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Private equity giant KKR reveals battle with potential clients over PRI scores

Firm has a policy of not disclosing its PRI assessments

KKR, the specialist alternative investment management firm, says it was informed recently by an unnamed client, or limited partner (LP) as they are known in private equity, that it would be marked as non-compliant on environmental, social and governance (ESG) issues if it did not disclose its 2019 Principles for Responsible Investment scores.

Asset managers are scored under the PRI’s reporting and assessment framework and they are confidential unless the manager wishes to publicise them.

New York-listed KKR – a PRI signatory since 2009 – has a policy of not disclosing its annual PRI assessment scores, although KKR’s Head of Sustainable Investing, Elizabeth Seeger, says it offers stakeholders a “dialogue on our assessment findings and our [ESG] plans for the future”.

However, says Seeger, this offer has been taken up just once so far.

PRI scores are available via the data portal on the initiative’s website, but Seeger continued: “Anyone who has asked us for our scores on the data portal knows I don’t do that either.

“But the problem I see with those conversations is that you’re not having them with portfolio managers or relationship managers, you’re having a conversation with me.

“In the end, those questions never end up on the desk of the people who are actually making investment decisions.”

Seeger said it shows how “the PRI is becoming a ratings agency rather than a forum for self-improvement” for investors.

Despite this policy, KKR eventually shared its PRI scores once it became clear that disclosure was a hurdle to potential future investment by the LP. It is not known whether KKR secured any commitments from the investor in question as a result.

The incident was recounted by Seeger during a panel session at the PRI in Person event in Paris recently. According to PRI CEO Fiona Reynolds, who chaired the panel, signatories have said that the assessment should be “shorter and simpler as it had gotten quite large”.

“That’s probably the thing that came up the most,” Reynolds said.Seeger – who sits on the PRI’s Reporting & Assessment Advisory Committee – told RI: “The PRI has a complicated task of balancing what can be competing uses of their assessment tool by different signatories.

“Based on my experience with the assessment exercise, I believe the output could best be used as an improvement roadmap for signatories rather than an investor screening tool.”

Utilising the assessment as a market-facing performance metric has been criticised for encouraging signatories to “solve for the highest score” rather than being used internally as a strategic and process improvement tool.

RI’s recent feature on top-rated signatories explores this and a range of signatory feedback to the PRI’s Reporting Framework.

Others issues up for consideration include the introduction of an outcomes-based approach to the assessment. In its present form, the assessment looks at responsible investment processes, rather than outcomes.

Some signatories have rejected the idea outright. In response to a public consultation earlier this year in which 580 signatories participated, Norges Bank Investment Management (NBIM), manager of Norway’s NOK8.9trn (€919bn) sovereign wealth fund, said that “including outcome-based reporting in the PRI Reporting Framework is drifting away from the PRI’s founding principles”.

This is not the first time that an outcome-based approach has been mooted. In 2011, the PRI’s assessment advisory committee explored a proposal to report on ESG integration case studies although it wasn’t adopted due to a lack of signatory support.

The topic was also broached in a 2016 consultation in advance of the PRI’s Blueprint launch in the following year.

The updated PRI Reporting Framework is expected to launch in 2021 in what would be considered a pilot year. Signatories would be able to provide feedback and there will be scope for further refinement to the assessment.

KKR, which was founded in 1976, has $205bn under management. It launched its Global Impact strategy in 2018, to invest in companies providing solutions to the UN Sustainable Development Goals.