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.