A year after courting environmentalists to back its bid for TXU Corp.,
Through the partnership, the LBO mega-firm aims to develop a set of analytic tools by which portfolio companies can measure and improve their environmental performance.
The new effort complements KKR’s investment criteria for future deals, although the firm’s professionals don’t expect the partnership to dramatically change the types of companies KKR buys. Rather, these metrics should enable managers to reduce waste and improve efficiency while minimizing greenhouse gas emissions, the use of toxic substances, waste water consumption and other environmental impacts.
It is unclear how KKR will respond if it turns out the cost of improving a company’s impact on the environment would impair the firm’s investment. KKR professionals stressed the early nature of the partnership and said that fundamentally KKR believes reducing waste would yield financial benefits.
Not that KKR has previously disregarded environmental concerns. In fact, the shop has avoided deals because of environmental concerns. Fred Goltz, a partner at the firm, predicted that environmental considerations would only become more important and more costly. To that end, the partnership’s metrics could provide KKR with more tools to evaluate deals and improve companies.
“A large part of the driver for us is that the cost of poor environmental performance is going to become more tangible over time,” Goltz said. “We want to be on the front end of that.”
The partnership grew out of KKR’s experience working with the Environmental Defense Fund last year during the negotiations for TXU Corp. Earning the backing of environmentalists, which required concessions from KKR and its investment partner, TPG, proved to be an important step in sealing the deal.
KKR also agreed to undergo an energy audit of its offices as part of its participation in the Environmental Defense Fund’s Climate Corps Program. The audit will analyze the financial and environmental benefits of energy-efficiency improvements and implement those that are most cost-effective. —Bernard Vaughan