Kohlberg Kravis Roberts & Co. L.P. An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact

Transcription

1 RI TRANSPARENCY REPOR T Kohlberg Kravis Roberts & Co. L.P. An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact

2 About this report The PRI Reporting Framework is a key step in the journey towards building a common language and industry standard for reporting responsible investment (RI) activities. This RI Transparency Report is one of the key outputs of this Framework. Its primary objective is to enable signatory transparency on RI activities and facilitate dialogue between investors and their clients, beneficiaries and other stakeholders. A copy of this report will be publicly disclosed for all reporting signatories on the PRI website, ensuring accountability of the PRI Initiative and its signatories. This report is an export of the individual Signatory organisation s response to the PRI during the 2016 reporting cycle. It includes their responses to mandatory indicators, as well as responses to voluntary indicators the signatory has agreed to make public. The information is presented exactly as it was reported. Where an indicator offers a response option that is multiple-choice, all options that were available to the signatory to select are presented in this report. Presenting the information exactly as reported is a result of signatory feedback which suggested the PRI not summarise the information. As a result, the reports can be extensive. However, to help easily locate information, there is a Principles index which highlights where the information can be found and summarises the indicators that signatories complete and disclose. Understanding the Principles Index The Principles Index summarises the response status for the individual indicators and modules and shows how these relate to the six Principles for Responsible Investment. It can be used by stakeholders as an at-a-glance summary of reported information and to identify particular themes or areas of interest. Indicators can refer to one or more Principles. Some indicators are not specific to any Principle. These are highlighted in the General column. When multiple Principles are covered across numerous indicators, in order to avoid repetition, only the main Principle covered is highlighted. All indicators within a module are presented below. The status of indicators is shown with the following symbols: Symbol Status The signatory has completed all mandatory parts of this indicator The signatory has completed some parts of this indicator This indicator was not relevant for this signatory - The signatory did not complete any part of this indicator The signatory has flagged this indicator for internal review Within the table, indicators marked in blue are mandatory to complete. Indicators marked in grey are voluntary to complete. 1

3 Principles Index Organisational Overview Principle General Indicator Short description Status Disclosure OO 01 Signatory category and services Public OO 02 Headquarters and operational countries Public OO 03 Subsidiaries that are separate PRI signatories Public OO 04 Reporting year and AUM Public OO 05 Breakdown of AUM by asset class OO 06 How would you like to disclose your asset class mix Asset mix disclosed in OO 06 Public OO 07 Fixed income AUM breakdown n/a OO 08 Segregated mandates or pooled funds Private OO 09 Breakdown of AUM by market Private OO 10 Additional information about organisation Public OO 11 RI activities for listed equities n/a OO 12 RI activities in other asset classes Public OO 13 Modules and sections required to complete n/a 2

4 Strategy and Governance Principle General Indicator Short description Status Disclosure SG 01 RI policy and coverage Public SG 02 Publicly available RI policy or guidance documents Public SG 03 Conflicts of interest Public SG 04 RI goals and objectives Public SG 05 Main goals/objectives this year Private SG 06 RI roles and responsibilities Public SG 07 RI in performance management, reward and/or personal development Private SG 08 Collaborative organisations / initiatives Public SG 09 Promoting RI independently Public Dialogue with public policy makers or SG 10 Private standard setters SG 11 ESG issues in strategic asset allocation Private SG 12 SG 13 SG 14 SG 15 SG 16 Long term investment risks and opportunity Allocation of assets to environmental and social themed areas ESG issues for internally managed assets not reported in framework ESG issues for externally managed assets not reported in framework RI/ESG in execution and/or advisory services Private Private Public n/a n/a SG 17 Innovative features of approach to RI Public SG 18 Internal and external review and assurance of responses Private 3

5 Direct Private Equity Principle General Indicator Short description Status Disclosure PE 01 Breakdown of investments by strategy Private PE 02 Typical level of ownership Private PE 03 Description of approach to RI Public PE 04 Investment guidelines and RI Public PE 05 Fund placement documents and RI Public PE 06 Formal commitments to RI Private PE 07 PE 08 PE 09 PE 10 Incorporating ESG issues when selecting investments ESG advice and research when selecting investments ESG issues in investment selection process Types of ESG information considered in investment selection Public Private Public Private PE 11 Encouraging improvements in investees Private PE 12 ESG issues impact in selection process Private PE 13 Proportion of companies monitored on their ESG performance Public PE 14 Proportion of portfolio companies with sustainability policy Public PE 15 Actions taken by portfolio companies to incorporate ESG issues into operations Private PE 16 Type and frequency of reports received from portfolio companies Private PE 17 Disclosure of ESG issues in pre-exit Private PE 18 PE 19 PE 20 ESG issues affected financial/esg performance Examples of ESG issues that affected your PE investments Disclosure of ESG information to public and clients/beneficiaries Private - n/a Public PE 21 Approach to disclosing ESG incidents Private 4

