Corporate Sustainability 2012: Some Standout Companies… But Most Mired in Rampant Incrementalism

Each winter in Davos, world leaders and captains of industry gather to discuss the most pressing issues on the planet. For the past seven years, this amazing event has also hosted the launch of the annual “Global 100 Most Sustainable Companies,” published by the Canadian media and research firm, Corporate Knights.

Sustainability ratings matter! And few matter more than the Global 100, which is recognized as one of the most extensive, data-driven, corporate sustainability assessments in the world. The results are published in the Corporate Knights quarterly magazine and distributed at the World Economic Forum in Davos.

I had the privilege of authoring a piece in the Corporate Knights just – published fall issue. The core questions I was asked was: “What is the state of corporate sustainability right now?”

My answer, though disappointing to me personally, is in our newest issues of Insight titled Corporate Sustainability 2012: Some Standout Companies…But Most Mired in Rampant Incrementalism." Having tracked hundreds of companies globally on their march to sustainability for the past fifteen years, our core conclusion is this: While a handful of standout companies truly lead the way today, most companies are mired in “rampant incrementalism.”

For information about recent projects and clients, visit our website at www.hedstromassociates.com.

About the Author

Gib Hedstrom has 25 years of experience in helping boards of directors, CEOs, and senior executives manage risk and reap opportunities associated with the environment and sustainability. After 20 years leading Arthur D. Little’s environmental auditing, strategy, and governance work – and co-leading the company’s sustainability initiative – he founded Hedstrom Associates in 2004.

 

 

Top 10 Private Equity ESG Developments in 2012

As we close out our first month of 2013, let's look back at the prior year to reflect on the progress the private equity industry has made on environmental, social and governance (ESG) management. In classic fashion, we hereby present a top 10 list of private equity ESG developments in 2012.

1. Private equity reporting on the rise

The year 2012 was another strong one for reporting, with The Carlyle Group (Carlyle), Kohlberg Kravis Roberts & Co. (KKR) and other private equity firms publishing reports on their ESG initiatives and results.  In addition, TPG launched a new sustainability section of its website that lays out the firm's ESG approach and goals, and highlights portfolio company case studies.

2. Best practice sharing hits its stride

Another exciting development from last year is that an increasing number of leading private equity firms have begun convening portfolio companies, institutional investors and other key stakeholders to share ESG best practices and success stories.  Whether done at the staff or CEO/CFO level, this kind of gathering is a logical and simple way to ensure that as many companies as possible are well positioned to capitalize on ESG management opportunities.

3. Oak Hill-EDF partnership demonstrates middle-market success

In October, we announced the results of our pilot project with Oak Hill Capital Partners (Oak Hill). Together, we developed a methodology for identifying environmental opportunities within the firm’s portfolio.  Using the methodology, the pilot identified more than $700,000 in annual cost savings and 2,900 metric tons of annual CO2 reductions.  More importantly, the project demonstrates the potential for ESG opportunities throughout all private equity portfolios and provides a foundation for future ESG success at Oak Hill.

4. Firms add internal ESG expertise

Internal expertise helps firms quickly craft ESG strategies that work. We were pleased to see Beth Lowery join TPG as a senior advisor, after a 20-year career at General Motors Co.  The number of ESG professionals working in global private equity firms continues to rise and we expect this trend to persist in 2013.

5. New ESG management research

2012 saw the catalog of research and publications on ESG management in private equity continue to grow dramatically.  New research by BSR, Malk Sustainability Partners, PwC, Private Equity International, the United Nations Principles for Responsible Investment and others now provides firms of all sizes with insight on the emerging ESG trends and best practices that they can use to create value for their portfolio companies and investors.

6.  Expanding participation in EDF Climate Corps

This summer marked our largest and most diverse participation in EDF’s Climate Corps program for private equity firms and their portfolio companies.  In 2012 we had 12 EDF Climate Corps fellows embedded into 10 portfolio companies and two private equity firms.  EDF Climate Corps host companies included CD&R and Carlyle’s Real Estate Fund, plus portfolio companies owned by Apollo, Carlyle, CD&R, General Atlantic, KKR, Oak Hill and TPG.

