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Private equity goes green

11 Feb 2013

In the past, private equity may not have been perceived as a responsible investor, but that’s a perception that needs to be challenged.

By Ludo Bammens of KKR

Many private equity managers now apply green policies consistently and rigorously to the companies in which they invest. They are doing this because it makes good business sense for these companies to be eco efficient or to integrate sustainability into their product innovation

The private equity ownership model has features that give it something of an edge in delivering on that agenda.

The most well-known feature is private equity’s active ownership of companies. We work closely with management to translate the investment thesis into operational reality. We have the information and influence to make sustainability part of the company’s strategy, when and where it is material in business and environmental terms.

What is perhaps less well known is the essentially long-term nature of many private equity investments. At KKR for example, we invest in a company for an average of five to seven years, as we believe that is the time it takes to make real change happen –  and that also applies to changes in environmental policy.

An example of how this works in practice is the KKR Green Portfolio Program (GPP).

The GPP runs across KKR’s investment private equity funds. The program began four years ago and is still going strong with 24 portfolio companies currently participating in the program. The participating portfolio companies span North America, Europe and Asia. As part of the program, companies focus on the eco-efficiency issues that are most material to their business from within our five key environmental performance areas: water, waste, energy, chemical and forestry product use. Throughout their participation, eco-efficiency is defined, measured and reported at each company. Moreover, their key learning and best practices are shared across KKR’s portfolio of companies.

This effort is driven in partnership by KKR’s Public Affairs team and KKR Capstone, along with various other experts from within the firm.

Since the programme began 1.2 million metric tons of greenhouse gas emissions have been prevented.

3.4 million tons of waste, and 13.2 million cubic meters of water. But the savings haven’t only been environmental. This program is also helping companies’ bottom line and we have seen more than $600million saved because of efficiency improvements. (1)

We believe that when you put the power and expertise of the private equity business model to work on these issues, you can get astonishing results. ESG management should be a part of good business strategy. By using the tools, experience and discipline of private equity, the industry can show that green policies are good…and good for business!

(1) Sixteen of the KKR portfolio companies participating in the Green Portfolio Program in 2012 reported results. Reporting for the first time in 2012 are: TDC A/S in Denmark, Van Gansewinkel Groep in Benelux, and Visant Corporation in the United States. Seven new companies joined the GPP in 2012 and will report results in 2013: Del Monte Foods and Capsugel in the U.S.; TDC A/S in Denmark; Versatel and KION Group in Germany; Bharti Infratel and Dalmia Bharat Cement in India; and MMI in Singapore. For more information on the methodology and terms used in the Green Portfolio Program, please see http://green.kkr.com

James Crisp, Media Manager, EVCA

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