This week KKR released its sixth annual ESG and Citizenship Report outlining five global challenges and opportunities for KKR, its portfolio companies, and its investors. These challenges include adapting to climate change, improving agriculture, preventing and treating disease, building infrastructure, and handling resource constraints. In light of the report, the firm’s director of public affairs Elizabeth Seeger tells Private Equity International how KKR has approached ESG [Environmental, Social, and Corporate Governance] concerns.
Seeger joined KKR in 2009 to help oversee environmental and social responsibility issues across the firm’s portfolio.
How has KKR grown its ESG capacity over the years?
KKR became a signatory to UN PRI [the Principles for Responsible Investment, an investor initiative created in partnership with the United Nations] in 2009, which was our first public commitment to responsible investment, and to considering ESG factors in our investment process. But the effort started at least in 2008 with a partnership between KKR and the Environmental Defense Fund (EDF). At that time, KKR also hired Ken Mehlman [KKR global head of public affairs], who is ultimately responsible for everything we do on this topic.
KKR is celebrating our 40th anniversary this year. Throughout those four decades, KKR has evolved and taken new and innovative approaches [to investing]. I think that thinking about ESG-related issues in a systematic way is part of the evolution of the company and of the industry more broadly, as well.
The catalyst for creating a formal programme started in part with the collaboration with EDF; both organisations felt they benefited significantly from the partnership, and there’s a lot of opportunity around value creation in ESG.
What is KKR’s ESG-related investing strategy?
There are two key components to KKR’s approach. One is that the work we do on ESG-related issues is, as much as possible, integrated into our existing investment processes. We aren’t creating parallel processes or additional work streams people have to put together. We are plugging [ESG] into existing investment committee processes and existing portfolio management processes to incorporate issues we think are most important to each company along the way.
The second component is that, for each company, we focus on what we consider to be the most material issue, or issues, from value perspective, whether they be reputational, cost-savings, revenue generation, or whatever the case. We have no one-size-fits-all checklist, but we do have guides that we’ve created. We take a very targeted, customised approach to each company but leverage existing knowledge and resources.
KKR does not have a socially responsible investment fund or product specifically, so the ESG-related opportunities we find come through our conventional products. While we’ve had a lot of significant environmental, social, and community impacts, these are really coming about through investments that are financially sound and fit into the criteria for these products.
What are some key challenges or questions for ESG issues?
In our newly-released annual ESG & Citizenship report, we outline five global challenges that investors are facing and what we or our portfolio companies are doing to be part of the solution. The climate change one, for example, is about how we work with our companies to reduce energy consumed through eco-efficiency effort. But it also talks about how we’ve invested $1.6 billion in renewable energy infrastructures since 2011 [According to Global Trends in Renewable Energy Investment 2016 by the United Nations Environment Programme and Bloomberg New Energy Finance, global renewable energy investments since 2011 have totalled $1.3 trillion.]. My understanding is we are one of the largest renewable energy investors as a result of that amount.
In the agriculture sector, we talk about investing in companies that produce safer food in regions of the world where that’s a significant issue, and about new innovative technologies that grow products using renewable resources.
One of the challenges of answering questions about impact investing is that ‘impact’ is in the eye of the beholder, and whatever issues are relevant to the person. So we think of impact in a variety of ways, and if you think about it that way, you’ll see opportunities everywhere and realise there’s a number of diverse opportunities.
Tell us about the LP concerns surrounding ESG from the KKR perspective.
We are in an ongoing dialogue with investors on the topic of responsible investment and often use their expertise and track record to inform our approach. We also answer questionnaires coming in from investors on the topic and share our public ESG policy for private equity funds. Oftentimes, the policy, as well as our ESG report, addresses all of the questions these investors have.
It’s an ever-evolving area for LPs and GPs both. I joined KKR in 2009 and a lot has changed since then. It has been amazing to look back every single year and know I could not have foreseen what was going to be brought to us on this topic. While a lot of original dialogues were with the European LPs, I have definitely seen it changing in recent years. We’re having dialogues and receiving questionnaires from LPs around the world, including here in the US, which was not well-represented in what I was seeing at the beginning.