Sponsored by:

European firms are far ahead of the U.S. in adopting ESG programs. PAGE 6

LPs care more about ESG issues than ever before. PAGE 13

What factors drive ESG efforts at the firm level? PAGE 7

KKR and Doughty Hanson named ESG leaders in 2013. PAGE 15

ENVIRONMENTAL | SOCIAL | GOVERNANCE

2013 PE ESG SURVEY

Table of Contents
Introduction Participant Statistics ESG Programs at PE Firms ESG at Portfolio Companies The LP Point of View Industry Leaders 4 5 6-10 11-12 13-14 15

Credits & Contact

PitchBook Data, Inc.
John Gabbert - Founder, CEO Adley Bowden - Research Director

Content

James Gelfer - Editor Allen Wagner - Senior Writer

Design

Allen Wagner - Senior Writer Jennifer Sam - Graphic Designer

RR Donnelley is the worlds largest integrated communications company. The company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, drive top-line growth, enhance ROI and increase compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the company employs a suite of leading Internet based capabilities and other resources to provide pre-media, printing, logistics and business process outsourcing services to clients in virtually every private and public sector. Our Corporate Responsibility Report is available at www.rrdonnelley.com. Our Venue secure online workspace provides a powerful feature-set and an intuitive design that allows you to easily organize, manage, share and track all of your sensitive information. Venue data rooms provide complete control, allowing you to manage who has access to your data room, which documents they see, and how they can interact with those documents. Venue data rooms are backed by RR Donnelley, a $10.2 billion corporation with approximately 500 operating locations, with operations in North America, Latin America, Europe and Asia, and more than 55,000 employees worldwide. RR Donnelleys total revenues are larger than all other virtual data room providers combined. Whether youre conducting due diligence for a merger, raising capital, or developing a document repository, a Venue virtual data room is the ideal virtual workspace for managing critical information. RR Donnelley is the sponsor of the PitchBook 2013 Private Equity ESG Survey. All information contained in this publication is for informational purposes only and should not be construed as legal, accounting, tax, or other professional advice of any kind, on any subject matter. RR Donnelley expressly disclaims all liability in respect to actions taken or not taken based on any or all the content herein.

Data Analysis Contributor

Peter Fogel - Senior Data Analyst Kirk Hourdajian - Sustainable Business Solutions, PwC

Contact PitchBook

www.pitchbook.com Research - research@pitchbook.com 1-877-636-3496 Editorial - editorial@pitchbook.com 206-257-7854 Sales - sales@pitchbook.com 1-877-267-5593

COPYRIGHT 2013 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

WEVE GOT IT COVERED

PITCHBOOK FOR LIMITED PARTNERS:
No one offers more coverage of the private equity and venture capital landscape.
Identify top-performing GPs Conduct better due diligence Track industry trends and more! Find out more by emailing demo@pitchbook.com or visiting pitchbook.com

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

Introduction
When we conducted our inaugural environmental, social and governance (ESG) survey of private equity (PE) professionals last year, it was startling to see that nearly half (49%) of our general partner (GP) respondents did not have an ESG program at their firm and had no plans to create one, despite heightened concern from limited partners (LPs) on ESG issues. What a difference a year makesnot to mention the fact that we had a higher proportion of European respondents this year, who are much more progressive when it comes to ESG issues. In our second edition of the ESG survey, a majority of GP respondents (60%) now work at a firm with an established ESG program and another 26% either have an ESG program in development or plan to create one in the near future. However, there are still some PE firms that see little value in ESG programs. As one GP respondent put it: we think [ESG] is the most asinine initiative ever to come out in the business world. While some PE firms eschew ESG issues and think that strong fund performance is enough to attract LP commitments, the LPs themselves are telling a different story. Eighty-four percent of LP respondents say that ESG issues are at least somewhat important when deciding whether or not to commit to a PE fund, with 18% claiming they are essential. Furthermore, 24% said they would they would commit to a fund with slightly lower historical performance if the firm had a strong ESG program. Remember, many of the largest contributors to PE funds are public pension plans, endowments, foundations and sovereign wealth fundsinstitutions which not only are interested in returns but also have an image to maintain. GPs have to be more aware of investors desire for knowledge of their investments beyond just the financial return, commented one LP respondent, while adding that the responsibility ultimately falls on the investors: GPs will only change if the LPs push them to. One of the big takeaways from this years survey is that more PE firms are taking the necessary steps to make ESG a fundamental part of their investment approach. For example, 28% of GP respondents indicated that their firm produces a corporate social responsibility (CSR) report, up from 18% in 2012. And while finding effective metrics to monitor ESG performance continues to be the largest hurdle for ESG efforts, PE firms continue to find new ways to measure their ESG initiatives and have increasingly utilized forums, case studies and industry events and guidelines to fill the knowledge gap. We hope that this survey serves as a lens into the current state of ESG issues in the PE industry and provides a starting point for developing a set of best practices that can be adopted by firms of all sizes. If you are interested in participating in future editions of the survey, or have any comments or suggestions for how we can improve this report, please contact us at research@pitchbook.com.