We're grateful to our partners for their support and participation, and gratified by the results of Climate Corps to date: over $1.2 billion in energy savings over the five years of the program, with the potential to avoid yearly carbon dioxide emissions equal to the pollution from 200,000 cars.  We are accepting applications for EDF Climate Corps until February 28, 2013, and we expect even more private equity involvement than before.  For more information about participating in EDF Climate Corps, click here, or see the 36 organizations that have already signed up for this summer.

7. KKR’s Green Portfolio Program continues to produce impressive results

In late 2012, KKR announced another round of impressive cumulative results for its Green Portfolio Program (GPP).   We helped launch the program in 2008 with three U.S. companies and today it includes 25 from around the globe.   In the first four years of the program, KKR’s portfolio companies have saved $644 million and avoided more than 1.2 million metric tons of greenhouse gas emissions, 3.4 million tons of waste and 13.2 million cubic meters of water. These results reflect not only hard work, but also the firm's commitment to ESG management at the highest levels, investment in internal expertise, rigorous metrics and sharing of best practices across the network of portfolio companies.

8. EDF launches new ESG management tool

We hope you'll agree that EDF's new management tool for private equity warrants inclusion on this "Top 10 of 2012" list.  This free, Excel-based tool defines for the first time the practices necessary to build a successful ESG management program and provides a framework to assess and improve ESG management at private equity firms of all sizes. To date, it has been downloaded by more than 200 users.

9. Blackstone announces solar program

Connecting portfolio companies with right tools and resources at scale could be one of the most powerful aspects of ESG management in private equity.  Blackstone’s new solar program does just that. Last year, Blackstone unveiled a new solar program open to its portfolio companies and real estate assets that will cut energy costs without any capital investment.  Leveraging Blackstone’s ability to aggregate deal flow for the third party solar installers and financiers it is working with should provide greater cost savings and less hassle for participants.

10. Growing focus on college and university endowments

Bill Mckibben's 350.org initiative, along with its partners, has helped rally students across the country and increase pressure on college and university endowments to divest fossil fuel holdings and improve ESG management. A few smaller colleges have already signed on and the attention of the larger universities has certainly been piqued.  Whether or not divestment occurs, the conversation has shifted and encouraged endowments to better understand how responsible investing can decrease risk and improve returns.

EDF Climate Corps Announces the First 36 Organizations to Sign Up for Energy Savings in 2013

New participants include Colgate-Palmolive, NYSE Euronext, General Motors and the City of Boston

"We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations," the President said Monday during his second inaugural address.

As we at EDF share the same sense of urgency he describes, the EDF Climate Corps team entered 2013 more determined than ever to work with companies, cities and universities across the nation to do more with less energy, curbing pollution and saving money.

To that end, we are excited to announce today the first 36 organizations to commit to doing just that through EDF Climate Corps in 2013. About half of the organizations on this list will be first-time participants this year. The other half will be repeat participants.

New organizations include:

  1. Baxter International
  2. Boston Housing Authority
  3. Boston Medical Center
  4. Boston Public Health Commission
  5. Children's Defense Fund
  6. City of Boston
  7. Colgate-Palmolive
  8. Cytec Industries
  9. DreamWorks Animation
  10. General Motors
  11. Glendale Community College
  12. International Warehouse Logistics Association
  13. Massachusetts Port Authority
  14. Mondelez International
  15. NYSE Euronext
  16. Office Depot
  17. PepsiCo Americas Foods
  18. Sprint
  19. Town of Cary (N.C.)

Repeat organizations include:

  1. Bank of America
  2. Caesar's Entertainment
  3. CA Technologies
  4. City of Cleveland
  5. DirecTV
  6. Genzyme (a Sanofi Company)
  7. Hilex Poly
  8. Ingersoll Rand
  9. JPMorgan Chase
  10. Mack Trucks
  11. New York City Housing Authority
  12. PepsiCo Americas Beverages
  13. QTS (Quality Technology Services)
  14. Shorenstein Properties
  15. Syniverse Technologies
  16. Verizon Communications
  17. Volvo Construction Equipment

The final deadline to apply for an EDF Climate Corps fellow for this summer is February 28, 2013. There are a limited number of spots available, so interested organizations are encouraged to apply now at edfclimatecorps.org. For more information, please email info@edfclimatecorps.org.


