3 ways sustainable finance can accelerate the Fourth Wave of environmentalism

Close your eyes and think about innovation. How many of you thought about a widget – a robot, a self-driving vehicle, a sensor? I’m guessing almost all of you. How many of you thought about regulations, contracts and financing? Maybe a few at most. This is the exercise that former Secretary of Energy, Ernest Moniz, and David Cash, former Massachusetts Department of Environmental Protection Commissioner, prompted at the launch of the WBUR Environmental Reporting Initiative.

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When NGOs and Business Work Together, They Can Change the World

Tom Murray, VP Corporate Partnerships, EDFFull disclosure:  I’ve been a big fan of Michael Porter and Mark Kramer since my days as a graduate business student.  Lots of hours on group projects working on five forces analysis, you get the idea.  So it was especially rewarding to read their recent Fortune article looking at the actions behind the Change the World list of leading companies who are doing well by doing good.

Porter’s and Kramer’s Creating Shared Value approach is “moving into the mainstream and growing exponentially. Companies that adopt shared-value thinking remain committed (as they should) to philanthropy and corporate social responsibility. But they’re moving beyond often-fuzzy notions like sustainability and corporate citizenship, and instead making measurable social impact central to how they compete.”

Sustainability as a fuzzy notion for business strategy?

I’m going to push back on that.

As the environmental NGO that spearheaded a first of its kind partnership with McDonalds over 25 years ago, Environmental Defense Fund (EDF) has partnered with hundreds of leading companies to address sustainability in specifically non-fuzzy ways. We do it by following the science and making sure that every EDF+Business project drives measurable environmental and business results. Read more

KKR Expands Its Green Portfolio by Shepherding Green Solutions

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.

We’re proud to see the Green Portfolio Program, an initiative we helped kickstart in 2008 with private equity firm Kravis Kohlberg & Roberts (KKR), evolve to identify and implement more efficient practices in its portfolio companies that drive business value and reduce environmental impacts. Last week, KKR relaunched this initiative as the Green Solutions Platform (GSP), expanding its mission to include companies outside of its private equity portfolio, as well as a wider range of business and environmental benefits.

kkr_logo_13932KKR announced a shift in its investment strategy in its latest ESG report, and the relaunch of the GSP gives us a first glimpse into what that means in practice. The GSP’s scope has expanded beyond finding energy, water and waste reductions – what KKR refers to as “eco-efficiency projects” – to include portfolio company projects that can drive both top-line and environmental gains (“eco-innovation”) and companies whose core business drives a positive environmental impact (“eco-solutions”).

Much like GE with its Ecomagination product line or social enterprises focused on delivering renewable energy or clean water, the GSP’s new direction has the potential to support business activity that, by its nature, curbs climate impacts and creates value for communities and companies alike.

In just eight short years, 27 KKR portfolio companies reported that they achieved nearly $1.2 billion in avoided costs and added revenue, and avoided more than 2.3 million metric tons of greenhouse gas emissions, 27 million cubic meters of water use, and 6.3 million tons of waste through eco-efficiency efforts. We’re heartened to see an already-forward looking firm push its boundaries further in the pursuit of greater environmental gains, and look forward to seeing what innovations emerge from the Green Solutions Platform.

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.

EDF Climate Corps Proves its ROI for Private Equity Firms

As summer officially gets underway, the 2015 EDF Climate Corps fellows are already off to the races seeking out energy and cost-saving opportunities for some of the world’s largest companies and organizations. Among those participating, we are pleased to place 13 fellows with private equity firms and their portfolio companies, the largest such cohort in a single summer, besting last year’s record of 12 fellows. This brings the grand total up to 57 EDF Climate Corps fellows who have worked in the private equity sector (including with portfolio companies) to date.

EDF Climate Corps fellows Yien Huang (left) and Jiamu Lu (right) collaborating at the fellow training

EDF Climate Corps fellows Yien Huang (left) and Jiamu Lu (right) collaborating at the fellow training

Since 2008, EDF has worked with the private equity sector to drive environmental results, beginning with a partnership with KKR & Co. L.P., and later with The Carlyle Group and Oak Hill Capital Partners. Resulting from this work was a suite of free tools designed to help firms identify and manage environment, social and governance (ESG) issues. EDF Climate Corps offers private equity firms a powerful resource that continues to deliver environmental benefits alongside real financial returns.

This year, as in past years, we continue to see a diverse range of participating companies and projects:

  • In 2015, we welcome new hosts Guitar Center, NBTY (vitamin/food supplement supplier), Ortho Clinical Diagnostics (medical equipment manufacturer), Pharmaceutical Product Development, and Gelson’s Markets (a grocery chain in southern California).
  • Among returning companies, we’re excited to welcome back Floor & Décor, Philadelphia Energy Solutions, Avaya, and Caesars Entertainment, the last of which was featured in episode 7 of the Showtime series Years of Living Dangerously (now available on Netflix, Hulu and Amazon Prime), which profiled the efforts of EDF Climate Corps.
  • HCA Healthcare will also be returning, marking the company’s sixth straight year of participation.
  • KKR & Co. L.P., Carlyle Group, and Hellman & Friedman will have fellows working at the firm level this year.

The work that these fellows will engage in this summer ranges from energy benchmarking and efficiency upgrades to demand response assessments and green revolving loan fund design. We’ve written previously about the myriad ways that fellows can add value both at private equity firms and portfolio companies and we’re excited to see new stories unfold this summer. Watch this space as well as our Climate Corps-specific blog, where fellows across a variety of sectors will share their experiences and accomplishments.

