Here’s what many consider good news that also highlights why we’re not making enough progress when it comes to sustainability.
Andrew Malk, founder and managing partner at Malk Sustainability Partners, reported in January that sustainability was boosting returns for private equity funds.
Malk notes that:
“In an era where resource constraints, climate change, and other environmental issues are already redefining competitive advantage, sustainability is another lens through which private equity funds can focus on boosting returns. Leading funds such as Kohlberg Kravis and Roberts have actively embraced sustainability as a driver of cost savings; the firm’s Green Portfolio program has helped many of its portfolio companies including Dollar General and Sealy Mattress to avoid costs from 2008 through 2011 of over $365 million during the past 3 years. Over the same period KKR portfolio companies avoided 810,000 metric tons of GHG emissions, 2.2 million tons of waste, and 300 million liters of water. Other well-known funds such as the Carlyle Group and Apax Partners are pursuing similar strategies.”
Additionally, some pension funds, university endowments, and other large institutional investors, which invest in private equity funds are increasingly expressing their concern about climate change and resource management with 570 institutions becoming signatories to the United Nations Principles for Responsible Investing.
Malk identifies three strategies used by private equity investors:
- Maximizing Earnings – Resource savings identified through the lens of sustainability have resulted in hundreds of millions of dollars of cost savings in recent years and have proven to be a meaningful boost to earnings at a time when growth in the economy has slowed.
- Managing Exposure – By training investment professionals to understand and act on the scientific, technological, and policy implications of the major environmental challenges facing our planet, fund managers can minimize exposure to resource scarcity, cost of additional compliance, and other risks.
- Satisfying Investors – As noted above, major institutional investors in the U.S. and abroad are encouraging the funds they invest in to meet new environmental standards. Private equity funds should meet these increasing demands and can in some cases benefit from exceeding them.
Yes, we’ve known these things for over a decade. Today, minimizing waste and reducing risk fall far below the type of innovation that’s required to make meaningful progress when it comes to global climate change, disappearing fresh water resources, the proliferation of toxic chemicals, food shortages, population increases at rates beyond what our planet can bear.
To put this in context, while all the KKR portfolio companies saved 810,000 metric tons of GHG emissions from 2008 through 2011, this is a pittance for a company who’s portfolio businesses generated $210 billion in revenue.
Seventh Generation, the company I co-founded, avoided the release of 25,000 metric tons of GHG emissions from 2005 to 2010. While Seventh Generation’s savings are just 3% of KKR’s, Seventh Generation revenues are .01% of KKR’s. Than means that, very roughly (and this is a rather gross estimate) Seventh Generation saved or avoided the release of 30 times more CO2 per dollar of revenue than the KKR’s portfolio companies did.
It’s time to do better.