Private equity titan KKR says responsible investment a key priority

Kohlberg, Kravis and Roberts (KKR), the New York-listed private equity giant with $62.3bn (€49.9bn) in assets under management, says incorporating environmental, social and governance (ESG) factors is “key” to its success.

“We believe the key to success is to thoroughly and carefully incorporate ESG considerations into our decision-making,” the firm says – adding that responsible investment in its private equity funds is a “key priority”.

“Our private equity model lends itself well to responsible investment efforts through three main levers: active ownership, long-term partnership, and engaged boards,” KKR says in second annual ESG and citizenship report.

KKR says that, because it measures performance “in terms of years and not quarter-to-quarter” it can focus on long-term results without being distracted by short-term gains or losses.

The firm made a public commitment to formally incorporate ESG factors into its investment processes in 2009.

During 2011, the firm says it added two full-time staff to manage stakeholder relations and other ESG-related issues globally, both for the firm itself and the companies it invests in.

It also instituted regular meetings of experts to review new investments from an ESG perspective as part of the due diligence process.
KKR added that its Green Portfolio Program, started in 2008 with the not-for-profit Environmental Defense Fund,has contributed to $365m in cost savings at 13 of its participating companies.

Other developments include the formation of a working relationship with the non-governmental organisation Transparency International and a co-investing partnership with leading responsible investment fund management firm The Co-operative Asset Management.

“Our private equity model lends itself to responsible investment”

KKR says it increasingly sees the potential for creating value through a “deliberate focus” on ESG issues – pointing to its investments in renewable energy through its infrastructure business.

KKR, founded in 1976, says more than 35% of its portfolio companies were publicly communicating or beginning to communicate on sustainability issues in 2011.

The report says KKR will support investee firms to manage the environmental and social impacts of hydraulic fracturing (“fracking”) for natural gas. It also plans to strengthen its ESG policy for energy and infrastructure.

The firm will also consider how to integrate ESG into its growing real estate business.

Rival firm Carlyle said earlier this year that it was working with Dutch pension management giants PGGM and APG to help it improve its environmental, social and governance (ESG) practices.