EDF Climate Corps Continues to Drive Results for Private Equity Firms

The results are in. As my colleague Victoria Mills wrote recently, this year’s cohort of EDF Climate Corps fellows found $130 million in potential energy savings across 102 organizations.

Among the engagements, 12 fellows worked with private equity firms and portfolio companies on a diverse set of projects. Each engagement offers its own story, but we’d like to showcase a few examples demonstrating the value the Climate Corps program can bring to firms of all sizes and at all stages of understanding of energy management.

Energy audits and retrofits for a major manufacturing company

amiHellman & Friedman’s portfolio company Associated Materials, which specializes in exterior building products, hosted two fellows this past summer, its first year with the EDF Climate Corps program.

Fellow Karunakaren Muthumani Hariharan audited two of the firm’s 11 manufacturing locations to identify opportunities for energy efficiency, including lighting upgrades, process equipment upgrades and manufacturing process modifications. He suggested improvements with potential net present value savings greater than $1.4 million and reductions of greenhouse gas emissions by approximately 2,700 tons per year. Hariharan also proposed funding the energy efficiency projects through a new Green Energy and Sustainability Fund.

Krishna Chaitanya Vinnakota analyzed Associated Materials’ total expenditure on energy, over $15 million, and focused on energy saving opportunities in the company’s supply centers, including an approach that could result in energy expenditure savings of 20 to 50 percent in some supply centers. He also suggested strip doors as a simple but effective way of conserving energy during winter. It’s a project that could save the approximately half a million dollars per year if rolled out across the company’s 125 supply centers and 11 manufacturing plants. Read more

Oak Hill Capital Continues to Chart the ESG Course for Middle-Market Private Equity Firms

Last year, Oak Hill Capital Partners released its inaugural environmental, social, and governance (ESG) performance report. While you may have read about similar reports from private equity firms like KKR and The Carlyle Group on this blog, Oak Hill Capital’s report was significant because it were first among U.S. middle-market private equity firms to publicly release an ESG performance report. In doing so, the firm increased transparency and offered other mid-market firms a blueprint to follow. Last week, it issued its second annual report, offering an inside look at the firm’s progress to date.

Oak Hill Capital Partners logoA comprehensive approach

In its new report, Oak Hill Capital outlines its approach to ESG management, measuring progress in integration, results and leadership: three of the key building blocks for a successful ESG management program that are included in our ESG Management Tool for private equity.

For Oak Hill Capital, integration refers to the ways it embeds ESG management practices across the firm’s operations to ensure it can best deliver results at portfolio companies. Key examples from the report include its responsible investment policy, incorporation of ESG in due diligence, and its recently becoming a signatory of the United Nations Principles for Responsible Investment (UNPRI). Management of environmental performance is also woven into the management of the firm, through its ESG Committee, which is made up of senior executives and chaired by Oak Hill Capital’s general counsel.

Results speak to how the firm evaluates the ESG performance of potential new investments and how it tracks and supports the sustainability efforts of portfolio companies. This year’s report includes how the firm considered ESG factors in the due diligence process of three new investments and how existing portfolio companies have benefited from the firm’s expertise in ESG issues. One example is an energy efficiency project Oak Hill Capital initiated at its portfolio company, Dave and Buster’s, with Entouch Controls, a leading energy management solution for restaurants and schools.

Lastly, Oak Hill Capital takes a broad approach to leadership, both within the industry and in the communities in which it operates: promoting lessons learned among similarly-sized firms, as well as engaging employees in business-focused mentorship opportunities.

A diverse portfolio of sustainability initiatives Read more

It’s Got to Be About What You Do: KKR’s Green Portfolio Program Matures

Ken Mehlman, KKR

Ken Mehlman, Global Head of Public Affairs, KKR

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. Read more

From the inside-out: Warburg Pincus and EDF Climate Corps’ recipe for replication

Since 2008, EDF has worked with private equity firms to integrate environmental, social and governance (ESG) management into their practices. Leveraging our EDF Climate Corps program is a key strategy for replicating our work and we have now placed 44 EDF Climate Corps fellows among private equity firms and portfolio companies, to date. To learn more about how a particular firm has benefitted, I recently spoke with representatives at Warburg Pincus to hear how the EDF Climate Corps program has enhanced their continued efforts to share ESG-related best practices with Warburg Pincus' portfolio companies.

