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KKR’s ESG advisers warn of rising threat of inequality

Highlights from KKR's 2021 sustainability report today, including: thoughts from its sustainability advisory council; its three 'Global Ambitions'; and the credit team's coming framework for sustainability-linked loans.

“Some feel [inequality] will bite us harder and faster than climate change,” warns Robert Eccles, a visiting professor at Oxford University’s Said Business School and chair of KKR’s Sustainability Expert Advisory Council. Eccles’s comments were included in KKR’s 2021 sustainability report, which is released today.

“While not quite yet in the spotlight, but where much work is going on, is the issue of income inequality,” writes Eccles. “Large universal owner investors understand how this contributes to system instability.”

“Climate change will have its worst impacts on those least able to bear it. Conversely, if income inequality isn’t addressed it will be difficult to get the political will to address climate change,” he writes.

Inequality is, however, more difficult to address for investors than the climate crisis, writes Eccles. “How does one invest and engage from an income inequality thesis to create value for shareholders and address this problem?” he asks.

His comments are echoed by fellow council member Roy Swan, head of mission investments at the Ford Foundation, who notes that investors, boards and CEOs “have begun to see that without emphasis on ‘S’ and ‘G’, the economy and society deteriorate.”

KKR’s sustainability report is a heavyweight document, including the firm’s SASB report, and its Climate Action Report, in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Also included is the firm’s three newly minted “Global Ambitions”. To focus its ESG efforts across the portfolio, the firm has identified three overarching ESG goals. These are:

  • Human Capital: Have at least two diverse board members on each board and a strategy in place for “fostering a diverse and highly engaged workforce”.
  • Climate: Measure greenhouse gas emissions “and develop and implement business relevant decarbonization plans, where appropriate”.
  • Data responsibility: mitigate cyber risks, promote a culture of cyber-awareness and handle personal or sensitive data responsibly.

Other nuggets from the report include:

  • In credit, KKR this year plans to “implement a framework to support structuring of
    ESG-linked incentives into the financial documentation and agreements”.
  • In real estate, the firm intends to participate in GRESB Real Estate Assessments for its KKR Property Partners America fund, as well as introducing “fund-level ESG reporting for select funds”.