Spurring investment in environmental solutions starts here

As the Stanford Social Innovation Review (SSIR) blog series “Mission Possible: How Foundations Are Shaping the Future of Impact Investing” rightly states, there are increasingly innovative ways for philanthropic money to play a more strategic role in capital markets to advance social and environmental progress.

Like the thoughtful foundation leaders contributing their perspectives to this series, we at Environmental Defense Fund (EDF) continue to evaluate, evolve and articulate our own sustainable finance strategies. And, over the past several years, we have become ever more convinced that leveraging the power of financial markets is core to delivering on the ambitious goals we laid out in our Blueprint 2020 strategic plan. This is because we know that the amount of philanthropic and public sector resources deployed to addressing our key issues is a small fraction of the total capital needed. We, therefore, must tap into the influence, expertise and capital of the private sector and the financial markets that direct those capital flows to be successful in our efforts.

EDF is a proven leader within the environmental community in working with the financial sector to drive progress on key issues. Over the past several years, EDF initiatives have raised the bar for environmental management across the private equity (PE) industry through pioneering partnerships with KKR, Carlyle, and Oak Hill Capital, delivered healthier air to millions of New York City residents by empowering building owners and operators to invest in nearly 6,000 heating oil conversions through NYC Clean Heat, and accelerated the transition to sustainable fisheries management by providing loans totaling over $4.2 million to support California Fisheries Fund borrowers.

Building on this successful track record, we are now introducing a robust three-part sustainable finance strategy that complements the amazing work of foundations profiled in the series:

EDF’s Sustainable Finance Strategy:

  1. Getting the rules right We are working to advance policies and practices that improve transparency, reduce risks, and create clear incentives and price signals in order to design more efficient and effective markets for environmental investment opportunities.
  2. Making engagement and investment easier To spur new investment in environmental solutions, we must lower barriers and transaction costs. We are creating and promoting tools and resources that improve information flows, standardize complex projects, and build capacity in the marketplace.
  3. Demonstrating returns Environmental investments remain below the radar for many investors. We aim to connect private capital with priority environmental opportunities by working with partners on “lighthouse” or pilot transactions that demonstrate a strong investment case, mitigate risks, and deliver returns. In the process, we are creating new investment models for others to follow and take to scale.

Keep an eye out for subsequent blogs from a range of EDF experts that will profile a few specific examples to showcase how this strategy is being put into action across EDF’s programmatic work. We look forward to collaborating with those who are working in this growing space!

In Its 5th Citizenship Report, KKR Reaches Beyond ESG

This post is part of an EDF+Business ongoing series on sustainable finance, highlighting market mechanisms and strategies that drive environmental performance by engaging private capital. EDF is actively engaging leaders with the capital and expertise needed to catalyze sector-wide changes—from accelerating investment in energy efficiency and clean energy, to protecting tropical forests, restoring depleted fisheries and saving habitats of endangered species.

Sustainability pioneer and inspiration to many of us at EDF, Ray Anderson frequently talked about his company’s efforts to scale the seven faces of Mount Sustainability and develop a more responsible company along the way. Summiting a mountain is a good analogy for a company’s journey to improve its environmental performance. To succeed you need a plan, commitment, resources, and the ability to change direction if there are obstacles in your path.

In the case of a private equity firm like KKR & Co. L.P. – with over 56 portfolio companies participating in value creation programs linked to its environment, social and governance (ESG) strategy since 2009– the journey is more akin to traversing an entire mountain range, whose contours keep evolving as companies enter and exit their portfolio.

That changing landscape is what’s driven KKR to continue to adapt how it manages ESG challenges and opportunities. KKR’s recently-released 5th annual ESG & Citizenship Report details how these programs have continued to evolve since our initial partnership in 2008.

Our work together helped drive KKR’s Green Portfolio Program which, six years later, 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 and reducing waste by 6.3 million metric tons and water use by 27 million cubic meters, according to results announced last fall.

kkr_logo_13932KKR’s latest report documents the firm’s progress in advancing ongoing efforts, including measuring and improving ESG performance at key portfolio companies, rolling out a publicly available ESG policy across its global private equity staff, contributing its expertise to the Sustainable Accounting Standards Boards’ development of ESG disclosure guidelines, bringing together sustainability professionals and other experts at its first Sustainability Summit last year, and hiring a full-time energy expert and two EDF Climate Corps fellows to help its portfolio companies more systematically adopt solutions for better energy management.

