On Wednesday, in response to petitions from investor and environmental groups (including Environmental Defense Fund), the Securities and Exchange Commission (SEC) reached a landmark decision to add climate change to the list of business factors that public companies must disclose. The SEC’s new guidance requires companies to consider the risks and opportunities that climate change may present to their business – from potential legislation to severe weather patterns.
Within EDF's Corporate Partnerships Program, we believe that this type of transparency is critical in our efforts to improve corporate environmental performance. Increased transparency around climate opportunities and risks will help firms make more informed investment decisions, and thus, reward companies that have positioned themselves to be cleaner and more competitive in the years to come.
"Investors have a right to know which companies are planning to be part of the clean energy future and which are lagging behind, " said Environmental Defense Fund President Fred Krupp.
It is vital that investors have this information as they make decisions about how to allocate capital, to ensure that funds are getting to the most efficient and innovative companies.
On Tuesday, Tom Murray, the managing director overseeing Environmental Defense Fund’s work in the private equity industry, addressed attendees at one of the most visible and well-attended industry conferences, the Dow Jones PE Analyst Outlook 2010 in New York City. Representing the only NGO at the conference, Tom added a unique environmental perspective to the insights of his fellow panelists.
In his opening remarks, Tom said that he’s seeing a universal acceptance that financial engineering alone isn’t enough anymore and that going forward, multiple tools will be needed to create value, including a growing focus on operational improvement. In fact, an article in last week’s FT online called the growing demand for operations professionals one of the most significant shifts in the PE sector last year. Co-panelist Chuck Brizius, managing director at THL Partners, said his firm had also recognized the trend and would continue to focus on operational management in 2010.
“The reason we’re here today is looking for new ways to create value. That’s where we think the environment comes in. A focus on environmental performance can create a strategic competitive advantage.”
We know the opportunity is real, because we’ve done it – with impressive results – with Kohlberg Kravis Roberts & Co. L.P. (KKR), which is now taking it to scale across US and international portfolio.
Our work with KKR is just the beginning; Environmental management can play a vital role in value creation across the industry. As a result of our work with KKR, we have developed a flexible approach for capturing environmental and financial benefits called Green Returns and hope that 2010 is the year that other PE firms adapt the Green Returns approach to their portfolios.
Taken to scale across portfolios, a creative approach to environmental issues can create value by improving due diligence, boosting portfolio company performance, presenting new growth and investment opportunities and building stronger relationships with LPs and other stakeholders.
“The opportunities are already there. What Green Returns provides is a new way to look at performance and provide metrics to help them capture environmental improvements.”
On January 11 we talked with Greg Norris and Jeff Rice about the open data requirements and effects of Life Cycle Assessment (LCA).
They are working to aggregate data across supply chains that would help anyone calculate specific sustainability footprints: think beyond carbon footprints to other footprints for the carcinogenic, water-consumption, fossil-fuel and biodiversity effects that different products and processes have. You could envision analyses for safety, living wages, child labor and community impact.
Early LCA efforts took a physicist's perspective, assessing what compounds a particular process leaves as by-products, for example. Now, using Linked Open Data methods from the semantic web, analyses can take other perspectives, such as an economist's.
The natural question to ask is: why would a corporation share openly the raw data of its supply chain? Doesn't that reveal state secrets? One of the keys to corporate collaboration is focusing on the impacts of the supply chains. Read more
An article in Wednesday's Financial Times made the following observation about some fundamental changes afoot in the private equity industry:
"During the credit boom, private equity tended to hire financial wizards. Now, operational experts are in demand as private equity houses fix up companies they own rather than wonder about dividend recaps."
We've observed a similar trend in the private equity sector, and it's good news for both the environment and business in a tough economy.
Increasingly, private equity firms are looking for ways to run leaner and more efficient businesses through a focus on company operations. Read more
Today, EDF announced the first 20 companies that have signed on to our Climate Corps program for summer 2010. It’s amazing how far this program has come since we launched it two years ago.
We piloted the program in 2008 with just seven MBA students placed in Bay Area companies. Those students didn’t know what exactly they were in for, and frankly, neither did we. But together, they found $35 million in savings through energy efficiency. Even more impressive: the companies actually followed their recommendations. To date, projects that account for 97% of those energy savings have either been achieved or are underway.
Last summer we nearly quadrupled the program, placing 26 fellows in organizations throughout the country. Those Climate Corps fellows helped their host companies identify net operating savings of more than $54 million. These projects could also reduce energy use by more than 160 million kWh a year—enough to power 14,000 homes—and avoid more than 100,000 metric tons of greenhouse gas emissions every year.
As Gwen Ruta (vice president corporate partnerships) says, “The rapid growth of Climate Corps speaks volumes about the value it delivers to companies and the real reductions in greenhouse gas emissions it achieves.”
Consider these results: Read more
Capitalizing on the momentum of Environmental Defense Fund’s groundbreaking Green Portfolio partnership with leading private equity firm Kohlberg Kravis Roberts & Co (KKR), we are taking our Private Equity show on the road to one of the most visible and well-attended conferences, the Dow Jones PE Analyst Outlook 2010 in New York City, January 25th – 27th.
The event will include perspectives from elite institutional investors, fund managers and advisors about the major PE investing trends for 2010, including a focus on environmental performance.
Environmental Defense Fund will be the first and only NGO to attend the conference, and Tom Murray will speak on a panel about where investors should focus in 2010. He’ll introduce attendees to our Green Returns program, an innovative and flexible approach designed to create business and environmental value for the private equity sector that was developed as part of EDF’s partnership with KKR.
Tom's panel will also include speakers from top PE funds 3i, THL and Huntsman Gay, all of which take a hands-on approach to investing in their portfolio companies.
I look forward to hearing what role the top representatives of the private equity sector sees for environmental innovation in 2010 and beyond. Share your ideas and best practices with us here.
Environmental Defense Fund started this blog in February, just after launching the Innovation Exchange website, as an experiment to help us leverage and multiply the ideas and success of the Corporate Partnerships Program, of EDF and of the many innovators around the world working on business sustainability. We began with a focus on what we have to offer from our 20 years of working with business and have continued to grow these resources while also finding new ways to support the network of innovators – or "do'ers" – who are ultimately making the difference in companies.
This year, we’ve had 140 posts on a variety of topics, including what our
Climate Corps MBA fellows have learned about energy efficiency, highlights from our work in the Private Equity and fleet vehicle industries, exploring what innovation means and showcasing innovative practices at a variety of companies.
Some of this year’s top posts foreshadowed trends on which we’ll be building in 2010:
- You Set the Agenda: Green Innovation for Business Unconferences introduced the series of events affectionately known as GIBUs through which we brought together some 450 business, government and non-profit professionals to discuss what they are doing and thinking about to improve and accelerate sustainability in business. In 2010, we’ll be expanding the program and changing the name to better reflect the results that the events are intended to produce: solutions. Read more