Guest blogger Tom Murray is Managing Director of Corporate Partnerships for the Environmental Defense Fund (EDF).
Earlier this month, private equity leader Kohlberg, Kravis and Roberts (KKR) and EDF announced the updated program results for the partnership that Environmental Defense Fund helped jumpstart in 2008 – The Green Portfolio Program – that harnesses environmental management and innovation to improve the financial and environmental performance of KKR’s portfolio companies. The results from the eight reporting portfolio companies- Accellent, Biomet, Dollar General, HCA, PRIMEDIA, Sealy Corp., SunGard and U.S. Foodservice – are impressive; combined, the companies have saved more than $160 million in operating costs and eliminated more than 345,000 metric tons of CO2 emissions, 1.2 million tons of waste and 8,500 tons of paper use.
Launched in 2008 with three pilot companies, U.S. Foodservice, Sealy and PRIMEDIA, the program delivered impressive financial and environmental results in the first year, with combined savings of $16.4 million. This led KKR to include five more portfolio companies in the program in 2009, and the savings outlined below clearly demonstrate the value creation opportunities that can result from better environmental management:
These results even exceeded the most optimistic expectations EDF had for the program. More importantly, these results illustrate that improving companies’ environmental performance can yield meaningful financial benefits and competitive advantage, in addition to the environmental benefits. Through initiatives ranging from efficient fleet routing to material waste reduction through optimized manufacturing processes, these companies are uncovering opportunities to save money and reduce environmental impact across their value chains. Our website illustrates the specific company initiatives and their plans for expansion.
Based on their success to date, KKR is committed to rolling out the Green Portfolio Program to its global portfolio and developing the resources to support best-practice sharing and continuous improvement of company initiatives. Earlier this year, KKR announced that a handful of new companies in North America, Asia and Europe are joining the program, bringing enrolment to 20% of its global portfolio. Dean Nelson, Head of KKR Capstone, said “We continue to create value in the KKR portfolio while improving our environmental stewardship. Most importantly, the portfolio companies and the communities in which they operate are benefiting from this effort, which is evident in the expansion of the program within the companies as well as across the portfolio.”
KKR is not alone. In March, The Carlyle Group, EDF and The Payne Group launched EcoValuScreen, the private equity industry’s first pre-investment due diligence screen to systematically incorporate the review and analysis of environmental factors from a potential value creation, rather than risk mitigation, perspective. The initiative builds on Carlyle’s industry-leading due diligence practices and EDF’s proven Green Returns methodology. By adopting a different, additional perspective from the outset of a deal’s evaluation, EcoValuScreen can drive better outcomes for portfolio companies, investors and the environment.
Although KKR’s results are incredibly impressive, they are just the beginning of what could be achieved when best practices for environmental management are rolled out across the private equity industry. And based on the conversations we are now having with many other leading PE firms, we are confident that will happen. I have been discussing our program with private equity firms for more than a year and what I have seen is a complete sea change in terms of perceptions about our work and tangible interest – the most common question I am now asked is no longer “Why should we do this? but ‘How do we do this?”
Now, more than ever, we are inspired by the impact of our work in this industry and the massive potential that private equity firms have to drive the power of environmental innovation at scale. Private equity firms’ investments represent approximately 10% of the U.S. economy and private equity backed companies employ more than 6 million Americans. To borrow terminology from the world of private equity, green returns is our leverage play and the upside is huge. Imagine if all of those companies and employees became engaged, inspired and harnessed the benefits of better environmental management practices? We believe we have only just seen the beginning of what’s possible – the best is yet to come.
— Tom Murray
- Cool Companies, Part 1: How the best businesses boost profits and productivity by reducing greenhouse gas emissions
- Energy efficiency, Part 2: The limitless resource
- Introduction to climate economics: Why even strong climate action has such a low total cost