Scientists and green activists agree that climate change is a huge problem. But what might surprise you is that many large businesses, particularly private equity investors and pension funds, care deeply about climate change as well. They show it in their choices of companies to invest in. Whether it’s spending their funds on companies dedicated to staying green or those trying to reduce and offset their carbon emissions, thoughtful investments are becoming more and more popular and doing great things for the environment.
“Today’s global challenges can be addressed—and in some cases transformed into opportunities—when the best thinking and resources partner together,” writes Ken Mehlman, Global Head of Public Affairs for private equity firm KKR. That’s why KKR’s latest Environmental, Social, Governance, and Citizenship Report focuses on what the company believes are the five biggest challenges facing companies and their investors today: adapting to climate change, supporting better agriculture, treating and preventing disease, investing in infrastructure, and managing resource constraints.
KKR’s investments are a good example of these priorities. Afriflora, located in Ethiopia, supports better agriculture by producing Fair Trade and sustainably grown roses. The company also works with KKR to provide community development opportunities in health and education for its workers. KKR’s Chinese investments, including Modern Dairy and Yuehai Feed Group, work to improve food safety. And KKR partners with NGOs across the world, including the Environmental Defense Fund, Business for Social Responsibility, and Transparency International, to create and support other ESG initiatives.
“Investors can be part of the solution, particularly when we partner with each other, governments, NGOs, and other stakeholders,” Mehlman concludes.
Of course, it’s not just out of the goodness of their hearts that big companies are turning to ESG. With climate change in particular becoming more and more impactful, it’s having an economic effect, encouraging companies across the world to divest their fossil fuel investments due to concerns about future financial failures. Australia’s HESTA has taken note of this and is actively engaged in promoting investments that are greener and more likely to be financially viable in the years to come. Their HESTA Climate Change Policy provides guidelines for investments that consider climate change risks and opportunities, collaboration with other companies to curb emissions, and even supporting policymakers to take action on laws that will support a greener future for the entire country. HESTA currently invests about $2 billion in alternative energy, green buildings, low carbon equities portfolios, clean tech, and climate solutions private equity and forestry. HESTA even monitors its portfolio’s carbon footprint as a whole, which is 7.61% less than the benchmark.
While they may require financial reasons in addition to environmental reason to do it, many large companies are getting on board when it comes to investing in and doing business with portfolio companies that take climate change and other ESG issues into account when pursuing their returns. It’s a step in the right direction toward creating an economy that’s good for the environment and not just the pocketbook.