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

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

Impressive new results of KKR’s Green Portfolio Program provide important insights for the private equity sector

Today KKR announced the fourth year of results from its Green Portfolio Program (GPP), with portfolio companies saving a whopping $644 million and avoiding 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.

We know it has taken a significant amount of hard work from portfolio companies, KKR and external partners to continue to build these impressive results since the GPP began in 2008.

However, these results were created by more than just hard work; KKR’s strategic approach to ESG management ensures that they continue to capitalize on new opportunities in a changing environment. As a partner helping to build this approach at KKR, we drew on our work together to develop Environmental Defense Fund’s (EDF) new ESG Management Tool.  I’d like to highlight a few of the practices from the tool that are clearly leading to these strong results at KKR.

Emphasizing the Firm’s Commitment:  Both George Roberts and Henry Kravis have provided clear public statements that highlight the firm’s ongoing commitment to integrating ESG considerations into firm practices.

Leveraging Expertise:  In addition to the expertise of many KKR staff that help drive results, they have also built an impressive list of external partners in addition to EDF, including BSR, Transparency International, American Heart Association and CSR Europe.  These internal and external experts combine to provide the tools and resources that portfolio companies need to identify opportunities and create results.

Building a Network: In today’s announcement KKR’s Ken Mehlman states that their next step is to share best practices across their entire portfolio.  The early 2013 launch of KKR’s best practices handbook, will share lessons learned at some portfolio companies with others to help them identify and implement projects that improve environmental and financial performance.  This highlights a huge advantage we’ve always seen in private equity: the ability to share tools and resources developed at one company with many others.

Reporting with rigorous metrics: You can’t change what you don’t measure.  With that in mind, the GPP has ensured that environmental metrics are sound and accurately track progress for KKR’s investors and stakeholders to judge for themselves.

The GPP began modestly with just three companies and now encompasses 24 KKR portfolio companies globally.  Today’s results continue to prove to institutional investors that reducing environmental impacts does provide stronger rates of return.

The solutions KKR has developed will continue to spread throughout its portfolio companies — and indeed, to other private equity firms and asset managers.  The bottom line results are too compelling to justify inaction.

Environmental management can help the PE sector create “green returns”

Environmental Defense Fund’s Green Returns team is just back from the Dow Jones Private Equity Analyst Outlook 2010 conference in New York, where we sponsored, exhibited and presented.  There is no doubt that EDF is the first environment group to do all three at a Dow Jones conference.  It was a great chance for us to connect with executives from a number of leading private equity and venture capital firms, including 3i, Apollo Management, Clayton, Dubilier & Rice, Huntsman Gay Global Capital, THL Partners and others.

Our message at the conference and for the private equity sector in the future is straightforward:

Environmental management and innovation should be one of private equity’s key strategies now and for the future.

A changing world and challenging economy is forcing companies in all industries – including private equity – to transform to remain competitive.  As a result, private equity firms are looking for new ways to lead and create value.  Taken to scale across portfolios, a creative approach to environmental issues can create value by improving due diligence, boosting portfolio company performance, presenting new growth and investment opportunities and building stronger relationships with LPs and other stakeholders.

Today’s announcement [PDF] by private equity leader Kohlberg Kravis Roberts & Co. (KKR) is proof that environmental management can help drive value creation at scale.  In fact, the release includes a quote from KKR Co-founder Henry Kravis stating that “The business case for environmental management has never been stronger.”

That’s why KKR has expanded the Green Portfolio program that we co-developed and tested at three companies in 2008 (U.S. Foodservice, PRIMEDIA and Sealy) to include twenty percent of its global private equity portfolio today.

In 2008, EDF and KKR worked with U.S. Foodservice, PRIMEDIA and Sealy to measure and improve business and environmental performance.  These pilots helped EDF to develop our Green Returns approach and the three companies to capture over $16M in annual cost savings and reduce 25,000 tons of CO2 pollution.  Based on these results KKR expanded the Green Portfolio Program in 2009 to include Accellent Inc., Biomet Inc., Dollar General Corp., SunGard Data Systems Inc. and HCA Inc. Today’s announcement adds four additional companies:  First Data, Lehigh Phoenix (a division of Visant), Oriental Brewery and Tarkett.

EDF believes that this is just the beginning.  Environmental management can play a much larger role in value creation across the broader private equity industry.   That’s why we recently released our Green Returns approach, resources and case studies to help industry leaders take advantage of this opportunity.

Green Returns is a tested and flexible approach for private equity firms to measure and improve business and environmental performance across their portfolios.  It is tailored to the strengths of the private equity sector and has quickly proven to yield significant business and environmental results, including millions of dollars in annual cost savings and thousands of tons of pollution.

Visit http://edf.org/GreenReturns to learn more and get started today.

EDF and KKR: The not so odd couple

Partnering with leading corporations to demonstrate that good environmental strategy is good business strategy is not a new concept at EDF. In fact, we’ve been doing it for 20 years. What has evolved are the partners we select, the goals we set and the scale of the impacts that we try to achieve.

We’re still learning every day about how to create even better partnerships with truly transformational impacts. Our search to find the highest leverage opportunities to create environmental and business results has recently led us to a place that may look unusual from the outside. In fact, a recent CNNMoney.com story called our partnership with private equity giant Kohlberg Kravis Roberts (KKR) “An environmental odd couple.”

We see things a little differently. Read more