Working Together to Create and Protect Value
As I have shared in my reflections last year, our approach to sustainable investing is deeply rooted in our commitment to value creation and value protection. Sustainable investing is one of the many tools we use to create value – such as financial proficiency, operational insight, and macroeconomic expertise – and we believe that companies focused on business-relevant, material sustainability risks and opportunities can be more competitive and perform better.
Here, I want to reflect on how we delivered on this commitment in 2023, with a focus on two key topics: advancing climate action and how our investments create economic opportunity and benefit people’s lives.
In this report, when we talk about “ESG” or sustainability topics, we refer to material risk factors and opportunities, which we seek to integrate in our investment process. These may include, for example, understanding the impact of extreme weather on our real estate assets, consumer lending practices at financial services investments, or health and safety performance at our infrastructure assets. We view ESG issues as business issues, which, when material, we consider integral to long-term value creation and value protection.
Looking back, our approach to sustainable investing over the past 15 years has been far from linear. We are constantly re-evaluating our approach and enhancing the ways we track our progress. We believe that dialogue, informed inquiry, and ongoing self-assessment help us to continuously adapt and result in better outcomes. It is always a good thing to question our approach and try to learn from others.
2023 reinforced how crucial collaboration is to our success. We demonstrated our collaborative spirit through our Firm-wide cooperation across the organization, and through our relationships with third-parties and the broader industry we work in to improve our knowledge and approach. The theme of this year’s report, Working Together, comes to life in the examples highlighted here and those covered further in this report.
Working Together to Advance Sustainability and Climate Action in Our Portfolio
We continue to work with our portfolio companies to help them address material sustainability topics and adopt appropriate governance frameworks to manage these topics. We emphasize three key topics that we believe align with value creation and risk mitigation across a wide variety of industries: engage human capital; address relevant climate-related risks and opportunities; and protect data privacy and cybersecurity. When these topics are material for our investments, we work with the investments to advance their related performance.
To focus on one initiative, we believe proactively engaging on climate-related topics material to our companies can be critical for companies to drive performance and be competitive. For example, in many jurisdictions, there is a price attached to carbon and reducing those emissions can reduce costs for companies. In addition, energy efficiency can be good for the bottom line and the environment. In other cases, as more companies and jurisdictions make commitments to net-zero, we anticipate increased expectations to reduce emissions from suppliers and across value chains.
In 2023, we continued to work with our portfolio companies on measuring their GHG emissions, ultimately directly measuring data covering more than 90% of our financed emissions from majority-owned1 private equity and real assets investments. This effort has helped our companies create and protect value by better understanding their baselines, identifying when it makes sense to reduce emissions, and implementing business-appropriate decarbonization plans, when applicable.
We also learned that the majority of our financed emissions are from a very small number of our investments – more than half from only 20 investments – and that the biggest emitters are generally those with significant climate risk exposure. We are also investing in increasing numbers of carbon-intensive transition-themed investments where we see an opportunity to accelerate decarbonization as a means of protecting and creating value. For example, companies in the power sector and waste management industry, where regulatory and market trends make decarbonization a value driver, and where supporting the energy transition was part of our investment thesis. This is why we continue to enact change from the ground up, collaborating with portfolio companies with the greatest opportunities to drive meaningful reductions in KKR’s financed emissions and support real-world decarbonization.
In 2023, we also launched KKR’s Global Climate strategy, aimed at investing in companies that offer existing climate solutions, scale new climate solutions, and drive climate transitions with strong growth potential that we believe are positioned to lead the global net-zero transition. While incubated within our Infrastructure platform, the framework behind the strategy was developed in collaboration and consultation with experts inside and outside of the Firm.
Working Together to Enhance Economic Opportunity
There are many ways our investment and business activities can promote economic growth and security — from our own employees, to the employees and customers of our portfolio companies, to the retirees and pensioners served by our investment partners and Global Atlantic, to broader communities in which we do business— throughout all aspects of life, including education, career opportunity and stability, and retirement. Examples of KKR’s role in fostering opportunity in people’s lives are found throughout this report, however, the following examples stand out.
Education and job training
Across our Private Equity and Global Impact businesses, we are investing in companies that promote lifelong learning from early childhood to primary education to tackling the challenges presented by economic disruption, the change in required job skills, and gaps in educational access and delivery. Through our investments in and collaboration with portfolio companies like Teaching Strategies, Education Perfect, Graduation Alliance, EQuest, MasterD, and Lightcast, we support learning, including the upskilling and re-skilling of at-risk workers, ultimately creating better, long-term job opportunities.
Financial inclusion
Since 2011, we have worked with portfolio companies to establish shared ownership programs, which have helped build accountability and engage employees in shared success. As of 2023, 39 KKR portfolio companies, with 85,000+ non-senior management employees, have implemented broad-based ownership programs, awarding billions of dollars in equity since 2011. This includes seven new broad-based ownership programs launched in 2023.
Retirement security
In early 2024, KKR acquired all the remaining equity interests in Global Atlantic that we did not already own, which brought our ownership to 100%. Global Atlantic is a leading insurance company meeting the retirement and life insurance needs of individuals and institutions. With nearly half of U.S. households lacking access to a retirement savings plan,2 there is a clear need to improve retirement security. We believe Global Atlantic has already made a significant contribution to addressing this challenge and is primed to do more.
With full ownership now in place, we are looking forward to even closer collaboration, which we believe can have a meaningful impact on securing the financial futures of millions of Americans.
Looking Forward: Working Together Through Times of Change
We recognize there is a wide range of perspectives among our stakeholders. At KKR, we seek to invest in a way that focuses first and foremost on our obligation as fiduciaries. We believe that sustainable investing can be a way to create value and mitigate risk. While some might say that incorporating ESG topics into investment decisions is a value judgement, we work very hard to focus on creating and protecting value – a deeply held mission of the Firm that is fundamental to our fiduciary duty to clients.
In almost every corner of the globe, intensive change is underway. In 2024, more than 50 countries around the world with a combined population of around 4.2 billion will hold national and regional elections in what is set to be the biggest election year in history,3 signaling the potential for political transformation at an extraordinary scale. This is in addition to the social, technological, and economic upheaval that has already come to define our era.
With this in mind, we will use the tools we have at our disposal to deliver for our investors, while supporting our companies and their employees, and the communities in which we operate. This includes focusing on any material factors that create and protect value. That is our obligation to our clients. Working together has proven to be critical to our ability to do just that. We look forward to collaborating with many of you on this important work.
1 Includes companies in which KKR has greater than or equal to 50% equity ownership.
2 Pew, America Has a Retirement Crisis. We Need to Make It Easier to Save, 2024.
3 Forbes, 2024 Is The Biggest Election Year In History—Here Are The Countries Going To The Polls This Year, 2024.
DISCLAIMER