News & Analysis

The winds of change

A European group has released a guide for LPs and GPs explaining how to factor climate change into their due diligence.

-
Europe’s Institutional Investors Group on Climate Change (IIGCC) has published a guide on climate change for private equity investors.
The guide is aimed at both general partners and limited partners of private equity funds. It includes questions that LPs and their advisors can ask fund managers, as well as questions that GPs can ask of the management of their portfolio companies and target investments.
Among the questions that GPs are advised to ask when evaluating investment opportunities are whether the directors have considered whether increasing carbon costs and legislative changes will impact their market or competitiveness, and whether changes in agricultural growth rates will affect their access to resources.
LPs are encouraged to ask their GPs how they monitor climate-related issues at the portfolio level, and whether they hold portfolio companies accountable for complying with climate change regulation.
The guide also recommends that LPs ask GPs how they intend to look for investment opportunities created by climate change.
 “While publicly listed companies have long been required to disclose information relating to the potential impact of climate change on their business, the private equity community has not been obliged to research or communicate comparable information,” Peter Dunscombe, the group’s chairman,  said in a statement. “With legislation such as the [UK’s] CRC Energy Efficiency Scheme coming into effect as soon as April, this guide is a signal to the sector that now is the time to step up its attitude to climate change. ”
Several high profile private equity firms, as well as their LPs, have been launching “green” initiatives or including environmental impact assessments in their due diligence processes.
KKR recently released an update on its Green Programme, launched in May 2008. The programme, undertaken in partnership with the Environmental Defense Fund around the time that KKR was seeking regulatory approval for the $45 billion TXU buyout, now includes 20 percent of KKR’s global portfolio, the firm said.KKR has also hired Elizabeth Seeger from the Environmental Defense Fund to manage the expansion of the programme.
The programme is good  PR, but has also yielded real savings for KKR: the firm reported that US Foodservice, PRIMEDIA and Sealy together saved $16.4 million and prevented more than 25,000 metric tons of greenhouse gas emissions in 2008. Data for Accellent, Biomet, Dollar General, SunGard Data Systems, and HCA are expected to be released in spring 2010.