In addition, something new caught our eye. KKR plans to refocus its investment efforts through one of three lenses – responsible investing, solutions investing and impact investing.

  • Responsible investing incorporates ESG metrics and analysis into investment decisions.
  • Solutions investing refers to investments made in companies that have an intentional focus on solving a societal challenge and deliver traditional returns to investors, such as providers of reusable bulk shipping containers, developers of environmentally-responsible office buildings in Korea and microfinance groups increasing access to capital for business owners in rural and semirural India.
  • Impact investing goes beyond the other two, focusing on investments in companies that put environmental and social impacts on par or even ahead of financial impacts. KKR began advising two impact businesses in 2013 by providing technical assistance, helping the companies scale their businesses and secure additional funding. Moving forward, KKR will consider investing in such businesses.

At EDF, we believe that private capital can and must be part of the solution to our biggest environmental challenges. We’re encouraged to see major investors like KKR expand their investment strategy as the next step in this journey and eager to see the environmental and financial results it delivers.

Impact Investing: What is the Path to Scale?

This post is part of an EDF+Business ongoing series on sustainable finance, highlighting market mechanisms and strategies that drive environmental performance by engaging private capital. EDF is actively engaging leaders with the capital and expertise needed to catalyze sector-wide changes—from accelerating investment in energy efficiency and clean energy, to protecting tropical forests, restoring depleted fisheries and saving habitats of endangered species.


An issue many nonprofit and for-profit groups face is how to get beyond the pilot stage and scale up efforts. This is the crux of the issue in impact investing and was the focus of the “Bringing in Big Money” panel at this year’s Skoll World Forum.

Skoll World ForumIn many areas of EDF’s work, we’ve found that the capital needed for the issues we care about – turning the corner on climate emissions, bringing fisheries under sustainable management practices, and protecting natural resources – outstrips the availability of philanthropic and public sector budgets.

On the panel, Elizabeth Littlefield, president and CEO of the Overseas Private Investment Corporation (OPIC), commented about how amused she is by how widely quotes from academia range on the amount of capital that can be accessed – from the relatively small numbers of the “derisive minimizers” to the large estimates of the “breathless maximizers.”

Rather than focusing on the absolute amounts, she looks at the leverage entities like OPIC can create through guarantees, insurance and, in some cases, direct financing itself. These efforts by OPIC and multilateral institutions have led to a dramatic shift in the ratio of public sector to private sector finance. In contrast with 20 years ago when public sector grants exceeded the amount of private investment capital, today, it is the reverse $7 of direct private investment for every $1 from the public sector.

What, then, are the keys to amplifying this trend and repeating it in other sectors? Read more

Impact Investing: Green Bonds 101

Prior to joining EDF, I worked in a variety of finance-related roles, from building the alternative energy franchise at an investment bank to pioneering investment in rural communities in the developing world at Root Capital. As part of my work at EDF, I’m investigating what financing mechanisms can drive investment in projects with big environmental returns, as well as financial ones. This post is the start of a new series looking at the green bond market, and in the future, I’ll be delving into other areas of impact investing.

Namrita Kapur

Eighteen months ago, you might have never heard of a green bond. The market averaged less than $3 billion per year, but that is quickly changing.  $14 billion in green bonds were issued in 2013 and Bloomberg New Energy Finance projects as much as $45 billion to be issued this year. One expert even sees the market climbing to $100 billion in 2015.

Flexible financing for sustainability projects

So what are green bonds, and what is driving this market growth? Simply put, they’re a debt instrument that can be linked to an environmental benefit. One compelling aspect of green bonds is their flexibility. While some may be tied to energy efficiency and renewable energy projects, others are used for projects around climate resiliency, water infrastructure and a growing list of other high-priority sustainability areas.

As countries experience the mounting impacts of climate change, there is an increasing global demand for capital in these critical infrastructure categories. At the same time, funds that are integrating environmental, social and governance criteria in their investment decisions are looking for these types of instruments to add to their portfolios.

Read more