The Environmental Defense Fund (EDF) and Ernst & Young LLP will pilot a program to develop a new value creation approach for the private equity industry. The pilot program – Green Ops for PE – is designed to create a customized assessment process to help PE firms harness the power of environmental innovation to improve financial and environmental performance across their portfolios. Building on the growing focus on environment, social and governance (ESG) issues in the PE industry, this initiative aims to make the measurement and management of environmental performance a core element of PE investment practices.
“The private equity industry is uniquely positioned to take advantage of untapped value creation through environmental management,” said Tom Murray, Managing Director for Corporate Partnerships at EDF. “Industry leaders have begun to embrace this opportunity and we are looking to Ernst & Young LLP to help make this a standard practice across the industry.”
Green Ops for PE will offer participants a tailored assessment of the environmental opportunities across their PE portfolios and suggest strategies to capture environmental and financial value. This process will leverage best practices from EDF’s proven Green Returns approach for the PE sector, as well as the organization’s history of working with leading companies across a number of industries to improve business and environmental performance.
Since 2008, EDF has worked with leading private equity firms to develop environmental value creation strategies across diverse and growing global portfolios of companies. As part of the Green Returns program, EDF has partnered with private equity leaders Kohlberg Kravis Roberts & Co. L.P. (KKR) and The Carlyle Group (Carlyle) to develop and implement industry-leading environmental initiatives. KKR’s Green Portfolio Program, developed in 2008, now includes 16 portfolio companies and has helped avoid over $160 million in operating costs, 345,000 metric tons of CO2 emissions, 8,500 tons of paper, and 1.2 million tons of waste. In March 2010, EDF worked with Carlyle to launch EcoValuScreen, an innovative due diligence tool designed to identify value creation opportunities through improved environmental management practices at target investments. Carlyle deal professionals are currently applying the process to new transactions in the U.S. – including the recent acquisition of NBTY, Inc. – to more effectively evaluate the operations of a target company, identify the most promising environmental management opportunities, and incorporate them into the post-investment management, governance and reporting plans for new investments. Green Ops for PE will incorporate and build on the best practices developed through EDF’s work with KKR and Carlyle.
By marshalling the firm’s core audit, tax, transaction and advisory services, Ernst & Young LLP’s Private Equity and Climate Change and Sustainability teams will look to help PE firms and their portfolio companies operate more efficiently by analyzing and taking advantage of environmental innovation. Quantis, a boutique consulting firm that specializes in environmental quantification and life cycle assessments, will assist Ernst & Young in its effort.
“We have seen many companies recognize significant ROI from assessing and investing in environmentally sustainable business initiatives,” said Steve Starbuck, Ernst & Young LLP, Americas Leader Climate Change and Sustainability Services. “Green Ops for PE could make these business opportunities more accessible across the PE sector. We see tremendous potential for this approach to help PE firms generate cost savings and create value.”
Ernst & Young has a long history of serving private equity funds, addressing market, industry, transactions, supply chain operations and regulatory issues affecting all aspects of their business, including fund, investment, and portfolio companies’ performance. The firm’s experience in the PE sector will be combined with the deep subject matter knowledge of Climate Change and Sustainability Services professionals across the global Ernst & Young network.
“There is a growing interest and recognition among PE leaders that environmental sustainability initiatives present opportunities not only to benefit the environment, but also to improve operational and financial performance. This initiative will help PE firms determine how to drive environmental sustainability improvements in their individual portfolios,” said Philip Bass, Ernst & Young LLP, Global Private Equity Markets Leader.
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