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This summer, Warburg Pincus hosted an EDF Climate Corps fellow for the second year in a row, and again chose to place the fellow at the firm level, rather than with a single portfolio company. “Running this process from the center allowed us to identify different opportunities, across our portfolio and coordinate work on each of them,” Warburg Pincus Vice President Michael Frain told me.

From speaking further with Frain and Daphne Patterson, Warburg Pincus’ first EDF Climate Corps fellow and newly minted associate, four key themes emerged:

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Sustainability and Finance – Momentum Building, But a Long Way to Go

Guest post by Chris Pinney, President, High Meadows Institute

While it may seem that increasing progress is being made on integrating sustainability in the financial sector, the recent UN Principles for Responsible Investment (PRI) conference in Montreal was a sobering reminder of the challenges that still need to be addressed.

PRI In Person banner

On the one hand, we have seen a rapid growth of financial firms subscribing to the UNPRI, with firms now representing $45 trillion in assets under management.  At the same time, as UNPRI’s Managing Director Fiona Reynolds reported in Montreal, only 6% of asset owners committed to the UNPRI report that their performance management and compensation systems for senior executives include metrics that recognize and reward sustainability performance. As she noted, “What gets measured gets managed. If responsible investment is to become truly mainstream, it must start at the very top of every organization, with the right incentives.”

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Private Equity Interest in EDF Climate Corps at All-Time High

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CC 2012 fellow Sarah Stern presents her work to CD&R's Daniel Jacobs, left, and Thomas Franco, right

Summer at EDF is always an exciting time as EDF Climate Corps fellows fan out and begin their placements at organizations across the country. This year we're thrilled to see a dozen fellows working with private equity firms and their portfolio companies, the highest number of such placements in a single summer. In total, EDF has now placed 44 EDF Climate Corps fellows in the private equity sector to date.

Managing investment dollars equivalent to roughly 8 percent of U.S. GDP, the private equity sector is critical to sharing, replicating and advancing corporate environmental best practices, so it's gratifying to see the level of activity continue to build. New hosts this year include portfolio companies Associated Materials, Avaya, Floor & Décor, Philadelphia Energy Solutions and Taylor Morrison. Private equity firms KKR and Warburg Pincus are also hosting fellows this year, as they have previously.

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In New Report, KKR Deepens Commitment to Tackling ESG Concerns

Too often, environmental performance gets labeled as the responsibility of one team within a company – whether that of a dedicated sustainability staff, external or public affairs, legal or compliance, etc. As a result, a company’s staff can often think of environmental and social governance (ESG) issues as what Douglas Adams once famously termed an SEP – Somebody Else’s Problem.

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With the release of its 2013 ESG and Citizenship Report, private equity firm Kravis Kohlberg & Roberts (KKR) shows it’s taking a different approach:  KKR has adopted a new global policy that makes identifying and addressing ESG risks in both the pre-investment and investment phases, for its staff, everyone’s problem.

Notably, KKR’s private equity investment professionals are being integrated into the ESG risk assessment process: first, in assessing risks during the diligence phase, and second, working with portfolio companies, consultants and subject matter experts to set performance goals and measure against them during the typical five to seven years a company remains part of its portfolio.

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Raising the Bar for Private Equity ESG Reporting

As the old management adage goes, “what gets measured gets managed.” Private equity firm Apax Partners took an important step toward embodying that concept this spring by releasing a sustainability report rich with key metrics from its portfolio companies' progress in environmental, social and governance (ESG) management.

