KKR private equity titan Roberts says ESG is “good business and right thing to do”

Long-term value should outweigh short-term cost says KKR founder.

George Roberts, one of the founders of US private equity giant KKR has declared that integrating environmental, social and governance (ESG) factors into private equity is both “good business and the right thing to do” and suggested that in doing so private equity houses should swallow short-term costs in favour of long-term value. Speaking at a conference in New York organised jointly by the United Nations Principles for Responsible Investment and Private Equity International, Roberts, one of the world’s most respected private equity financiers and co-founder of KKR in 1976 with Henry Kravis and Jerome Kohlberg, said KKR wanted to be: “Skating towards where the puck is going, not where it has been.” Roberts said this meant “shared value” between investors and stakeholders, alluding to an article published in the Harvard Business Review at the beginning of this year by professors, Michael Porter and Mark Kramer, which argues for creating economic value in a way that also creates value for society. At the end of 2010, KKR published its first ESG report titled: “Creating Sustainable Value.” The report said that its Green Portfolio Program, established in partnership with the Environmental Defense Fund, covers 16 of its portfolio companies and had identified $160m in cost savings and 345,000 metric tons of C02 avoided at eight of those.
Roberts said that before embarking on the programme he was worried: “I said that if we are going to do this then it has to work and that we needed metrics and proper auditing.” He said that since its introduction the programme had become a “bottom-line business issue”.The private equity giant is now developing the second stage of its sustainability programme, according to Roberts: “As the business world goes global we want to look at best practice in issues like supply chains.” He said one issue the private equity industry had to address were the reasons that many people had grown to dislike it: “I’ve had my fill of walking into investor meetings to be greeted at the doors by people protesting that they hate private equity. To be honest I could have done without it and we’ve got to change that.” He said KKR had made sure its portfolio companies had been actively involved in what it is doing: “Also our investors want us to do this and the employees in our portfolio companies want us to do this.” Significantly, Roberts suggested that private equity needed to take a longer term look at what the cost of ESG integration would be. Asked by Responsible-Investor.com whether KKR would consider introducing ESG practices into a company where there would be upfront costs for doing so, Roberts said: “We have to look at not just what the initial cost will be. It may be that we have to start thinking about making the returns over a longer time frame. It’s good to find the areas where those win-win financial and social returns can be made.” A poll of delegates at the conference found that 93% believed that efficiencies could be indentified at portfolio companies by using a green lens. The same number also believed that there were other stakeholders that needed to be considered in private equity deals. In 2010 KKR floated 30% of its shares on the New York Stock Exchange.