See what past participants have to say about the program in this one-minute testimonials video

Why Ingersoll Rand’s Collaboration with EDF Climate Corps Works

By Scott Tew, Executive Director,  Center for Energy Efficiency and Sustainability, Ingersoll Rand

As we plan for our fourth summer of hosting Environmental Defense Fund (EDF) Climate Corps fellows, I’m reviewing the great strides we’ve made based on the work of the six EDF fellows Ingersoll Rand has hosted to date.

Through Ingersoll Rand’s involvement with the EDF Climate Corps program, our teams have gained new insight, developed comprehensive evaluation tools and identified areas to achieve significant energy efficiency.

For example, in the last three summers, they have identified the following opportunities:

  • Annual savings of more than $1.75M
  • More than 12 million kWh of avoided energy use
  • More than 10 million metric tons of avoided carbon emissions

Like many companies, Ingersoll Rand must manage the challenges of a tough business climate, alongside the desire to have a long-term orientation around sustainability.  The EDF Climate Corps program offers tremendous value because it enables us to advance sustainability more rapidly, than just approaching it alone. This is a result of:

1)      the business skills and concentration training of the fellows related to energy efficiency;

2)      the proven methodologies they apply to our projects;

3)      a national networked approach they bring to each project; and

4)      their ability to specifically address our situations and goals.

The fellows can apply their insight to energy efficiency -related areas in areas that complement our day-to-day internal auditing capabilities. As a result, we now have more precise energy analytics tools that our internal teams use to pinpoint and improve specific areas of operations and fleet optimization. We can better measure the financial impact (dollars saved) of implementing certain measures, and plan out projects/upgrades/changes accordingly.

For each of the last three summers, two fellows worked at Ingersoll Rand to enhance our energy efficiency opportunities and capabilities.

Energy Audits:  Each EDF fellow (working with our internal teams) conducted energy audits of various Ingersoll Rand facilities and identified areas where energy could be saved, the amount of capital investment needed to implement changes, annual cost savings, annual CO2 reductions, and overall energy saved per square foot.  Typically, the potential savings are in the hundreds of thousands of dollars per site.

Building the Business Case: Other projects have centered on building the business case for investments in energy efficiency, creating standardized models, assessment tools and measurement criteria, and benchmarking our internal audit practices and capabilities against external tools and standards such as the emerging DOE (Department of Energy) commercial building auditing system.

Building on Each Other’s Work: Our EDF fellows often build upon a project handled by their predecessor the previous summer. This level of continuity and focus is one of the most appealing aspects of the program.

So, as we plan the projects for 2013, I eagerly anticipate hosting and working with future EDF Climate Corps fellows, and I know the results will be as insightful and valuable as they have been in previous years.

EDF Climate Corps: Reflections on 2012, Looking Ahead to 2013

2012 was a banner year for EDF Climate Corps. We celebrated five years of energy efficiency success and over $1.2 billion in identified energy savings. Below are a few reflections on 2012 and a couple opportunities on the horizon for 2013.

Looking Back on 2012

The Third Annual EDF Climate Corps Network Event

We would like to offer our sincere gratitude to everyone that attended our third annual Network Event and helped make it a smashing success. Extra thanks go out to our sponsors at AT&T and DirecTV.

Despite travel challenges related to Hurricane Sandy, more than 100 people attended the event at MIT November 1-2, including 2012 Climate Corps fellows, alumni from previous years, and representatives from host organizations across sectors. The theme of the event was the Virtuous Cycle of Organizational Energy Efficiency – the subject of our academic paper by the same name. Facilitated by Peter Senge and Jason Jay from the Massachusetts Institute of Technology (MIT), the two-day workshop used storytelling and small group conversations to highlight energy management practices that deliver systemic and lasting reductions in costs and greenhouse gas emissions.

