Materiality and Responsible Investment
Identifying and Managing Material Issues
While KKR engages in a broad range of investment activities, we focus our responsible investment efforts in our private equity business and select non-private equity asset classes, including infrastructure, real estate, and special situations. This focus has been informed by our analysis and understanding of the issues most material to our investments – those areas in which we, as active managers, investors, and owners, can have the greatest impact. As active investors, we identify and manage critical issues to help create sustainable value for KKR and our portfolio companies.
A Materiality-Driven Approach
The focus of KKR’s responsible investment efforts has been informed by an analysis of what is most material
to us as investors. Conducted with the development of our first ESG report in 2011, this analysis evaluated the degree of influence that we can exert in each asset class prior to investment and during ownership. That analysis indicated that we would achieve the most impact by focusing on the life cycle of our private equity investments.
We believe the private equity ownership model provides a strong platform for responsible investment because of its long-term investment horizon, focus on alignment of interests, and commitment to active management. Companies are part of our private equity portfolio for a historical average of five to seven years from investment to the point that we realize value and exit a deal. This time frame allows us to support a company’s progress over years, not quarters, and enables us to more thoroughly address ESG issues and opportunities.
As the range of our Firm’s investment activities has expanded, we have broadened our approach to integrate ESG considerations and management into our non-private equity asset classes, including real estate, energy and infrastructure, and special situations. Not surprisingly, we have found that the approach and universe of potentially material issues can vary significantly across asset classes and the assets themselves.
KKR’s Relative Influence Over ESG Issues Across Asset Classes
Determining Material Issues
We also apply the concept of materiality when we determine which issues to identify and manage in our portfolio. This process is codified in KKR’s Private Equity ESG Policy, which defines material issues as those that “KKR in its sole discretion determines have – or have the potential to have – a direct, substantial impact on an organization’s ability to create, preserve, or erode economic value, as well as environmental and social value for itself and its stakeholders.” Guided by this policy, our Firm considers a range of potentially relevant ESG issues associated with current and potential portfolio companies. Sample ESG and reputational issues include: