KKRED: A Triple Double?

20070622_kkr_18.jpgThe buyout firm Kohlberg Kravis Roberts last week announced a new partnership with Environmental Defense to help measure the environmental performance of the dozens of businesses KKR owns, from Toys R Us to the energy giant TXU. The partnership grows out of the collaboration between the two groups last year in brokering a deal for TXU. ED agreed to support the acquisition by KKR of TXU in exchange for KKR and its partner, Texas Pacific Group, agreeing to reduce TXU’s carbon emissions and scotch its plans to build new coal-burning power plants.
The evolution of the KKR-ED partnership mirrors a larger evolution underway for the past two decades in American environmentalism: the merger of market and environmental strategies. ED’s President, Fred Krupp, has long been out front in pushing for what he and others have called “The Third Wave” of environmentalism, the latest iteration of the movement following its conservation and pollution control phases. Starting in the late 1980s, Fred and ED have taken a contrarian position vis. other national environmental NGOs in embracing market-based approaches to pollution reduction/elimination, especially emissions credit trading (cap-and-trade) schemes of the kind pioneered in the 1990 federal Clean Air Act.

ED’s Third Wave-style environmentalism has come of age as awareness about the threat of global warming has grown in the last few years, especially among U.S. corporations. This, I would argue, is a good thing. My concern about ED’s approach today is the same as it was in 1989, when I invited Fred to present his Third Wave thesis to a group of faculty and students at my law school, where I headed the school’s Environmental Law Society (Disclaimer: Fred was a patient of my father’s, a Connecticut doctor, at the time, which is how I got to know him). My beef with the Third Wave, much like the history of environmentalism itself, is that it still misses the bigger picture. In focusing on environmental performance alone, without consideration for what I would call social performance (the other bottom-line), ED is still promoting an old-school approach dressed up as cutting-edge.
In effect, ED’s environmental Third Wave partnership with KKR sounds a lot like a vanilla double-bottom line strategy which, as I say, is fine for what it is. But it seems to me the real innovation opportunity, for ED and any other environmental group that wants to position itself as a market force and pathbreaker, is to develop and promote new, triple-bottom line metrics like B Lab’s B Rating System, currently in beta form.
In my view, environmental groups in particular need to demonstrate that they not only understand but can operationalize an environmental worldview/strategy in which people, especially low- and middle-income folks, working folks, matter, a vision in which the way companies treat their employees and other stakeholders is seen as just as important a metric as how they treat their ecosystems.
This, of course, was one of the problems with 1990 Clean Air Act amendments and, for that matter, most market-based, cap-and-trade approaches. They tend to ignore place-based or local impacts; net overall emissions for a particular pollutant or set of pollutants might be reduced across an airshed or region, but they might also be concentrated in certain areas or among certain populations, like ones that happen to host older, dirtier facilities, which, not surprisingly, tend to be lower-income and politically weak communities of color. Clean places get cleaner while dirty ones stay dirty or worse. This is the environmental justice critique of market-based approaches. They sound great in theory, but look more closely, at the finer grain (or finer particulates! remember the famous Harvard School of Public Health Six Cities Study?), and you see that some people and some places still bear a disproportionate pollution burden.
ED_logo.gifED’s company-by-company, plant-by-plant performance approach might well help remedy this externalities problem. If companies are making real, on-the-ground improvements in their environmental management practices everywhere they operate, workers and communities will necessarily benefit. However, the key is to make this social part of the measurement methodology explicit, patent, not incidental. In this way, ED and other environmentalists can do a lot to erode the notion that they’re elitists, happier to sit down at the table with Fortune 500 CEOs and Wall Street tycoons than alongside blue-collar, working folks.
The point is, it’s gotta be more than about just carbon; it’s gotta be about communities, about turning the double into a triple.
A pioneer in social entrepreneurship and sustainability, William Shutkin is the inaugural Chair in Sustainable Development at the Leeds School of Business at the University of Colorado Boulder. He also serves as the Interim Executive Director of the Business Alliance for Local Living Economies, a Partner of the Innovation Network for Communities and a Research Affiliate at MIT. In his spare time, he enjoys hanging out with his wife and two kids tele-skiing, flyfishing and gazing at trees.