Perhaps the most exciting takeaway from the event was the peer connections made and the conversations sparked. Attendees stuck around for quite some time after the event ended, following up on conversations and exchanging business cards – the true sign of an engaged Network!

We’re Proud of our Alumni

The impact of EDF Climate Corps continues as our fellows continue to be champions of energy efficiency throughout their careers. Our annual alumni survey, completed this fall, showed that former fellows are going on to leadership positions in business and civil society, leveraging their Climate Corps experience to transform energy use in the organizations where they now work.  See a blog post about the survey results here.

Reflections from our Hosts

Check out our new video, featuring testimonials from a variety of EDF Climate Corps host organizations. We’re flattered by what they had to say!

Looking Ahead

Join us for our GreenBiz Webcast January 22

Joel Makower will moderate an energy efficiency-focused webcast, featuring EDF Vice President Gwen Ruta and Climate Corps success stories from adidas and Ingersoll Rand. We hope you can join us. Register here.

Get your applications in for 2013

EDF wants to work with your organization to take its energy management system to the next level in 2013. Sign up for an EDF Climate Corps fellow by this Friday, January 11 to be featured in our January press release. The final application deadline is February 28. Please help spread the word. Interested organizations can apply here.

Blackstone's Solar Program Demonstrates Power of Network Effect

Our hat's off to Blackstone, which recently announced a new solar program. This development has the potential to cut energy costs by 10 percent and improve environmental performance across all the firm's real estate assets and portfolio companies, which have aggregate revenues of $116 billion.

Smart Energy Capital will oversee installation of rooftop solar panels and systems at Blackstone portfolio companies. Third-party investors will own, operate and maintain the panels, which will provide low-cost solar power to portfolio companies via long-term energy purchase agreements.

We've written before about the importance of building internal ESG management capacity, and highlighted the growing number of private equity firms doing just that.  Blackstone spotted this opportunity because of the expertise of Don Anderson, the firm’s chief sustainability officer, and there’s no doubt that this deal will help provide a very attractive ROI.  Just as joint purchasing and centralized insurance negotiations cut costs for portfolio companies, so do these kind of solutions that benefit portfolio companies, investors and the environment.

What’s most exciting about this program is the demonstration of the network effect that private equity firms can create by sharing tools and resources that can cut across numerous portfolio companies in different geographic areas, industries and sectors to achieve similar cost savings and environmental returns. This project is an excellent example of two best practices identified by our recently released ESG Management Tool with regard to internal expertise and network.

The free Excel-based tool defines for the first time the practices necessary to build a successful ESG management program and a framework to assess, analyze and improve ESG management at private equity firms of all sizes.  We believe that use of the Tool will lead to more cutting-edge environmental programs like Blackstone's solar effort across the private equity sector.

Join EDF, adidas Group, Ingersoll Rand January 22 for a GreenBiz Webinar

The EDF Climate Corps Team invites you to join us in ringing in this new year efficiently on our GreenBiz Webinar “Dismantling the Barriers to Energy Efficiency.”

Dial in at 1pm ET on January 22 to learn how EDF Climate Corps can take your company’s energy management system to the next level, no matter where you are now.

Click here to register.

Each year, Environmental Defense Fund works deep within dozens of companies to bolster smart energy management through EDF Climate Corps. To date, the program has identified an average of $1 million in energy savings at each participating organization. Along the way, EDF has learned quite a bit about how companies make decisions around energy investments, and the best practices for overcoming common implementation barriers. And we want to share these learnings with you.

Joel Makower, Executive Editor of the GreenBiz Group, will moderate. Speakers include:

  • Gwen Ruta, Vice President, Environmental Defense Fund (EDF)
  • Scott Tew, Executive Director, Center for Energy Efficiency and Sustainability (CEES), Ingersoll Rand

Keep in mind; if you are interested in signing up to host an EDF Climate Corps fellow in 2013, you should turn your application in by Friday, January 11 to be featured in our January press release.

Contact Scott Wood at swood@edf.org for further information.

Happy holidays and cheers to endless energy innovations in 2013!

–          The EDF Climate Corps Team