Last week in Atlanta, Kohlberg, Kravis & Roberts (KKR) Member and Head of Global Public Affairs Ken Mehlman summed up his approach to sustainability in a single sentence: “it’s got to be about what you do.” The comment was in response to a panel that EDF moderated at KKR’s first annual sustainability summit, where guest panelists Jeff Foote from Coca-Cola, Mitch Jackson from FedEx, and Maury Wolfe from Intercontinental Hotels Group shared their successes and challenges in improving their organizations’ environmental performance. Ken highlighted a common theme in all three panelists’ remarks: for a company’s work on sustainability to have a real impact, it needs to be integrated into its core business model.
KKR has clearly taken the same lesson to heart. By integrating environmental, social and governance (ESG) issues into how it evaluates and manages portfolio companies, KKR has shown what that thinking can achieve for a private equity firm and its portfolio companies.
Growing the Green Portfolio Program
Six years ago, EDF started on a journey with KKR to improve the environmental and financial performance of its global portfolio of companies Since then, KKR’s Green Portfolio Program has added a cumulative $1.2 billion to its portfolio companies’ bottom lines while avoiding more than 2.3 million metric tons of greenhouse gases, according to new results announced last week.
KKR’s initiative has had ripple effects throughout the private equity industry. What KKR did, with our help, was groundbreaking, but now it’s becoming the norm–leading PE firms have hired internal ESG experts, are actively managing ESG performance, and are reporting publicly on their progress. In addition, new consultancies have sprung up to help PE firms seize the opportunities for revenue generation, cost reduction and risk management that successful ESG programs deliver.
What’s also notable is how the issues that private equity firms are dealing with have matured, expanding from energy efficiency and waste management to strategic energy management, worker safety, employee and consumer health and even cybersecurity.
These topics were discussed and debated at KKR’s Sustainability Summit for its North American portfolio companies last week in Atlanta. Some takeaways:
- Set goals to align efforts at all levels of the organization. Speakers and attendees alike echoed the importance of goal-setting to achieve buy-in for sustainability initiatives from the executive suite to the shop floor, and to establish accountability for progress.
- Speak their language. Whether it’s communicating with cleaning services about a new recycling program, or building a business case for equipment upgrades that the CFO can say yes to, sustainability initiatives need to be framed in terms that matter to one’s target audience.
- Pick the low-hanging fruit, and reach higher for even bigger savings. Energy management can deliver huge cost savings and emissions reductions, but only if it is elevated from a one-off investment to a strategic business priority. This requires looking at volume of return along with time to payback, and building capacity within the organization to set in motion a “virtuous cycle” of continuous improvement in energy performance.
- Policy engagement is the next frontier in corporate sustainability. Corporations have an outsized influence in public policy, and their lobbying efforts need to be consistent with their sustainability initiatives. For example, Mitch Jackson shared how FedEx supported higher fuel economy standards for trucks as the company was seeking to improve the efficiency of its truck fleet. The new regulations helped to improve the economics of more fuel-efficient vehicles not just for FedEx, but for the entire marketplace.
Embedding Sustainability Organization-wide
But the bigger achievement is how KKR continues to find ways to integrate ESG risk management across its own organization. Through collaboration between its ESG/sustainability, regulatory and operational teams, KKR has made consideration of ESG issues a key part of the culture that will carry forward as its portfolio shifts and new opportunities for smart energy management, waste reduction and other initiatives emerge.
This is the kind of strong partnership EDF points to again and again as benefitting the environment and bottom line, while offering a roadmap for other firms just starting out on their own ESG initiatives to follow. It confirms what we suspected when we launched the program: good environmental management is an investment with a terrific return.
Also of interest:
- Sustainability and the Responsible Investor
- From the inside-out: Warburg Pincus and EDF Climate Corps’ recipe for replication
- Sustainability and Finance – Momentum Building, But a Long Way to Go
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