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As last year’s Pitchbook survey showed, ESG management is increasingly a mainstream issue for private equity firms. The detailed data that Apax portfolio companies are gathering — and reporting as a group — form the foundation for companies to manage ESG issues, as well as benchmark and then measure any advances.

This is all part of an important, ongoing shift in the private equity industry: from questioning if firms can create value through ESG management, to how can firms capture the value.

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PitchBook Survey Highlights Growing Importance of ESG

A recent report by PitchBook is telling on several levels when it comes to the changing state of environmental, social and governance (ESG) management in private equity (PE).

Pitchbook report cover

First, the survey highlights the growth in the number of PE firms, limited partners (LPs) and general partners (GPs) who are engaged on ESG issues. A whopping 84 percent of LPs told PitchBook that ESG is at least somewhat important when deciding whether to invest, and 24 percent said a strong ESG program could outweigh slightly lower historical performance. A majority of GP survey takers (60 percent) have an ESG program at their firm, up from 49 percent last year. Another 26 percent either are developing an ESG program or plan to do so in the near future. This year’s survey included 54 GP and 54 LP respondents, up from last year’s 48 GP and 4 LP respondents.

Then, there's the fact that a prominent industry publication like PitchBook is now regularly reporting on ESG. This is a pretty clear signal that ESG management is now a mainstream issue for private equity.

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Oak Hill Capital Partner’s first ESG report blazes a trail for the middle-market

This week, Oak Hill Capital Partners (Oak Hill) became the first U.S. middle-market private equity firm to publically report on its environmental, social, and governance (ESG) performance.  Another first for Oak Hill and an extension of the ESG trend kicked off by industry leaders – including Carlyle and KKR – over the past few years.

Just last year, Oak Hill and EDF teamed up to demonstrate that opportunities to improve environmental performance were not limited to the mega buyout firms.  We worked together to create a methodology that mapped environmental management opportunities across Oak Hill’s portfolio based on potential environmental impacts, financial results, and management’s readiness to act.

Oak Hill’s new report discusses the firm’s work to expand its ESG efforts and shares its progress to date.  Last December, EDF released a new ESG management tool for the private equity sector.  The Tool is informed by our work in the private equity sector over the past five years and defines the practices needed to build a successful ESG management program.  Many of these best practices have been embedded in Oak Hill’s approach to ESG management and are evident in the firm’s first public report including:

1) Commitment from the top:  Successful ESG initiatives require strong commitment from the top. Oak Hill’s Responsible Investment Policy, ESG related trainings for the firm and its portfolio companies, and the commitment to publically report annually underscore the support for the firm’s leadership and commitment to make ESG management a core part of the way Oak Hill does business.

2) Integrating ESG into due diligence:  Collaborating with BSR to understand the key ESG risks and opportunities of potential investments is admirable, but it’s also smart business.  Just as we’ve seen in our partnerships with other leading private equity firms, integrating ESG into the due diligence process results in opportunities to reduce risks, increase efficiency, and improve performance.

3) Engaging with the right stakeholders leads to results: Private equity firms are increasingly building relationships with key stakeholder groups to gain new insights and improve operations.  Competing private equity firms take notice; three of Oak Hill’s portfolio companies have hosted EDF Climate Corps fellows.  EDF Climate Corps trains graduate students to quickly understand and improve the way organizations use energy by identifying lasting solutions with long-term financial and environmental benefits.  To date, over 30 private equity firms and portfolio companies have tapped in to this program to reduce energy use, cut greenhouse gas pollution, and save money.

In the past few years the private equity sector’s approach to ESG has evolved rapidly and we’ve been hearing from more and more players in the sector, including both asset managers and owners, about how to improve ESG performance.

Oak Hill is continuing to lead the charge in the middle-market.  The secret to Oak Hill’s successful ESG strategy is that there is no secret.

Any private equity firm can do this if they dedicate time and resources to the effort.  Luckily, the next firm to stand up to the challenge will have Oak Hill’s report as a blueprint.