KKR today announced that it saved $16.4 million in less than a year through its partnership with Environmental Defense Fund. The partnership reduced fuel and emission costs at U.S. Foodservice, Primedia and Sealy Corp. The firm plans to implement its plan at four more portfolio companies: Accellent, Biomet, Dollar General and HCA.
I spoke with Ken Mehlman, KKR’s head of global public affairs, about where the money will go, the program’s total cost saving potential and KKR’s interest in green investing.
What role did the EDF play in these initiatives?
They were very involved and one of the great strengths the EDF has is that they don’t just advise but they came up with very specific and practical solutions. For example, they came up with the concept of replacing McDonalds’ Styrofoam with paper, and they made similar contributions to different companies. They were very much involved in helping identify ways to improve environmental performance.
Could other buyout firms do this kind of thing on their own?
EDS has been critical to the effort and so has KKR Capstone. That’s one of the reasons we intend to expand it, because we have an in-house operational focus with KKR Capstone. It’s helped us take good ideas and execute them.
If implemented across KKR’s entire control-stake portfolio, what kind of cost savings potential does the program have? Does KKR have a goal in mind?
We haven’t been able to do that. We’re just getting through the pilot programs, and the goal of those is to figure out how it can be more broadly implied. On one hand, we are confident with our results and confident that we have a good roadmap. It’s too early to be able to give an estimate of what we can provide. Every company is different, so the ability to extrapolate from one company to another isn’t always easy. We do know we have a good formula.
Why did you choose the three companies?
A lot of our comapnies are interested in ways to reduce costs and improve their environmental impact and these were three that were particularly interested in it. If you tink about what they do they are three different kinds of companies. It was partly an interest from the management. They did a lot of creative initiatives. As we go forward, you’re going to hear more news about other companies doing the initiatives. The goal is to continue and expand it.
Is the program at any cost to you?
No, EDS is a non-profit and very careful not to charge.
Will the $16.4 million be invested back into the companies?
In today’s environment $1.64 million makes a difference, an important difference. It’s money the companies can use for whatever they need it for. Investing in the company, jobs, anything.
Will it be used to pay down debt?
Every company will be different.
But it won’t be returns to LPs? No, that’s not the focus.
In this environment, it seems the balance of power between general and limited partners has shifted back to the LPs. Has KKR taken any pre-emptive actions to strengthen or smooth over relations with LPs?
This is an alliance that we think makes sense from a number of perspective. It will build better companies in the future. They are companies that can control costs and have a better environmental approach. The alliance itself creates value.
We are working on lots of different initiates. We have monthly market calls where we update for our LPs how we see the world and get their thoughts on how they see the world. We think at times like this it’s important to have enhanced communication.
We need to focus on increased communications, transparency and listening. Helping making sure companies are doing well and doing good for the environment, which this initiate helped us to do, as well. We also are part of the the UN Principles for Responsible Investing agreement, which was something a number of LPs had encouraged us to think about.
KKR seems to be leading the pack for private equity’s embracing of green initiatives like this one. Has the firm encouraged its industry peers to form similar partnerships?
We are pleased other members of the Private Equity Council signed the PRI. (The PRI includes “guidelines” about environmentally safe business practices.)
But that’s only 13 firms.
Well, we hope other firms in other places will sign on as well. Ultimately, if your goal is to create value, then making sure you can create value for key stakeholders while understanding upcoming regulations and helping workers understand their role in it is all a part of it. It’s all areas we’ll continue to push and make a regular and rigorous part of how we manage companies.
From an investment point of view, does KKR have plans to do any green investing?
Our goal in each investment is to say, not only will we look at investments as to how to improve from an operational perspective, but also how will we improve environmentally, and improve our relationships with LPs. We’re helping companies get greener. We are going to look at every investment from the perspective of, ‘Is this a company we can create real value and one we’re proud to be associated with?'”
Another area where it is obviously very much relevent is, as we launch our infrastructure effort. One unique strength we bring to the space is the shareholder management we have through investments in companies like TXU. We look forward to not only managing these companies but improving them from an environmental point of view.
Earlier: Ken Mehlman Joins KKR