What is ESG?
Environmental: waste, water, electricity,
chain, employee engagement transportation fuel, toxic chemicals, paper

Social: diversity, human rights, supply Governance: policy, management

structure, board-level oversight

CSR: Corporate Social Responsibility EDF: Environmental Defense Fund GIIRS: Global Impact Investing Rating System PEGCC: Private Equity Growth Capital Council PRI: Principles for Responsible Investment ILPA: Institutional Limited Partners Association

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

Participant Statistics
2013 2012

23 14

9 2

2013 2012

28 39

38 2

# of GP Respondents # of LP Respondents
Our GP respondents showed a much higher level of ESG awareness than they did last year, which is to be expected with the increased focus on ESG issues exhibited by LPs, industry organizations and governmental bodies. But a bigger factor is that there was a much higher proportion of European respondents in this years survey. As will become evident throughout this report, European investors place a much greater importance on ESG issues than investors from other regions.

2013 2012

3 0

1 0

2013 2012

0 1

0 0

Number of GP Respondents by AUM

18 16 14 12 10 8 6 4 2 0
<$500M $500M-$1B $1B-$5B >$5B N/A
2012

Number of LP Respondents by AUM

16

16

35 30

32

15 13 11 8 11

25 20
6

15 10
2

14 6 1
<$5B
2013

5 0

2 2

1 0
N/A

$5B-$25B $25B-$100B >$100B

Source: PitchBook

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

ESG Programs at PE Firms

PE firms show an increased focus on ESG issues in 13
GP Q1: Does your firm have an ESG management program?
100% Yes 80% 60% 40% 20% 0% No; it is currently in development No; but we have plans to create one No 2012 2013 North Europe America
Source: PitchBook

GP Q2: When did your firm start actively implementing ESG initiatives?
100% 80% 60% 40% 20% 0% 2012 2013 North Europe America
More than 5 years ago 2-5 years ago 1-2 years ago Less than 1 year ago Do not have ESG initiatives
Source: PitchBook

The topic of ESG in PE has received increased attention from the media and investors over the last year, and PE firms have responded. In our 2012 survey, nearly half (49%) of GP respondents came from firms that had no ESG program and no plans to create one. Now, just 14% of GPs fall into that category, with nearly two-thirds (60%) of respondents this year indicating that their firm has already established an ESG program. In addition, 26% of respondents hail from a firm that is currently developing an ESG program or planning to create one in the near future. But as the charts above reveal, much of the rise in ESG consciousness in this years survey stems from our higher rate of European respondents, who tend to be more ESG savvy. More than three-quarters (78%) of European GPs have an established ESG program, compared to just half of North American GPs. As to be expected, the ESG programs of our GP respondents are more developed than in last years survey; the percentage of firms with ESG programs that are at least two years old ballooned from 27% in 2012 to 49% this year. But the main takeaway from the graph on the upper right is the steep drop in the percentage of firms that do not have any sort of ESG initiativesfrom 53% in 2012 to only 25% in 2013.

Even with substantially more PE firms having ESG programs in 2013 than 2012, the proportion of respondents that plan to increase their attention to ESG issues in the future still grew from 55% in 2012 to 89% this year. With more and more LPs pushing GPs on ESG issues, as we will explore on page 13, this certainly seems to be the logical move for PE firms in an increasingly competitive fundraising environment.

GP Q3: Do you plan to increase your attention to ESG issues in the future?
100% 80% 60% 40% 20% 0% 2012 2013
Source: PitchBook

Yes No

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

Why are PE firms paying more attention to ESG?

