Creating Business Value for Private Equity Through Environmental Management

As the global recession has forced many industries to adapt from their 'business as usual' approach, the private equity sector has responded by focusing a greater portion of their attention towards improving the operational efficiencies of their portfolio companies.

Several studies published in 2008-2009 have indicated that the primary driver for creating value in the PE sector for the foreseeable future lies in improving fundamental business operations rather than financial engineering (according to Accenture, The Economist, BCG, IESE Business School, and others).  As such, many general partners (GPs) and their stakeholders are seeking new ways to drive operational efficiencies.

Environmental measurement and management can help firms find new opportunities to improve efficiency, cut operating costs and reduce their environmental impacts.  EDF’s Green Portfolio Project has several successful case studies from our work with KKR and its portfolio companies to prove it.

Now our challenge is taking these efforts to scale across the sector to make environmental management a new best practice. Some areas on which we are focusing in our PE outreach strategy include:

  • Raising awareness – has this worked before?
  • Proving the business benefits – how much will this save – or cost – us?
  • Making environmental management a priority – do we have time for this (especially given our 5-7 year hold period)?
  • Ownership – who drives this project, the portfolio company or its sponsors?
  • Tools – providing PE firms the tools they need for implementation

In my next post, I will be delving into EDF's three-pronged outreach strategy to the PE industry to address these challenges.