AlpInvest CEO Wants to See Private Equity take its ESG Efforts to the Next Level – We’re Developing a Tool for That

We were excited to hear AlpInvest Partners Chief Executive Volkert Doeksen's recent remarks where he urged institutional investors (LPs) in private equity to keep pushing for greater integration of environmental, social and governance (ESG) initiatives into the management of private equity firms (GPs) by focusing their efforts on implementation and results.

Incorporating ESG into a firm's overall investment strategy will lead to stronger portfolio companies and a better public image for the industry, Doeksen told delegates at Private Equity International's Responsible Investment Forum in Amsterdam, according to PEI's Amanda Janis, who described the crowd as standing room only. Now that progress has been made to raise awareness about the bottom-line value of ESG investment policies at private equity firms, leading LPs should push to take ESG to the next level, Doeksen said.

In addition to added LP focus on the topic, the tight fundraising environment has made quantifiable progress in ESG management a clear differentiator for private equity firms.  The conversation has gone from “why should we do this?” to “how do we get this done?”  This has created a growing need for tools and resources that both GPs and LPs can use to analyze and assess specific ESG practices at private equity firms.

EDF has been working to fill that need.  We’re developing an ESG Management Tool for private equity that defines for the first time the practices necessary to build a successful ESG program at firms of all sizes.

Building on our work with KKR, The Carlyle Group and Oak Hill Capital Partners, a growing body of research on ESG best practices in private equity and an extensive peer review process, we’re developing a Tool that provides the necessary framework to assess, analyze and improve ESG management. Twenty-one key indicators are included in the tool, best practices that highlight not only how to integrate ESG processes into a firm’s operations but also how to create measurable environmental, social and financial results at portfolio companies.

We will publicly release the tool in coordination with the Responsible Investor ESG in the USA conference at Bloomberg on December 11th and are looking forward to working with both institutional investors and private equity firms to leverage the Tool to make measuring and managing environmental, social and governance performance a standard practice for value creation across the private equity sector.

Four Factors Driving Focus on Freight

As a new member of EDF’s team focusing on reducing emissions from freight transportation, one of the ways that I have been learning about the transportation and supply chain industry has been by attending conferences. Over the past couple months I have attended four events including: Retail Industry Leaders Association (RILA) Sustainability Conference, Council for Supply Chain Management Professionals (CSCMP) Annual Global Conference, National Association of Energy Managers (NAEM) EHS Management Forum and a workshop on the future of U.S. trucking policy at Resources for the Future.

Even though the focus of the conferences ranged from retail to trucking, these events made it clear to me that sustainability is getting increasing attention in the freight transportation and supply chain discussion. This is good news. Freight transportation – which makes up eight percent of U.S. greenhouse gas emissions – is an area of tremendous opportunity for reducing carbon emissions.

So why is freight sustainability getting attention? I have a few ideas.

  • From a climate change perspective, emissions from freight are significant. Freight emissions will make up the largest part of growth in transportation CO2 emissions over the coming years.
  • From an environmental health perspective, freight transportation has significant air quality impacts. Trucks, trains and ships are among the leading emitters of pollutants such as particulate matter, nitrogen oxides and other toxics that are extremely dangerous to human health.
  • From a corporate sustainability perspective, companies are thinking more and more about their supply chain. One reason is that the supply chain is now very visible. Companies are under pressure from multiple stakeholders for increased transparency. Another reason is that when it comes to corporate responsibility, companies are thinking beyond recycling and energy efficiency to meet their corporate sustainability goals. As supply chains account for the largest segment of many corporate footprints, it is a priority area for improvement.
  • Most importantly, it’s not just about mitigating negative impacts. Freight transportation presents an area of opportunity. There are freight strategies that can help companies meet their sustainability goals. This is because cost savings and carbon reductions are very much aligned in goods movement – operational changes that reduce carbon emissions also reduce costs. So it’s easy to make the business case.

Companies are adopting many of these carbon-reducing and cost-saving strategies. And even better – they are talking about it. At this fall’s conferences, I noticed several trends in what people are talking about when it comes to increasing sustainability of transportation.

