FINANCE:

A 'Green Portfolio' experiment makes money, trims waste

NEW YORK -- A major private equity firm announced yesterday that its two-year program to nudge the companies it invests in toward greener practices is getting results.

Kohlberg Kravis Roberts & Co. (KKR), famous for a massive 2007 leveraged buyout of a Texas energy firm that led to the cancellation of eight planned coal-fired power plants in that state, says its two-year old "Green Portfolio Program" is achieving its aim to cut company operating costs while curbing greenhouse gas pollution.

Eight companies KKR is invested in that are part of the pilot effort have announced total savings of $160 million since the project began. As a result of their energy and waste-cutting efforts, the Environmental Defense Fund, an adviser to KKR on the program, estimates that a total of 345,000 metric tons of CO2 emissions has been avoided. Also, some 1.2 million tons of solid waste has been saved from landfills.

"This is approximately 10 times what we reported in 2009 from three participating companies," KKR's Elizabeth Seeger told reporters in a conference call.

The eight participating firms include mattress maker Sealy Corp., U.S. Foodservice and the health care services provider HCA Inc. Sealy reportedly saved $12.1 million in cost-cutting measures and 14,000 tons' worth of greenhouse gas pollution averted. HCA says it cut costs by $4.7 million and kept 32,500 metric tons of heat-trapping gases out of the atmosphere.

Gentlemen, turn off your engines

KKR and Environmental Defense Fund officials said that, although their Green Portfolio Program is deemed ambitious by many companies, most of the savings and reduced waste output were achieved by fairly simple means. U.S. Foodservice says it saved money and avoided pollution by primarily ordering trucks in its fleet to shut their engines after four minutes of idling.

Under the program, KKR's portfolio companies are asked to focus on one or two key priority areas for one year, committing to reduce waste emanating from various processes or corporate divisions. Waste from activity is measured to establish a baseline against which reduction goals are set. Companies have to also assign personnel to oversee their efforts.

Results are reported at the end of each one-year cycle. Officials involved in the effort say that these latest results convince them that the program is working and that they hope to expand it into other firms KKR is invested in.

"They continue to validate the power of this approach," said Tom Murray, managing director for corporate partnerships at the Environmental Defense Fund. "In a challenging and increasingly competitive marketplace, KKR's portfolio companies are producing outsized returns both for the environment and for the bottom line."

The marketplace seems to agree, at least for some firms. Sealy's stock has doubled in value since hitting a low point in July 2009. Likewise, Dollar General, a retailer in KKR's Green Portfolio that is boasting a savings of $106 million from the program, has seen its share price rise steadily since going public in November of last year.

Thinking of ways to 'green' energy companies

Internet company Primedia has also enjoyed a slight rise in its share price from July of last year, though its stock performance and that of the other companies could just be a reflection of the overall recovery in the stock market since it bottomed out at the height of a global recession. Other firms in the program are privately held.

KKR made headlines in October 2007 when it teamed up with Texas Pacific Group and Goldman Sachs to purchase Texas power provider TXU, now named Energy Future Holdings Corp., for about $45 billion, representing the largest leveraged buyout in U.S. history at the time. Under terms negotiated with the Environmental Defense Fund, the companies agreed to cancel eight out of 11 planned coal-fired power plants.

The deal was hailed by environmentalists at the time, but has since left the investors deeply in debt after natural gas prices plummeted in late 2008.

Officials from both KKR and the Environmental Defense Fund acknowledge that there are no plans to bring Energy Future Holdings into the Green Portfolio Program, but say they are pursuing other ways to lighten the giant energy company's environmental footprint.

"The energy sector needs a unique approach," Murray said. "We think that it should be dealt with specially, and we're doing that in a number of ways."

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