Impact investing is not the same as ESG: KKR

KKR’s global impact fund, which was launched in 2018 and closed in early 2020 with a committed capital of US$1.3 billion, focuses on investing in companies with solutions that address global challenges outlined by the United Nations’ Sustainable Development Goals.

This, however, is not the same as integrating environmental, social and governance (ESG) factors into its investment consideration, said Robert Antablin, KKR’s co-head of global impact, on Thursday (May 19).

ESG considerations are material risk factors that KKR assesses for every investment it makes, both impact and non-impact, and are part of the private equity firm’s diligence process.

“What are the risks? What are some of the plans that we want our teams to put in place to drive performance improvement and ultimately manage these issues in a responsible way? So that’s what we do across non-impact fund investments. Of course, we also do that in impact,” said Antablin.

“But just running a company responsibly from an ESG perspective is not enough to make the investment an impact investment. We have to have a company where the product or service is scaling a solution to a major global issue,” he added.

Elaborating on KKR’s global impact fund in a media roundtable on Thursday, Antablin said that the fund have made 15 investments across the globe, totalling over US$1 billion in capital.

Much like KKR’s wider private equity investment approach, the impact fund will invest into companies that have proven commercial solutions and are likely profitable. However, the difference is that these companies, besides the fact that its solutions have to be impact-driven, are usually of a smaller capitalisation at between US$75 million and US$250 million, which is typically not what its large-cap private equity business would usually invest in.

Antablin also said that KKR’s impact investing strategy targets the same outcomes in financial returns as its other private equity business.

“So we’re not making trade-offs when it comes to our impact objectives and return objectives,” he added.

As for its geographic distribution, 6 out of the impact fund’s 15 investments are in Asia-Pacific markets. They are: Australia, New Zealand, India, Vietnam and Singapore.

Wong Chee Wei, the head of KKR’s global impact in Asia, said the reason why the firm is not investing in China is that it has not been able to find the right opportunity though it is optimistic about the country’s prospects.

Antablin said that there is a lot of focus on sustainability investing in this region given the opportunities to “meaningfully move the needle forward” on sustainability innovation.

Impact investments in Asia are also typically more nuanced. As an example, he talked about how the waste management solutions invested in Singapore and in India might be vastly different.

Its impact investments in Asia are also in smaller companies than those in Europe and the United States, noted Wong.

Antablin also added that there is a real opportunity to drive improvement in ESG factors across KKR’s businesses in Asia.