Adaptability is an essential attribute in today’s rapidly changing and increasingly difficult economic times. Back in the mid- to late ’80s, Kohlberg Kravis Roberts & Co. LP made fortunes, and stirred up more than a bit of controversy, as a pioneering private equity firm and master of the leveraged buyout. Times have changed, and KKR is looking to change with them.
KKR’s attempt at corporate evolution involves making some strange bedfellows. Since May 2008, the firm has been working with the Environmental Defense Fund to develop and test a set of analytic tools and metrics capable of enabling companies in its portfolio to measure and improve their environmental performance. Applying them at three KKR companies yielded $16.4 million in savings and avoided more than 25,000 metric tons of greenhouse gas emissions last year, the organizations announced today.
With energy security, greenhouse gas emissions and corporate social responsibility prominent in the public mind and high up on government agendas, the EDF-KKR partnership is indicative of a growing trend that’s increasingly bringing together champions of business and the environment in alliances that would have been practically unthinkable not so long ago.
KKR’s ‘Green Portfolio Project’
Dubbed the ‘Green Portfolio Project,’ increasing energy efficiency was one of the key aspects of the KKR-EDF environmental pilot program. Applying the analytical-performance measurement toolkit at two KKR companies–US Foodservice and Sealy– yielded fuel cost savings of $8.2 million and $1.2 million, respectively, the equivalent of taking 5,000 cars off the road, according to a news release. US Foodservice improved the efficiency of its fleet more than 4%, Sealy nearly 9% as compared to a 2007 baseline.
Materials processing and waste management were two other focal points of the initiative. Sealy wound up saving more than $4 million in material costs, avoided 650 tons of solid waste and reduced the amount of scrap left over from producing bedding by 16%.
The third KKR company to participate in the pilot program, PRIMEDIA, publishes more than 38 million print guides and magazines focused on the housing market. Applying the environmental performance toolkit resulted in the company saving $2.9 million in material costs by cutting back paper use by more than 3,000 tons – some 40,000 trees worth – and improved efficiency as measured by paper use/revenue 22% compared to a 2007 baseline.
KKR’s partnership with EDF grew out their initial collaboration in 2007, which involved the two organizations developing an environmental component to the metrics and performance measures KKR used in its acquisition of TXU, the largest leverage buyout on record.
The two organizations are now looking to expand on and share the success of the Green Portfolio Project. They’ve begun rolling the program out to other KKR portfolio companies, including Sungard, Accellent, HCA, Biomet and Dollar General.
By the end of the year, management expects the majority of the 46 companies in its portfolio to be actively participating in the program. Looking to spread the word more broadly across the private equity community and other industries, it will also be available through the EDF Innovation Exchange this fall.