  • Increasing use of intermodal transport
  • Minimizing empty miles
  • Reducing packaging
  • Collaborating with other companies

And there are many more. I’ll delve into examples of some of these strategies in future posts.

Freight sustainability is getting increasing attention for good reason – it’s a huge area of opportunity for both cost savings and carbon emissions savings. But what’s next?

Companies need to start by thinking about freight transportation as not just a cost center, but a key part of their sustainability strategy. While the best freight efficiency strategies for each company may be unique, there are clear financial and environmental wins for shippers when it comes to goods movement – don’t miss the boat.

Data-Driven Water Savings

Affecting more than half the country, this summer’s drought has put water issues front of mind.  As the risk to supply chains and communities where they operate increase, not surprisingly, companies are paying more attention to their water impact.

Notably, this summer Facebook was the first company to ever release water usage effectiveness (WUE) data. WUE is a metric released in 2011 by GreenGrid, which builds upon the success of GreenGrid’s power usage efficiency (PUE) metric, now ubiquitously employed across data centers. As the term suggests, WUE gauges the efficiency of water use in data centers.

Water use?  Why does a data center use water?  Well, the transfer and storage of data generates a great deal of heat, which needs to be removed for the equipment to continue to function smoothly.  That heat removal usually occurs through the use of a water cooling tower, which uses significant amounts of water.  Building cooling, in general constitutes 60 percent of water use in buildings.  Because of the higher intensity of heat generated, data centers use an average of 20 percent more water for cooling than other types of buildings.

In August, Facebook reported that the WUE of its Prineville, Oregon data center was 0.22 L/kWh, which Facebook considered a “great result.” We commend Facebook for releasing the WUE data and nudging others to follow suit. But, it is premature to pass judgment about what is a good, bad, or mediocre WUE. Facebook, itself, acknowledged this – recognizing the importance of benchmarking this metric against other companies and over time.  The company will start disclosing its Prineville WUE data on a monthly basis, and in 2013 it will produce WUE data for a second data center in Prineville and one in Forest City, NC. We hope this will become a slippery slope toward the best practice of comprehensive water reporting and management, and that Facebook as well as other companies such as Google and Microsoft go beyond just showcasing best-practice sites to provide full context for their water usage.

Admittedly, water is more complex than other environmental issues.  Unlike greenhouse gas emissions, which affect our global climate equally no matter where on Earth they take place, water’s geographical use matters a great deal. A company’s water footprint can mean different things based on the regional context in which it’s set.  As a case in point, through our collaboration with AT&T we’ve learned that in water-stressed areas such as the South and Southwest, water consumed for commercial building cooling alone accounts for a hefty 10 percent of total regional water demand.

To get their hands around water impact, companies should embrace comprehensive water reporting. This starts with mapping out their water footprint to identify areas of opportunity. For example, AT&T’s water mapping revealed that 125 AT&T facilities account for approximately half of the business’ total water consumption.  We believe water efficiency efforts should begin there, and indeed they are. As mentioned in this recent blog about our collaboration with AT&T, we are in the midst of piloting practices to reduce water use in building cooling.  Our focus isn’t on a specific type of buildings; we’re looking to develop tools and insights that can generate water efficiency at a variety of facility types across diverse industries. We are exploring three approaches for this reduction:

1) Optimizing free air cooling;
2) Minimizing the amount of water blown down from a cooling tower while maintaining equipment integrity; and
3) Tapping into non-traditional technologies that further minimize water blow down.

We will release our findings in early 2013.

In the meantime, check out the following water disclosure and measurement tools that can help get your business up to speed on sustainable water management, easing pressure on the environment and saving you money:

•    CDP’s water survey
•    CERES’s Aqua Gauge
•    WRI’s Aqueduct
•    GreenGrid’s WUE and WUEsource
•    World Business Council for Sustainable Development’s Global Water Tool
•    Alliance for Water Stewardship’s upcoming water stewardship standard

This content was originally posted on facilitiesnet.

Sharing: A hundred-billion dollar a year idea for freight

Being the parent of a toddler, sharing is a concept that I’m emphasizing at home a lot these days.  Turns out, it’s a good concept to remember at the office too.  A fantastic new report from the CELDi Physical Internet Project at the University of Arkansas details how if companies embraced the sharing of freight resources, “profits for participating firms would increase by $100 billion, carbon dioxide emissions from road-based freight would decrease by at least 33 percent  and consumers would pay less for goods.”

