“Engaging portfolio companies on sustainability efforts opens up an entirely new platform of conversation that we didn’t have with them before. We have companies contacting us all the time about stakeholders, regulations, software, and guidance on how they can become more sustainable.” —Elizabeth Seeger, Kohlberg Kravis Roberts & Co.
“Sustainability is not a thing; you don’t ‘do’ sustainability. It’s like innovation, you don’t ‘do’ innovation. You don’t have an innovation program. You are innovative.” —Elizabeth Seeger, Kohlberg Kravis Roberts & Co.
“We’ve never doubted that we create value by helping patients with diabetes; we just have not been very good [about] trying to measure that and capture it in context. Our Blueprint reports on the United States, China, and Bangladesh have attempted to do this and provided us with the opportunity to talk more about the holistic value that we provide to communities.” —Cora Olsen, Novo Nordisk A/S
Pruzan-Jorgensen introduced the speakers and said the discussion would focus on the nexus of sustainability, ownership structure, and the valuation of sustainability efforts.
Seeger discussed the ownership structure and business model for New York-based KKR, which is both a private equity firm and a publicly traded company. KKR’s private equity funds are invested in almost 80 companies globally, and the firm holds each company for an average of five to seven years. Seeger works with KKR’s portfolio companies to develop and integrate their sustainability efforts into their businesses.
Olsen discussed the unique ownership structure of Novo Nordisk, a pharmaceutical company focused on diabetes solutions for global patients. Despite the fact that Novo Nordisk is a publicly traded company in the United States and Denmark, a majority of its shares are owned by the Novo Nordisk Foundation.
Pruzan-Jorgensen asked how the ownership structures of each company allowed them to balance the twin pressures of returning short-term value to investors while committing to long-term sustainability investment. Seeger explained that the five- to seven-year time horizon allows the company to engage deeper within the organizations, which supports the focus on sustainability. KKR also ensures that it is represented on its owned companies’ boards of directors, and KKR also places representatives in operations teams to help integrate sustainability into all levels of the organization. KKR can apply knowledge and experience from each company in its portfolio to the others.
As a health care company, Novo Nordisk understands the return on long-term investments because the pipeline for pharmaceutical products is also lengthy. For example, Novo Nordisk entered a partnership with the World Wildlife Fund to reduce carbon impacts—without knowing how long it would take to reap the savings from the investment. It took only 1.8 years for Novo Nordisk to reduce its footprint and save millions of dollars, but the flexibility of taking a longer-term view at the outset was crucial to entering the partnership.
Pruzan-Jorgensen then asked how the two companies think about valuation of sustainability efforts. Seeger noted that this is the “nut that everyone is trying to crack,” and while there is progress on the research, there is plenty of room to re-think how sustainability is valued.
Olsen provided the example of Novo Nordisk’s successful “Blueprint” reports, which attempt to measure the “shared value” on the company’s health-care products in three diverse markets—the United States, China, and Bangladesh. The Blueprints focused on assessing the holistic value that the company provided to communities and patients, and the key takeaway is that the value is highly localized and very different from market to market.
Seeger added two suggestions for companies measuring and valuing impacts. First, start small and prove the concept. Once you can get a small win, then you have a fact sheet, talking points, and numbers that you can point to. Second, focus on measuring and reporting on your material risks. Olsen added that a focus on the material issues is important, and that you need to report with robust data wherever possible.
During the question-and-answer period, an audience member asked whether KKR has expectations of its portfolio related to transparency and reporting. Seeger responded that KKR expects its portfolio companies to engage with stakeholders in a meaningful way and use the feedback in their own reporting. Most of KKR’s companies are business-to-business, and each has a different approach to stakeholder engagement and transparency. KKR has provided webinars and other resources on the reporting standards and best practices to help its portfolio companies.
Another audience member asked what happens to the portfolio companies’ sustainability programs when the companies are transferred to new owners. KKR cannot manage the sustainability efforts for the life of each company in its portfolio, so it encourages companies to own the issues once the programs are established. When the companies are being transferred, KKR helps them communicate about their sustainability efforts and helps them identify new stakeholders that may emerge with the transfer of ownership.
Toward the end of the session, an audience member asked how KKR addresses transformational sustainability challenges once the company has addressed the “low-hanging fruit.” Seeger responded that for many of KKR’s portfolio companies, there remain a lot of low-hanging fruit to be addressed. When KKR invests in a company, it tries to make some of those initial wins, and then KKR helps prepare companies to take the next step toward transformational change.