GP Q4: What factors drive your ESG efforts? (multiple choices permitted)
80% 70% 60% 50% 40% 30% 20% 10% 0%
Environ. & social consciousness LPs Risk mgmt Brand/ image Corporate Portfolio Govt Employee governance companies regulation interests Cost mgmt Operational Competitors efficiency
Source: PitchBook

71% 73%

74% 69% 55%

64%

63%

60% 42% 45% 42% 36%

2012 2013 39% 31% 29% 29% 34% 24% 37% 24% 16% 11%

Given the fact that PE firms are concerned with the profitability of their investments first and foremost, it seems somewhat odd that environmental and social consciousness continues to rank significantly higher than cost management and operational efficiency as a driver of ESG programs. It would appear that PE firms are not as incessantly focused on the bottomline as they are typically characterizedor perhaps respondents are simply more inclined to display high-minded ideals when being surveyed. One factor directly related to the success of PE investments that did rank highly was risk management, with 64% of GP respondents citing it as a contributor to their ESG efforts, up from 55% in 2012. This is corroborated by the fact that ESG issues are considered most frequently during the due diligence process. Unsurprisingly, LPs continued to be a top driver of ESG programs at PE firms, although the proportion of GP respondents that identified LPs as being a factor in their ESG efforts dropped slightly from 74% in 2012 to 69% in 2013. With LPs being such an important motivator for PE firms, and our GP respondent base being fairly attuned to ESG issues, it is somewhat odd to see that ESG issues are only taken into consideration by 76% of PE firms during the fundraising process.

Its important that ESG management is integrated with the overall management of any business and not treated as a separate or somehow less important activity driven only by external demands.
-Philip Rowland, Senior Operating Partner at TDR Capital LLP

GP Q5: When do you consider ESG issues? (multiple answers permitted)

Fundraising

Due diligence

Holding period 2013 2012

Exit 0% 20% 40% 60%

80% 100%
Source: PitchBook

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

What needs to be included in an ESG program?

GP Q6: How important are the following factors when developing an ESG program?
Monitoring the success of ESG initiatives Developing an ESG mgmt program at the firm level Using industry guidelines Engaging outside ESG experts Outlining ESG philosophy in LP agreement Requiring portfolio cos to develop a CSR report Hiring in-house ESG professionals 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

0% Essential

20% Very important

40% Important

60% Somewhat important

80% Unimportant

100%
Source: PitchBook

In last years survey, GPs indicated that developing an ESG management program at the firm level was the most important factor when developing an ESG program. While GPs saw this as even more crucial in this years survey, monitoring the success of ESG initiatives overtook it as the most important factor of an ESG program, which makes sense with the high priority that GPs place on metrics of all stripes. But despite this development, finding effective metrics to monitor ESG progress continues to be the biggest challenge for PE firms. For firms that need guidance in this regard, a rundown of some of the most popular systems and resources currently available for gauging the ESG performance can be found on page 12. Amazingly, only 19% of GP respondents found it to be very important or essential to outline their ESG philosophy in limited partnership agreements, despite 76% of firms claiming to consider ESG issues during fundraising. If a PE firm is going to invest the time and resources into an ESG program, why wouldnt they want to make those efforts explicit to their investors? Cost was identified as the biggest challenge to ESG efforts by roughly one in five GP respondents in 2012 but cited by just 7% of respondents this year. Several factors likely led to this decrease, such as more readily available resources to assist in ESG efforts and the fact that ESG programs can actually lead to cost savings.

Many GPs expressed the desire for industry groups to provide more guidance and standardized benchmarks for ESG metrics, which should lead to higher prioritization of ESG issues by both GPs and LPs.
GP Q7: What is the biggest challenge for ESG programs and initiatives?
7% 7% 5% Effective metrics to monitor performance 42% 43% Implementation Cost Employee participation Other
Source: PitchBook

9% 7% 18% 2012 24%

38%

2013

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

How to share your firms ESG story

GP Q8: Does your firm produce a corporate social responsibility (CSR) report?
100% 80% 60% Yes 40% 20% 0% 2012 2013 North Europe America Source: PitchBook No

Creating the CSR Report

Who The audience for a PE firms CSR report will obviously vary depending on the firms size and level of public visibility, but the most crucial audience for all PE firms will no doubt be LPs. For firms that put in the effort to develop an ESG program, it is imperative to clearly articulate what the program is accomplishing to both current and potential investors. The CSR report is the ideal format for this and should include everything from high-level ESG philosophies to specifics on how ESG performance is measured and how it impacts the firms investments. What The actual content of the CSR report will vary from firm to firm, but there needs to be substance. PE firms that include quantitative results in their CSR report differentiate themselves from those that simply have nice photos. Key details all firms should consider in their CSR report include: Objectives of the ESG program General approach to ESG issues How ESG performance is measured Updates on specific ESG initiatives at both portfolio companies and the firm itself

The CSR report not only articulates a firms ESG program to outside parties, but also underscores the importance the firm places on ESG issues and highlights successes to people within the firm. The percentage of PE firms with a CSR reporta hallmark of a well-established and mature ESG program expanded from 18% in 2012 to 28% in 2013. In the future, more PE firms will likely allocate the resources necessary to produce the CSR report as their ESG programs become more mature.

