Going Green With KKR

Private equity may not be the first sector to spring to mind when the phrase “going green” is uttered. But some firms would like to change that.

Two big-name PE firms—KKR and The Carlyle Group—are among those to have partnered with the nonprofit advocacy group Environmental Defense Fund [EDF] to bring mutually beneficial changes (including millions of dollars in savings) to their portfolio companies. Privcap spoke to Elizabeth Seeger and Ali Hartman, who work on KKR’s Green Portfolio Program, about the environment-related changes being made since 2008.

The program at KKR began with three pilot companies, says Seeger, Principal, KKR Business Operations, who joined the global public affairs team in 2009 to lead the Green Portfolio Program [GPP] and expand KKR’s responsible investing efforts. Since 2008, 27 of KKR’s portfolio companies, including retail chain Dollar General and data center First Data, have participated, with 19 companies reporting results to date.

The purpose of the Environmental Defense Fund’s program is to “make environmental management and innovation a standard best practice across the private equity sector,” according to their website. KKR’s project focuses on the operations of existing private equity portfolio companies, using analytic tools and metrics to improve business and environmental performance in five key areas.

Seeger worked for EDF in 2008 when their partnership with KKR was launched. From EDF’s perspective, the goal was to look at the core competencies of the private equity model, and then use those to improve the environmental aspects in portfolio companies.

“The model that EDF likes to follow is to prove a concept with one market leader, and then spread it across the industry,” she says. “For EDF it was a big win [partnering with KKR].”

Seeger calls her transition to a PE firm a positive one. “I actually was pleasantly surprised at how quickly we started expanding KKR’s efforts beyond the Green Portfolio Program,” she says. Those include a responsible sourcing initiative, focused on the management of labor issues and human rights in portfolio companies’ supply chains.

Hartman, Vice President, ESG strategy and communications at KKR, came from a job in global sustainability at The Coca-Cola Company. She calls KKR’s focus on energy management “its own world” and “very different from doing CSR at a singular company.” “Nothing prepares you for ESG at KKR until you’re managing ESG at KKR,” she says.

Shortly after Hartman joined KKR in 2011, EDF also announced a partnership with The Carlyle Group, which uses a due diligence tool called EcoValuScreen prior to an investment, to improve operations and create value through environmental innovation.

KKR’s Green Portfolio Program is voluntary and based on value creation, Seeger says. “We’re looking for companies where there are significant operations, where senior management is interested in support and being part of a larger community. It’s certainly a dialogue with management teams to see if it’s a good fit.”

There are some shared areas of opportunity among portfolio companies for improving environmental footprints, Seeger adds. These include improving efficiency of data centers, which are energy hogs; truck fleets can be analyzed, along with using more efficient vehicles and improving routing; and reducing water usage in manufacturing facilities.

At KKR, a company enters the Green Portfolio Program either during or after an acquisition, Seeger says. “There are a couple of companies where the program was part of the 100-day plan. We do have fairly robust diligence processes that include environmental and social governance issues.”

Regardless of when participation in the GPP is initiated, the portfolio companies drive their performance improvement. It’s a collaborative approach, Seeger says.

Dollar General, the discount retail chain, saw massive improvements during its participation in the program. “Their results were quite significant in both fleet and waste management,” Hartman says. “There was upwards of $220M in waste cost [reduction] and recycling revenue, and over $400M in fuel cost [savings] from 2008 to 2013.”

She says Dollar General’s focus on waste costs was particularly interesting, as most of the inventory was being delivered to the stores in cardboard boxes, which the company then had to pay for the disposal of. “The company invested in compactors, rerouted their trucks to allow for backhauling,” Hartman adds. The cardboard bails were then taken to a recycling facility, which produced revenue as Dollar General was paid for the waste. “It was a cost and became a value,” Hartman says.