E&Y pushes ESG effort for PE

Ernst & Young and the Environmental Defense Fund are launching a new environmentally focused fund return programme.

A new environmentally focused action plan to boost portfolio returns is being developed by the Environmental Defense Fund, an advocacy group, and fund services giant Ernst & Young.

The programme, Green Ops for PE, will offer private equity shops a tailor-made assessment of their portfolio companies’ environmental impact and what changes could be made to save on costs.

The new initiative comes at a time when European investors have expressed greater interest in environmental, social and governance (ESG) investment concerns. Two thirds of European LPs flagged ESG matters as important, according to Coller Capital’s Winter Barometer 2010/11. However, the Green Ops for PE may discover less interest in other parts of the globe: a marginal 20 percent of North American LPs and 25 percent of Asia-Pacific LPs say ESG factors are important.

[Private equity is]uniquely positioned to take advantage of untapped value creation through environmental management”,

Tom Murray



Some big name private equity firms may change that geographical breakdown. Kohlberg Kravis Roberts’ Green Portfolio Programme, launched in 2008 alongside the EDF, has saved eight portfolio companies $160 million in operating costs, 345,000 metric tons of CO2 emissions, 8,500 tons of paper and 1.2 million tons of waste, the firm said in June of last year.

Likewise, in March of last year, EDF partnered with The Carlyle Group in creating the EcoValuScreen, a due diligence tool designed to capture value through environmental opportunities. Carlyle’s deal team is incorporating the tool in its US investments, including last year’s $3.8 billion take-private of NBTY, a New York Stock Exchange-listed nutritional supplement company, E&Y said in a statement.

Green Ops for PE will build from the EDF’s earlier work with KKR and Carlyle and from its Green Returns programme— which identifies key environmental performance areas in a portfolio company and tracks each area’s progress based on green metrics and baselines.

Private equity is “uniquely positioned to take advantage of untapped value creation through environmental management”, said Tom Murray, a managing director at EDF, adding the group is “looking to Ernst & Young to help make this a standard practice across the industry”.

For the latest views and analysis on responsible investment, see February’s supplement to Private Equity International.