Endless opportunities in ESG management for KKR (and other private equity firms)

Today, KKR released its 2012 ESG Report, which highlights that the firm faces significant obstacles as it continues to integrate ESG (Environmental, Social and Governance) management throughout its investment process.  It also shows that KKR is prepared to live up to the challenge.

The firm's investment focus is increasingly global in nature and includes large investments in critical services like energy, healthcare and infrastructure, investments with enhanced responsibilities for the management of environmental and social issues.  In addition, recent developments including the Bangladesh clothing factory collapse and explosion at a natural gas well site in West Virginia have awakened more and more leading investors to the fact that environmental and social risks are increasingly material to investment performance.   

KKR’s latest report clearly shows that the firm has the necessary systems, processes and human capital to continue to evolve its already impressive ESG efforts.

In particular, the third annual ESG report highlights how an ESG effort can evolve at a committed private equity firm:

1)      The power of capital allocation: One action that stands out is KKR’s acknowledgement of the power of utilizing an ESG lens in the due diligence process.  Examples include not only better identifying potential ESG risks but also identifying new investment opportunities in renewable energy.  On page 21, KKR lays out its diligence process providing a framework for others to adapt.

2)      Acknowledging a need to further support natural gas investments:  Reducing the risks to public health and the environment from surging natural gas development is a top priority for EDF.  We see numerous opportunities for investors across the natural gas value chain to improve environmental management in these investments and we’re excited to see this commitment shared publicly by KKR.

3)      Green Portfolio Program kickstarted growth in other areas:  We are very proud to have partnered with KKR’s Green Portfolio program over the past five years.  Here’s why:

  1. As an environmental advocacy group, we feel the environmental results are meaningful.
  2. The financial results have excited the private equity sector about the opportunity that environmental management provides and inspired others to follow KKR’s lead.
  3. The impressive results of the Green Portfolio Program prompted KKR to expand its ESG efforts, launching new initiatives and partnerships that are positively impacting human rights, employee health and our nation’s veterans.

But perhaps the most informative part of this year’s report is on its very last pages.  KKR reports against its commitment to the United Nation’s Principles for Responsible Investment and highlights its goals for the coming year.  And it doesn’t appear KKR has any plans to slow down.

KKR's full report can be found at kkresg.com.