And that is assuming just a 25 percent adoption rate.

According to the report, the “transportation industry is largely segmented with over three-quarters of freight being carried using dedicated resources.” Meaning that manufacturers, consumer product companies (CPGs), retailers and other shippers most often want to move their goods on a truck that contains only their products.  This is the result of replenishment time pressures, delivery predictability,and order size requirements. This use of dedicated trucking, though, leads to a lot of underutilized trucks. Only 43 percent of current trucking capacity is being utilized, according to the report.

Think about that – nearly six out of every ten trucks you see on the highway could be taken off the road today with no impact on our overall capacity to move products.

The power to make this change lies most directly with the diversified manufacturers and CPGs.  By changing some of their practices, they can fundamentally transform how the movers of freight operate.

Specifically, the report calls on these shippers to adopt the specific changes below.

  1. Embrace vendor-managed inventory, which enables inventory to be held closer to the point of sale (often retailers).
  2. Reduce the minimum order size from a truckload level to a full-pallet equivalent.
  3. Use standardized modular containers when making pallets.
  4. Deploy different logistics models for replenishment stock – which is ideal for collaboration – and seasonal and promotional items, which are often better served with a dedicated freight model.
  5. Procure freight services via a freight transportation “auction” specifically designed for collaboration.

By embracing these actions, CPGs and diversified manufacturers can unleash a wave of innovation that will push their overall distribution model towards a relay network approach instead of the hub-and-spoke model so common today. This will lead to less long-haul trucking and much more predictable short-haul freight. It will raise the use of intermodal transportation (i.e. rail-truck combos) by 90 percent.

Retailers and logistics service providers will need to work with the CPGs and the diversified manufactures to provide the flexibility and services to enable this transition. But, by working together, all parties have a significant opportunity to benefit.

Truck drivers will be home much more often.

Trucking companies will see a huge drop in driver turnover.

Retailers will receive higher levels of service in terms of more frequent deliveries.

CPGs will see lower overall trucking costs and a reduction in inventory carry costs.

All of this is possible while also cutting global warming pollution from the freight sector by 233 million metric tons a year – equivalent to over four percent of total U.S. emissions.

The biggest barrier to adopting the practices seems to be our will to push beyond the current ways of doing business.  As the report notes, “88 percent of companies believe that collaborating with carriers, suppliers and customers will lead to more economical supply chain processes,” yet “only 10-30 percent of companies collaborate in their supply chain in any form.”

$100 billion in annual savings and more than 200 million metric tons of carbon reductions are numbers too large for us to pass up.  Let’s all learn to become better sharers.

EDF heads to VERGE SF

EDF is heading to VERGE SF @ Greenbuild (November 12-13), a two-day conference which explores new opportunities created by the convergence of technologies for energy, information, buildings and transportation.

These key topic areas are mirrored in many of our EDF Business projects. From our EDF Climate Corps focus on building and energy management, as well as utilities; to our work with fleets & logistics and corporate financing.

VERGE showcases new efficiencies in buildings, energy and transportation, and aims to connect innovators in both the business and the public sector who are reshaping the way people shop, travel, work and live.

If you're going, please be sure to attend Sitar Mody's VERGE guru session, hosted on Monday, Nov 11, 4:30pm – 5:30pm. 

Keynote speakers include Tony Hsieh, CEO of Zappos, Bill Weihl, Manager of Energy Efficiency and Sustainability for Facebook, Elizabeth Fretheim, Director of Business Strategy & Sustainability for Walmart, among others.

Use priority discount code v12edf to receive $100 off your registration.

Learn more and register here: http://www.greenbiz.com/events/verge/2012/11/san-francisco

Event: VERGE SF @ Greenbuild
Dates: November 12-13 2012
Location: The Intercontinental San Francisco (888 Howard Street, San Francisco, CA 94103)
Priority Discount Code for subscribers: v12edf

Read our blog about Greenbiz's VERGE conference from earlier this year.