The Green Potential for Private Equity

Private equity firms have recently become a target for both social and environmental activists,who see financial engineering and cost cutting in companies purchased by these firms asdetrimental to the companies and society as a whole. However, the private equity space holds atremendous amount of potential to improve particularly the environmental performance of alarge number of companies while focusing on the smaller number of firms who hold them. In2007, the environmental non-profit Environmental Defense Fund (EDF) began a partnership withthe private equity firm Kohlberg Kravis and Roberts (KKR) surrounding the improvement ofenvironmental performance at several of the firm’s portfolio companies. This paper focuses onthat partnership, and on how private equity firms can derive value, increase investment, andenhance their public images through the measuring and improvement of their environmentalperformance in five key areas: greenhouse gas emissions, water use, waste, forest resource use,and toxic chemical use. The paper also walks through the steps private equity firms can take tobegin these improvements in two key areas of their work, due diligence and current portfolioenhancement. It offers resources to guide them through the creation of baselines and ways tomeasure improvement in areas that may be unfamiliar to them.