As Environmental, Social and Governance (ESG) issues continue to grow in importance for mainstream investors, KKR’s pioneering environmental initiative provides the resources and tools necessary for its participating private equity portfolio companies to determine materiality and the means to measure it.
Elizabeth Seeger (Washington, D.C.) is a Director on KKR’s Public Policy and Affairs team where she helps oversee the management of environmental and social responsibility issues and opportunities across KKR’s portfolio, including through KKR’s newly relaunched Green Solutions Platform (GSP). Ms. Seeger was previously a Project Manager in the Corporate Partnerships Program of Environmental Defense Fund and a consultant with the Corporate Executive Board, where she advised companies across a broad range of industries in Europe and the United States. She is a 2013 Aspen Institute First Movers Fellow and is on the Standards Council of the Sustainability Accounting Standards Board.
What was the call to action for KKR to pioneer the original environmental initiative – Green Portfolio Program (GPP)?
The Green Portfolio Program (GPP) was officially launched in 2008, but started back in 2007 when I was working at the Environmental Defense Fund (EDF). EDF’s goal at the time was to build a program that would enable private equity firms to implement and accelerate programs that could drive the most environmental benefits possible.
KKR is an active investor in the companies within our private equity portfolio and we have a relatively long investment period, often a 5-7 year investment hold. Thus, we help identify operational priorities and implement them over time.
KKR and EDF worked together to develop a program that took advantage of the private equity investment platform to help drive both environmental and financial results from eco-efficiency projects.
How has the mission expanded from the Green Portfolio Program (GPP) to become the Green Solutions Platform (GSP)?
GPP was a value creation program to drive both environmental and business performance by leveraging KKR’s investment model.
While working on the GPP, we realized that while the process and the tools were evolving, the original framework was rigid and as such it limited the kinds of companies and projects that were part of the program. We noticed companies were working in environmental areas that didn’t fit into the current model, such as land use, renewable resource measurements, and community engagement. Having all companies conform to the same requirements when they had unique programs, key performance metrics, and goals didn’t make sense any longer. There was a larger story to be told beyond measuring avoided costs and environmental impacts. It was clear we needed to create a more flexible model. By launching the Green Solutions Platform (GSP) we have broadened the scope of what we are measuring. We’re still investing in eco-efficiency but we’ve made reporting more flexible, which will enable us to work with more companies over time.
Who are some of the member companies engaged in reporting for the Green Solutions Platform and why have these companies put an emphasis on eco-efficiency?
The members of the program are companies within KKR’s private investment portfolios. This program is a way we support them to achieve efficiencies that benefit both the business and the environment.
Of course, it is relatively easy to get companies to realize the benefits of programs in eco-efficiency because they can benefit in real-time with regard to business value and impact. We have case studies on our website (http://www.green.kkr.com/) that discuss programs that have been able to recognize millions of dollars in avoided costs as well as large reductions in greenhouse gas emissions. There is a relatively quick environmental and economic payback that can be measured. We know that this will remain a large part of the program going forward.
Can you describe some of the eco-solutions companies that are part of the 22 GSP companies?
One of the exciting examples of an eco-solution effort is championed by a company called Citic-Envirotech Ltd (CEL.) They are addressing China’s new stricter water quality regulations by developing a membrane bio-reactor (MBR). This technology is based on combining membrane separation with biological wastewater treatment. Its focus is to reduce water usage and improve quality. You can read the case study on our website: http://green.kkr.com/results/citic-envirotech-ltd.
Another compelling example would be the work Sundrop Farms is engaged in for the agricultural sector. They’ve developed a system that desalinates seawater for irrigation in semi-arid regions and then uses it to cool, heat, and power high-tech farms. They are in the early stages of this work, which is described on the GSP program website: http://green.kkr.com/results/citic-envirotech-ltd.
What are some of the top-line benefits for companies making environmental solutions core to their business model?
We believe that companies operating with the environment as core to their business mandate or philosophy are increasingly well positioned to handle the challenges of the future.
We look at in two ways: one is eco-solutions and the other is eco-innovation. Eco-solutions companies benefit from the growth of the overall business as an environmental solution is at the core of operations. Eco-innovations companies experience revenue growth as a result of providing a new product or service.
Coriance, a company in our Infrastructure portfolio and a member of the GSP, operates a portfolio of regulated district heating concessions in France and is another example of a company that provides an eco-solution to a current societal challenge – the need for clean, dependable energy. Through the concessions, they supply residential, social, and commercial buildings the energy they need through the use of renewable sources primarily through geothermal wells. Their use of renewable energy is around 40-50% of their portfolio and is expected to increase to 57% in 2016. The case study on our website shows a graph charting their expanding use of renewable energy from 2012 to 2017. (http://www.green.kkr.com/results/coriance)
How is KKR creating sustainable value by addressing environmental, social, and governance (ESG) challenges and opportunities within its private equity portfolios?
We try to take a mentality of continuous improvement within our portfolio of companies, believing that we can create and protect value in an on-going way by thoughtfully managing ESG issues and opportunities. We want to partner with our portfolio companies to help them identify risks and opportunities for their business. Another strength that comes with the portfolio is our ability to share best practices across companies, helping KKR and our companies learn what is working across sectors, industries and geographies.
Through the GPP framework, we developed a series of tools and resources to help companies evaluate risks, seize opportunities, and determine what is relevant and material for each individual company. We also are able to offer resources outside of eco-efficiency and cover topics including worker health and safety, regulatory compliance, and crisis communications.
How can companies learn more if they want to engage in the GSP?
We invite your readers and all companies to learn from the work happening inside the Green Solutions Platform by visiting our website: green.kkr.com. As a reminder, though, this program is only for KKR portfolio companies.
After a company enters the KKR portfolio, they would be eligible to enter in the program depending on their needs and areas of focus. We discuss this and our other ESG programs with members of both KKR’s and the company’s management team to determine if a program is a good match for the company’s needs.
Assuming we move forward, we engage in a dialogue to set goals and a timeline that works for all parties, providing the company with resources and guidance as needed. We define our success not just in producing immediate results, but in helping build processes and programs that will exist long after we are an investor in a company. Therefore, we work to make sustainability sustainable by providing the tools for companies to identify, operate, and measure projects on their own.
For more on our other ESG programs and processes, you can read our latest ESG report available at: www.kkresg.com.
Kelly Eisenhardt is Co-Founder and Managing Director at BlueCircle Advisors, an environmental compliance and sustainability consulting and training firm based in Massachusetts (www.bluecircleadvisors.com.) In her role at BlueCircle Advisors, she is responsible for providing business intelligence, strategy and implementation of environmental, social and governance (ESG) risk programs. Her experience aligns well with her client’s needs for technology, compliance, and sustainability expertise by helping companies create and manage their corporate environmental and social responsibility programs.
To contact Kelly Eisenhardt, send emails to email@example.com or follow her on Twitter @KelEisenhardt. For more information about BlueCircle Advisors and the company’s products and services, please visit www.bluecircleadvisors.com, on Facebook at BlueCircle Advisors, on Twitter @OurBlueCircle, and on the LinkedIn group at the BlueCircle Advisors group.