Environmental Defense Fund and The Carlyle Group, Washington, D.C., USA
PHOTO BY MIKE MORGAN
from left, Tom Murray of EDF, Bryan Corbett of The Carlyle Group, Audrey Davenport of EDF
At first, it might seem strange. Why would a global private investment giant partner with a nongovernmental organization (NGO) to help manage its project portfolio?
Yet that's just what The Carlyle Group, one of the largest private equity firms in the world with nearly US$100 billion of assets under management, did when it joined forces with the Environmental Defense Fund (EDF). The not-for-profit is known for its work in global warming, ecosystem restoration, ocean and human health projects.
Though the two organizations have markedly different goals and strategies, they've been working together toward a common purpose: to develop an innovative due-diligence screening process that will help private firms identify opportunities for value creation through environmental innovation.
“The Carlyle Group believes that being a good corporate citizen represents good business practice and creates long-term value for our investors,” says Bryan Corbett, Washington, D.C., USA-based principal in global government and regulatory affairs for the company.
Convincing it to join forces on this project took some serious stakeholder management, though. “The Carlyle Group was not used to working with nongovernmental organizations as part of its investment process, and it took some time to get the internal audience to buy into the idea,” he adds.
The benefit of the project partnership was much clearer for EDF. One of the organization's missions is to work with partners in the forprofit community to help convince companies that good environmental strategy leads to financial benefits.
Through the EcoValuScreen assessment, the project team identified three key environmental performance areas: energy, packaging and solid waste.
“The private equity sector makes up approximately 10 percent of the gross domestic product in the United States,” notes Kirk Hourdajian, former project manager in the corporate partnerships program and team leader on the partnership project at EDF. “Working with The Carlyle Group provided EDF with an exciting opportunity to prove how environmental strategies can generate business value in this sector, and to replicate that model for the rest of the industry.”
That business-focused approach to environmental considerations convinced Carlyle to consider what EDF had to offer.
“EDF shows businesses that they can save money, mitigate risk, and drive business value and performance improvements through environmental initiatives,” says Mr. Hourdajian, now manager at PricewaterhouseCoopers’ sustainable business solutions practice in Washington, D.C., USA.
The focus on ROI helped secure executive buy-in at the investment firm.
“EDF has a reputation for being an NGO that is sensitive to the business community's concerns around finances and operations,” Mr. Corbett says. “They come to partnerships with the idea that we can identify shared goals that will benefit the business and the environment.”
The two organizations began partnering in 2009 with the goal of identifying ways to build sustainable practices into the management of Carlyle's portfolio of companies.
“While EDF and Carlyle are two very different organizations, we have found innovative areas of overlap—particularly in building long-term value,” Mr. Hourdajian says. “Private equity is always looking for ways to create value. EDF wanted to provide concrete case studies to prove that environmental strategy is a robust long-term value creation lever.”
GREEN IS GOLD
Each group had its own expectations for outcomes of the partnership. Carlyle wanted a strategic tool to identify environmentally focused projects that could generate business value. EDF, meanwhile, wanted to deliver projects that generated measurable financial and environmental results. The team, which included Tom Murray, managing director of the Corporate Partnerships Program, and Audrey Davenport, project manager, would write up case studies to encourage other private equity companies to adopt environmental programs.
Through a series of brainstorming sessions, the organizations determined the project's scope: create a screening tool called the EcoValuScreen to assess environmental opportunities in newly purchased companies that would drive long-term business value.
The technology was first applied to NBT Y Inc., a nutritional supplement manufacturer in Ronkonkoma, New York, USA.
“Historically, we look at environmental issues from a risk-mitigation perspective,” Mr. Corbett says. “This tool allows us to be more proactive and focus on the cost and performance improvements around environmental strategy.”
The technology, which launched in March, is now part of Carlyle's due-diligence process when evaluating companies. It's used to identify opportunities to improve efficiencies, reduce costs and minimize environmental impacts across five key areas:
- ■ forest products
- ■ greenhouse-gas emissions
- ■ priority chemicals
- ■ waste management
- ■ water use
Now when Carlyle purchases a company, the EcoValuScreen goes into action. Environmental consultants work with the EDF team and the target company's leadership to identify areas for environmental improvement, measure current levels, set goals and implement programs to achieve those objectives.
The technology was first applied to NBTY Inc., a nutritional supplement manufacturer in Ronkonkoma, New York, USA, which Carlyle acquired in October 2010.
The Payne Firm Inc., an environmental consultancy based in Chicago, Illinois, USA, conducted a baseline assessment of NBTY's operations and distribution network, reviewed public data and corporate operating reports, and conducted interviews with executives. Through the EcoValuScreen assessment, the project team identified three key environmental performance areas: energy, packaging and solid waste.
The organizations then identified operational improvements that would deliver both environmental and financial results. These included increasing the efficiency of NBTY's manufacturing and distribution network, developing new metrics to monitor plant productivity, and reducing packaging, raw material usage and solid waste.
Management teams from Carlyle and NBTY are evaluating the potential programs and intend to develop an implementation plan.
When you speak the same language and you can show how environmental strategies generate fantastic business value, executives pay attention.
—Kirk Hourdajian, PricewaterhouseCoopers, Washington, D.C., USA
“Our goal for the next nine to 12 months is to measure the results of these programs and share them with our stakeholders,” Mr. Corbett says. “Transparency and accountability are a big part of this project.”
With benchmarks set to measure progress, Carlyle, EDF and NBTY can demonstrate the financial and environmental ROI from the project. This, in turn, will make it more compelling to establish buy-in for similar programs in other businesses in Carlyle's portfolio, achieving the goal of both organizations.
“Our project management process is one of the elements that makes this project a success,” Mr. Hourdajian says. “When you speak the same language and you can show how environmental strategies generate fantastic business value, executives pay attention.” —Sarah Fister Gale
PM NETWORK JULY 2011 WWW.PMI.ORG