Examples of CSR Reports

All PE firms will take a different approach when it comes to crafting the CSR report. Some produce it as a standalone publication while others incorporate it with their annual review. Here are some examples of how the top PE firms share their ESG stories: KKR: 2012 ESG and Citizenship Report Carlyle: Corporate Citizenship CalPERS (LP): Towards Sustainable Investment

When and Where Most firms produce a CSR report on an annual basis, but LPs appreciate a high level of communication from their GPs. As such, it would also be wise to include ESG updates in quarterly reports. Making the CSR report easily accessibly online allows potential future investors, acquisition targets, media outlets and other interested parties to see the firms commitment to ESG issues.

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

Staying current with ESG developments

ESG Groups & Programs
PRI: Developed by a group of international institutional investors in conjunction with the United Nations, the PRI is a set of six principles that guide the investment decisions for more than 1,000 signatories. PEGCC Guidelines for Responsible Investment: PEGCC, the main lobbying group for the PE industry, developed its Guidelines for Responsible Investment through a collaboration with institutional investors around the world and the PRI. The Guidelines serve as a starting point for PE firms that are developing ESG programs. ILPA Private Equity Principles: Endorsed by more than 240 investors, the ILPAs Private Equity Principles provide a blueprint for GPs and LPs to align their ESG efforts. ESG Disclosure Framework: Over the course of 16 months, a group that included 20 PE associations, 10 prominent GPs and dozens of LPs from 11 countries came together to create the ESG Disclosure Framework. Published earlier this year, the document is centered around ESG disclosures in PE investments, outlining five objectives relating to fund due diligence and three pertaining to disclosures during the life of the fund. PEI Responsible Investment Forum: The forum, which is co-hosted by the PRI, informs PE firms on ESG strategies that can be employed to develop better portfolio companies.

GP Q9: How do you stay abreast of developments in ESG? (multiple answers permitted)
Forums, case studies & industry events Industry guidelines Independent research Outside consultants 2013 In-house experts We dont 0% 20% 40% 60% 80% 2012

Source: PitchBook

GP Q10 & LP Q1: Which ESG-related groups or programs do you belong to, endorse or participate with? (select all that apply)
60% 50% 40% 30% 20% 10% 0%
UN PRI ILPA PE Principles PEGCC Environmental Responsible Defense Fund Investment Guidelines

53%

50% 35% GPs 30% 33% 16% 2% 4% LPs 12% 0%

Global Reporting Initiative

30% 14% 15% 16%

7% 0%
Business for Social Responsibility Other None
Source: PitchBook

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

10

ESG at Portfolio Companies

GPs see ESG becoming more critical in operations
GP Q11: How important are ESG issues when exiting a company via __________?
100%
Essential

GP Q12: How important are ESG issues when implementing operational improvements at a portfolio company?
100%
Essential

80% 60% 40% 20% 0%

Corporate Secondary acquisition buyout IPO
Source: PitchBook

80%
Very important Important Somewhat important Unimportant

60% 40% 20% 0% 2012 2013 North Europe America

Very important Important Somewhat important Unimportant

Source: PitchBook

PE firms have changed their tune in the last year when it comes to utilizing ESG initiatives at their portfolio companies. Thirty-one percent of GP respondents this year said that ESG issues were essential or very important when looking to improve portfolio company operations, compared to just 18% in 2012. European GPs were much more inclined to find ESG issues to be an important factor in portfolio company operations, with 86% saying they were at least important. With the scrutiny that comes with being a public company, GP respondents found ESG issues to be significantly more important for companies being exited via IPO as opposed to a sale to corporate acquirer or another PE firm. ESG issues were found to be least important when selling to another PE firm, which was somewhat surprising given the relatively high level of ESG focus and awareness indicated from respondents throughout our surveyparticularly when performing due diligence. Much of the effort around ESG programs centers around initiatives that can cut costs, improve efficiency and enhance the operations of the portfolio company, but philanthropic and volunteer programs are an

GP Q13: Do you have philanthropic and/or employee volunteer programs at your portfolio companies?
100% 80% 60% 40% 20%
No Yes; they are required

Yes; they are encouraged but not required

0% 2012 2013
Source: PitchBook

ideal way to engage employees from across the organization. To that end, more than half (52%) of GP respondents encourage these types of initiatives at portfolio companies but hardly any (2%) make them a requirement.
2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

11

How do GPs monitor ESG at portfolio companies?

