Feb 12, 2010

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EDF and the Greening of KKR: A Win-Win Partnership

EDF and the Greening of KKR: A Win-Win Partnership

When a private equity firm forges an alliance with an environmental group, one wonders: what’s the catch?

Critics often say alliances of this type are merely used by private capital to sway public opinion or to avoid nasty media image problems regarding human rights, labor practices and environmental records of companies. On the other hand, this sort of partnership can offer a win-win solution to address the interests of buyout firms and the interests of environmental groups.

It is accurate to say that private equity firm Kohlberg Kravis and Roberts has had its fair share of criticisms in the past, among the most notable is its “barbarian” image as depicted in its controversial takeover of RJR Nabisco. However, the currents of change have finally swept over the buyout firm and may have altogether redeemed its image when it decided to pursue the “green” road.

When KKR first announced it was seeking the participation of the Environmental Defense Fund (EDF) and lobby group Natural Resources Defense Council (NRDC)in its negotiations to acquire the $4B Texas utilities giant TXU, all eyes were on the buyout firm. The results were groundbreaking to say the least. The firm placed strict environmental regulatory standards established by EDF and NRDC and TXU’s heavily opposed plan to build 11 coal-powered plants was thwarted.

This action jumpstarted a larger initiative when KKR and EDF launched the Green Portfolio Project in May 2008. The project pilot-tested for six months among KKR’s companies. According to Ken Mehlman, former Republican National Committee chairman currently Head of Global Public Affairs at KKR, the project wanted to “develop and test a set of analytic tools and metrics to help companies improve in several key environmental performance areas, including greenhouse gas emissions, waste, water, forest resources and priority chemicals.”

Six months after the project was announced, the results were proven remarkable for US FoodService, Primedia, and Sealy. By reducing fuel costs and carbon dioxide emissions, US FoodService’s savings amounted to over $8.2 million and a decrease of 22,000 metric tons in CO2 emissions. Primedia reduced paper use by 3,000 tons and saved $2.9 million. Sealy, a manufacturer of bedding products, improved truck fleet, saved $1.2 million, and reduced solid waste by 650 tons in the process.

Practically speaking, this partnership has been a positive influence for both sides: adherence to lobbied environmental standards in favor of EDF and environmental groups and cost reduction and efficiency for KKR. Whatever the form of alliance, what is most important is that the project benefits Mother Earth.

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  3. Goldman Sachs – Greening its investments
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  5. KKR’s green portfolio project expands

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