Petraeus: Successful Investment Depends on ESG

Stockholm (NordSIP) – In the UBS White Paper prepared for the World Economic Forum annual meeting 2018: Partnerships for the Goals – Achieving the United Nations’ Sustainable Development Goals, Chairman of the KKR Global Institute (and contributor to the Paper) General and former CIA chief David Petraeus outlines, in the interview reproduced below, why the failure to manage ESG risks and opportunities means losing out financially:

David Petraeus, Chairman, KKR Global Institute

How much emphasis does KKR place on sustainability?

We put considerable emphasis on sustainability because we truly believe that doing good for society is not only the right thing for investors to do, but the smart thing to do, as well. Companies in which we invest inevitably struggle if they damage the environment, run afoul of social norms, or skirt legal requirements. And our success depends on making successful commercial investments. Otherwise, our clients understandably will not give us their money. In short, we believe in doing well while also doing good.

What’s the link between sustainability and financial success?

In our business, we’ve learned that successful commercial investment results depend heavily on a variety of environmental, social, and governance (ESG) factors. If you don’t manage ESG risks or seize opportunities to improve ESG fundamentals, you inevitably lose out financially. Climate issues, social unrest, governance challenges, geopolitical risks – these can all have negative effects on long term performance if you’re not aware of them and actively mitigate the risks posed by them.

So, again, every business that wants to do well for its clients also needs to do good in ESG terms. And keen awareness of the UN Sustainable Development Goals can help businesses achieve aims in the ESG arena. These Goals provide a superb framework for firms to align their interests with society’s needs.

Do you think partnering with others is a good way to promote doing well and doing good?

It’s really the only way. Let me illustrate with an example
from a recent visit to Ethiopia, where KKR owns the world’s largest rose grower. That firm is one of the country’s largest employers, giving good jobs to 12,000 people (whose family members get health care and schooling, as well as salaries). And we’ve helped create durable employment and skills transfer opportunities by creating some 3,000 jobs since our first investment. Generating direct social benefits has improved the value of our investment. To grow this investment sustainably, we have needed to manage a number of ESG issues that have affected not just our business, but the country as a whole. These issues are too big to solve alone; partnership is the only solution.

Can you give some examples of these issues, and how partnership can help solve them?

We’ve partnered and engaged with a number of Ethiopian stakeholders, from local communities to the regional and central governments, on a variety of topics. They range from communicating the importance of responsible and sustainable land and water usage to the investments we have made in infrastructure, health care and education. These factors are all critical to the long­term success of our investment. And at the national level, Ethiopia’s overall prosperity and that of its people also rests on finding solutions to these challenges. Private businesses like ours may have technical and management skills to help address these issues, but not necessarily the scale to do so. Local stakeholders often have that scale, but may lack the expertise or structures to affect change. Bring the two together in partnership, and we can match development needs with investment opportunities. This approach does well financially, does good socially… and benefits everyone.

Images © Shutterstock, KKR Global Institute