GP Q14: Do you require portfolio companies to use a systems approach to manage environmental performance?
100% 80% 60% 40% 20% 0% 2012 2013 North Europe America
Source: PitchBook

Commonly used ESG rating systems

International Organization for Standardization (ISO) Recognized as an international leader in voluntary standards systems, ISO standards address a vast array of ESG issues, including energy and environmental management and social responsibility. ISO develops its standards through a consensus process that draws on experts and industry professionals from around the globe. The organization has published more than 19,500 International Standards since its inception in 1947. Global Impact Investing Rating System (GIIRS) Initiated as a project by B Lab, an independent non-profit organization, GIIRS assesses the social and environmental impact of both funds and individual companies. GIIRS utilizes third-party documentation and ratings methodologies developed by an independent Standards Board. One of the biggest advantages to using a thirdparty system is that it addresses the diverse nature of companies and funds by evaluating them on a range of criteria pertaining to specific industries, impact areas and investor preferences. Impact Reporting and Investment Standards (IRIS) Developed by the Global Impact Investing Network (GIIN), IRIS is a catalog that offers standardized metrics that can be employed to measure social, environmental and financial performance. Some of the specific variables that IRIS can help quantify include: governance, social policies, employee training, greenhouse gas emissions and biodiversity.

Yes; ISO certification required Yes; other type of certification No

Our next initiative around awareness is bringing our portfolio companies together to share best practices in ESG, discuss the issues and opportunities and re-confirm our expectations for management of this area.
-Philip Rowland, Senior Operating Partner at TDR Capital LLP

GP Q15: Do you require portfolio companies to develop a CSR report?

100%
Yes

80% 60% 40% 20% 0% 2012 2013 North Europe America

Source: PitchBook

No; but currently working towards it No

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

12

The LP Point of View

LPs care more about ESG issues than ever before
LP Q2: How important are ESG issues when evaluating a GP and deciding to commit to a fund?
100%
Essential

GP Q16: How important are ESG issues when drafting limited partnership agreements?
100%
Essential

80% 60% 40% 20% 0% 2012 2013 North Europe America

Very important Important Somewhat important Unimportant

80% 60% 40% 20% 0% 2012 2013

Source: PitchBook

Very important Important Somewhat important Unimportant

North Europe America

Source: PitchBook

As was the case in 2012, LPs continue to indicate a high level of concern regarding ESG issues. The results largely mirror those from last year, but the LPs that were simply interested in ESG issues last year are beginning to view them as essential. Nearly one in five (18%) LP respondents reported that ESG issues were essential when evaluating GPs while last year not a

single LP fell into this category. European LPs, like their GP counterparts, are particularly concerned with ESG; every European LP respondent said that ESG issues were at least important when committing to a fund. GPs are more attuned to the ESG concerns of LPs than they were last year, but there is still room for improvement, with 27% of GP respondents saying

LP Q3: How has your focus on ESG issues changed in the last three years?
100% 80% 60% 40% 20%
Decreased Stayed the same Increased

GP Q17: Have LPs expressed increased concern about ESG issues in the last three years?
100% 80% 60% 40% 20% 0% 2012 2013
Source: PitchBook

Yes No

0% 2012 2013 North Europe America

Source: PitchBook

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

13

LP Q4: How do you expect your focus on ESG issues to change in the future?
100% 80% 60% 40% 20% 0% 2012 2013 North Europe America
Source: PitchBook

LP Q5: Why does ESG matter in your investment decisions? (multiple choices permitted)
Risk management Brand/image

Increase

Environmental/social consciousness Corporate governance Government regulation Employee interests Competitors

Stayed the same Decrease

2013 2012

Other It doesnt

0%

20%

40%

60%

80%

100%

Source: PitchBook

that ESG issues are unimportant when drafting limited partnership agreements. Sixty-two percent of LP respondents say that their focus on ESG issues has increased in the last three years, with just one respondent saying that they are less concerned with ESG issues than in the past. GPs appear to be getting the message loud and clear. In 2012, only half of GP respondents said that LPs had expressed increased concern over ESG issues, but that surged to 77% in this years survey. Even though LPs have shown significantly more attention to ESG issues in recent years, 60% of LP

respondents said they will continue to increase their focus in the future. This should only serve to motivate GPs to build out their ESG programs even faster. Environmental and social consciousness ranks highly among LPs as a motivator to address ESG issues, but they are also concerned with the risk profile of their investment and their brand and image. Corporate governance, business integrity, and environmental health and safety were the main concerns of LPs when it came to specific ESG issues. Interestingly, European were much more inclined to care about social issues, which was their second highest concern.

