or sell physical goods, from brands and manufacturers using trucks to bring in supplies and ship out final products, to technology companies needing trucks to deliver the hardware that powers their online services. While medium- and heavy-duty trucks only make up 7 percent of all vehicles on the road, they consume 25 percent of the fuel used by all U.S. vehicles.

Inefficient movement of goods wastes fuel, raises costs and increases environmental impacts. For firms like Pepsico, who maintain their own fleets, as well as those that contract out for freight moves, fuel is the single largest cost of owning and operating medium- and heavy-duty trucks. Truck fuel prices have increased 58 percent since 2009, a strong incentive for increasing the efficiency of trucks that move freight. Consumers are counting on businesses to solve this problem, as those costs are passed on to consumers. Through everyday purchases, the average U.S. household spends $1,100 a year to fuel big trucks. Strong standards can cut this expense by $150 on average a year by 2030. Read more

Consumers Deserve To Know What's In Their Products

This installment of our Pillars of Leadership series explores Informed Consumers.

Sharing ingredient information with consumers is key to business leadership on chemicals. It can build consumer confidence, trust, loyalty – and market advantage. Numerous surveys (see here and here) and advocacy campaigns (see here) reveal that people want more ingredient information than is typically available today. The key to success in cultivating an Informed Consumer is providing product ingredient information that is comprehensive, accessible, and importantly, meaningful.

Woman label blog image

Consumers want to:

  • Have easy access to consistent, reliable information
  • Feel empowered when making purchasing decisions for themselves and their families
  • Understand what they’re bringing into their homes
  • Avoid adverse health and environmental impacts
  • Trust that brands and retailers respect their interest in knowing product composition

How does a company cultivate an Informed Consumer? For starters, by sharing ingredient information on product packaging and online for products it makes or sells, with content that extends well beyond regulatory requirements. While packaging physically limits the amount of information that can be shared with consumers, online ingredient disclosure allows greater flexibility in terms of the extent and type of ingredient information, as well as how that information is accessed and presented. Read more

The Good, The Bad and The Ugly: When Oil Giants Shift to Natural Gas

Pump jacks lined up in Oklahoma. (Credit: Kool Kats)

Pump jacks lined up in Oklahoma. (Credit: Kool Kats)

Six large European oil and gas companies recently announced a commitment to engage on climate policy, calling for a price on carbon. The now-emerging picture of their coordinated corporate talking points, however, leaves no doubt that promotion of natural gas is a core part of the group’s position.

Is this development a beneficial push to help the planet transition to a low carbon economy – or just another marketing campaign? The truth, so far, lies somewhere in between.

Here are the good, the bad and the ugly highlights of what we’ve learned over the past week and what it all means.

The good: Establishing a carbon price and cutting carbon dioxide emissions

Make no mistake about it: The world’s leading economies need to establish a price and limits on greenhouse gas emissions, and leadership from the private sector is instrumental in achieving that policy objective.

For large companies such as Shell, BP and Statoil to join forces and unequivocally state, as they now have, that a price on carbon should be a “key element” of climate policy frameworks is a refreshing boost to pre-Paris United Nations climate talks.

It is a potentially powerful validation that even some of the world’s largest corporate emitters see an upside to carbon pricing and will weigh in to make it a reality.

As to promoting natural  gas a solution, it is well documented that in many cases natural gas will replace coal for power generation – a shift already underway in the United States and partly responsible for driving down carbon dioxide (CO2) emissions. Read more