On Tuesday, Tom Murray, the managing director overseeing Environmental Defense Fund’s work in the private equity industry, addressed attendees at one of the most visible and well-attended industry conferences, the Dow Jones PE Analyst Outlook 2010 in New York City. Representing the only NGO at the conference, Tom added a unique environmental perspective to the insights of his fellow panelists.
In his opening remarks, Tom said that he’s seeing a universal acceptance that financial engineering alone isn’t enough anymore and that going forward, multiple tools will be needed to create value, including a growing focus on operational improvement. In fact, an article in last week’s FT online called the growing demand for operations professionals one of the most significant shifts in the PE sector last year. Co-panelist Chuck Brizius, managing director at THL Partners, said his firm had also recognized the trend and would continue to focus on operational management in 2010.
“The reason we’re here today is looking for new ways to create value. That’s where we think the environment comes in. A focus on environmental performance can create a strategic competitive advantage.”
We know the opportunity is real, because we’ve done it – with impressive results – with Kohlberg Kravis Roberts & Co. L.P. (KKR), which is now taking it to scale across US and international portfolio.
Our work with KKR is just the beginning; Environmental management can play a vital role in value creation across the industry. As a result of our work with KKR, we have developed a flexible approach for capturing environmental and financial benefits called Green Returns and hope that 2010 is the year that other PE firms adapt the Green Returns approach to their portfolios.
Taken to scale across portfolios, a creative approach to environmental issues can create value by improving due diligence, boosting portfolio company performance, presenting new growth and investment opportunities and building stronger relationships with LPs and other stakeholders.
“The opportunities are already there. What Green Returns provides is a new way to look at performance and provide metrics to help them capture environmental improvements.”