LP Q6: What areas are you most concerned about when it comes to ESG? (limit three)
Corporate governance Business integrity Environmental health & safety Social issues Climate change Resource preservation Other None

LP Q7: Would you rather commit to a GP with no ESG program but top quartile performance or a GP with a strong ESG program and slightly lower performance?
100% 80% 60% 40% 20% 0%

ESG program & lower performance No ESG program & higher performance

2013 2012

0%

20%

40%

60%

Source: 80% PitchBook 100% Source: PitchBook

2012

2013
Source: PitchBook

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

14

Industry Leaders
As part of this years survey, PitchBook asked respondents to name some of the firms they viewed as leaders in ESG practices. It was encouraging to see firms of all different sizes and from both sides of the Atlantic be named, but there were two clear industry leaders : KKR and Doughty Hanson. KKR was the most frequently named leader in ESG practices in both this and last years survey, which is no surprise considering the firm initiated its Green Portfolio Program in 2008 and maintains an ongoing partnership with the Environmental Defense Fund. Doughty Hanson, a London-based European private equity firm, wasnt mentioned in last years survey, but was cited as a leader by several firms and LPs this year. Heres a look at what makes each firm so respected among their peers when it comes to ESG issues:

http://green.kkr.com http://www.kkr.com/company/responsibility

http://www.doughtyhanson.com/responsible-investing.aspx http://www.doughtyhanson.com/private-equity/esg-engagement.aspx

KKR was the firm most frequently named as a leader in ESG practices for the second year in a row. The firm launched its Green Portfolio Program in 2008 to generate operational improvements at its portfolio companies. The program was created in partnership with the Environmental Defense Fund and focuses its efforts on reducing emissions, electricity usage and other environmentally focused operational improvements. KKR estimates that through its first five years the program has generated $917 million in cost savings and additional revenue. According to KKR, 25 companies have participated and avoided more than 1.8 million metric tons of GHG emissions since the programs inception. Also included on the Green Portfolio Program website are numerous case studies and statistics that show the impact of the firms ESG programs. For example, KKR portfolio company Oriental Brewery, which installed a modified boiler system and optimized the fermentation processes in-house, reported that from 2008 to 2010, the company avoided $17.7 million in energy costs and 19 million cubic meters of water consumption. KKR also operates initiatives at its portfolio companies to improve transparency, employee health and sourcing practices and supply-chain risks.

Doughty Hanson has been active in ESG issues and practices for several years and became the first PE signatory to the PRI in June 2007. The London-based PE firm was also one of the first to produce an ESGfocused report, partnering with the World Wildlife Fund in 2011 for Private Equity and Responsible Investment. On its website, the firm includes a list of ESG policy items it seeks to achieve, a case study for one of its portfolio companies, details on its own carbon neutrality efforts, and information on social investment and charitable efforts. As was the case for many of the GP respondents to our survey, Doughty Hanson sees undertaking ESG issues not as a burden, but as a way for the firm and its portfolio companies to enhance value, elevate the brand and reduce risks associated with poor governance. According to the firm, the projects it undertakes are: commercially driven and are designed to mitigate the financial and reputational risks to which Doughty Hanson, our portfolio companies and our investors are exposed. They also create additional opportunities to increase the value of our portfolio companies, enhance their brands and better position them for exit.

2013 Private Equity ESG Survey www.pitchbook.com | demo@pitchbook.com

15

Bet ter Data. Bet ter Decisions.

PitchBook

PitchBook for Private Equity Firms

1.877.267.5593 demo@pitchbook.com

pitchbook.com

ACTION
No one offers more insight on the private equity landscape than

INTELLIGENCE IN

PITCHBOOK FOR PE FIRMS

What will you do with it?
Source & filter investment opportunities Monitor peer activity & industry trends Identify the right LPs for your next fund Benchmark your fund performance Run public & private comparables Augment portfolio executive teams