By Elizabeth Seeger, Ken Mehlman Jul 19, 2018
Q: KKR’s commitment to responsible investment continues to deepen. Why is the Firm so committed to this investment approach?
Ken Mehlman (KM), Member and Global Head of Public Affairs: For KKR, responsible investment is about understanding commercial solutions to global challenges, embedding operational excellence into businesses, and, in the end, creating sustainable value for our Firm and our investors. Responsible investment is, at its core, a different commercial lens we use to identify needs and opportunities. Ultimately, it is a way of doing business that we believe makes us smarter, better investors.
Elizabeth Seeger (ES), Director, Sustainable Investing: Increasingly, we see how management of environmental, social, and governance (ESG) issues can be essential to achieving financial success and addressing critical societal challenges facing our world. Thus, investing responsibly is not only the right thing to do, but also the smart thing to do for the long-term strength of our Firm and the companies in which we invest. We believe that it is clear that you cannot be a good investor today unless you are managing your impacts and considering their implications for your bottom line.
KM: This is true of our portfolio companies, too. Because we want our companies to maximize their success, integrating ESG and reputational management into our investment processes has been a growing part of company value creation during the past decade. We also continue to deepen our focus around investing behind trends that can deliver strong returns while addressing global challenges, such as clean water availability and food safety.
Q: Since KKR opened its doors, the Firm has been centered on partnership. How has partnership been critical to the Firm’s ESG-related efforts?
KM: As KKR’s Co-Founders Henry and George often say, we firmly believe the Firm’s success has been built around a single core concept: partnership. Throughout the years, Elizabeth and I have been involved with various partnerships that we believe lead to greater value creation.
ES: That’s right. In fact, I came to KKR from the Environmental Defense Fund (EDF) after we co-developed the Green Solutions Platform with KKR. Through that experience, we both learned that partnerships can be an important tool in creating real improvements in environmental and social performance.
KM: Our partners can bring smart, cutting-edge thinking to a wide range of challenges and opportunities that can impact our portfolio companies. This can help us identify new areas in which to invest and help create value by reducing risk or improving the bottom line in our companies. We strive to be a partner of choice for thoughtful organizations, such as EDF, BSR, Transparency International, and the American Heart Association.
Q: How do you see the private equity industry changing around responsible investment?
ES: The private equity industry has come a long way in ESG management since I joined KKR in 2009. Whether creating new portfolio management approaches, hiring sustainability experts, or enhancing transparency, a lot of work is being done by different firms in the private equity space. And, the private equity mindset can help a lot here as we measure success in years, not quarter to quarter.
KM: Also, we − and many of our peers − have expanded into other asset classes, which means we need to look outside of private equity in order to stay ahead. We have to continue evaluating how to integrate ESG considerations into other asset classes such as infrastructure, real estate, and special situations.
ES: That has proven easier in some asset classes than in others. But no matter whether in private equity or real estate, we see this as a work in progress. We continue to strengthen our understanding of best practices in different asset classes and increase our collaboration with our colleagues across these teams.
KM: I would also add that increasingly, there is more conversation around the role of business in society. At KKR, we are investing in businesses that are working to address pressing societal issues. We invest in opportunities in which responsibility and sustainability are core to the business model and investment thesis. I believe that these types of strategies are strongly influencing the responsible investment landscape.
Q. What uniquely prepares KKR for the next phase of its responsible investment journey?
ES: We see opportunities and risks on the horizon and proactively partner with our portfolio companies to thoughtfully manage them. Our understanding of how ESG issues can drive value helps us invest responsibly in an increasingly complex future. And no matter what that future holds, we are committed to expanding our ESG-related processes and programs, learning from our portfolio companies, and connecting with our partners.
KM: I agree; we cannot emphasize enough the importance of partnership. We know we are not experts on every niche topic and so during the last decade we’ve formed a network of partners who have the expertise we need to be our best, some of whom I mentioned earlier. Connecting with and learning from our partners positions us for growth and success. Lastly, working together with companies and communities, we aim to provide solutions to the shared global challenges that we face.
In Fifteen Words or Fewer
The future of responsible investing is focused on finding and backing solutions-driven companies.
To reduce my environmental footprint, one habit I have is riding the New York City subway to work.
One of my favorite quotations is: “Becoming is better than being.” – Carol S. Dweck
The future of responsible investing is that it becomes the standard for all investing.
To reduce my environmental footprint, one habit I have is being a vegetarian.
One of my favorite quotations is: “Be the change that you wish to see in the world." - Mahatma Gandhi
To learn more about KKR’s efforts in this space, please visit www.kkresg.com.