6 Kohlberg Kravis Roberts & Co. L.P. Reported Information Public version Organisational Overview PRI disclaimer This document presents information reported directly by signatories. This information has not been audited by the PRI Secretariat or any other party acting on their behalf. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of the information presented, and no responsibility or liability can be accepted for any error or omission. 5

7 Basic Information OO 01 Mandatory Gateway/Peering General OO 01.1 Select the services you offer. Fund management % of assets under management (AUM) in ranges <10% 10-50% >50% Fund of funds, manager of managers, sub-advised products % of assets under management (AUM) in ranges <10% 10-50% >50% Other, specify Execution and advisory services OO 01.2 Additional information. [Optional] KKR is a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, and real estate. Through its affiliates, it also manages investments in credit and hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world class people, and driving growth and value creation at the asset level. KKR invests its own capital alongside its partners' capital and brings opportunities to others through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about KKR & Co. L.P. (NYSE:KKR), please visit KKR's website at and on References to "KKR Capstone" or "Capstone" are to all or any of KKR Capstone Americas LLC, KKR Capstone EMEA LLP, KKR Capstone EMEA (International) LLP, KKR Capstone Asia Limited, and their affiliates, which are owned and controlled by their senior management. KKR Capstone is not a subsidiary or affiliate of KKR. KKR Capstone operates under several consulting agreements with KKR and uses the "KKR" name under license from KKR. References to operating executives, operating experts, or operating consultants are to employees of KKR Capstone and not to employees of KKR. In this report, the impact of initiatives in which KKR Capstone has been involved is based on KKR Capstone's internal analysis and information provided by the applicable portfolio company. Impacts of such initiatives are estimates that have not been verified by a third party and are not based on any established standards or protocols. They may also reflect the influence of external factors, such as macroeconomic or industry trends, that are unrelated to the initiative presented. Cited URLs are as of March 1, KKR as referenced above and herein refers to Kohlberg Kravis Roberts & Co. L.P., the reporting entity. OO 02 Mandatory Peering General 6

8 OO 02.1 Select the location of your organisation s headquarters. United States OO 02.2 Indicate the number of countries in which you have offices (including your headquarters) >10 OO 02.3 Indicate the approximate number of staff in your organisation in full-time equivalents (FTE). FTE 888 OO 02.4 Additional information. [Optional] KKR has approximately 1200 employees, which include private markets investment professionals dedicated to the private equity, energy, infrastructure and real estate strategies managed by Kohlberg Kravis Roberts & Co. L.P.; public markets investment professionals; and capital markets and client services executives. The balance of employees support these teams or are dedicated to firm-wide resources, such as macroeconomic and asset allocation, public affairs and business operations. The FTE is an approximate figure for the employees associated with Kohlberg Kravis Roberts & Co. L.P., the reporting entity. OO 03 Mandatory Descriptive General OO 03.1 Indicate whether you have subsidiaries within your organisation that are also PRI signatories in their own right. Yes No OO 03.3 Additional information. [Optional] Unless otherwise noted, responses provided are on behalf of Kohlberg Kravis Roberts & Co. L.P., which manages KKR's private market funds. OO 04 Mandatory Gateway/Peering General OO 04.1 Indicate the year end date for your reporting year. 31/12/2015 OO 04.2 Indicate your total AUM at the end of your reporting year, excluding subsidiaries you have chosen not to report on, and advisory/execution only assets. 7

9 trillions billions millions thousands hundreds Total AUM Currency USD Assets in USD OO 04.5 Additional information. [Optional] AUM of Kohlberg Kravis Roberts & Co. L.P. References to "assets under management" or "AUM" represent the assets managed by KKR or its strategic partners as to which KKR is entitled to receive a fee or carried interest (either currently or upon deployment of capital) and general partner capital. As of December 31, 2015, AUM reflects the inclusion of KKR's pro rata portion of AUM managed by other asset managers in which KKR holds a minority interest and capital commitments for which KKR is eligible to receive fees or carried interest upon deployment of capital. Such forms of AUM have been excluded from AUM in prior periods. KKR's calculation of AUM may differ from the calculations of other asset managers and, as a result, KKR's measurements of its AUM may not be comparable to similar measures presented by other asset managers. KKR's definition of AUM is not based on the definitions of AUM that may be set forth in agreements governing the investment funds, vehicles or accounts that it manages and is not calculated pursuant to any regulatory definitions. OO 06 Mandatory Descriptive General OO 06.1 To contextualise your responses to the public, indicate how you would like to disclose your asset class mix. Publish our asset class mix as percentage breakdown Publish our asset class mix as broad ranges Internally managed (%) Externally managed (%) Listed equity 0 0 Fixed income 0 0 Private equity >50% <10% Property <10% 0 Infrastructure <10% 0 Commodities 0 0 Hedge funds 0 0 Forestry 0 0 Farmland 0 0 8

10 Inclusive finance 0 0 Cash 0 0 Other (1), specify 0 0 Other (2), specify 0 0 OO 06.2 Publish our asset class mix as per attached image [Optional]. OO 10 Voluntary Descriptive General OO 10.1 Provide any additional information about your organisation, its mission, strategies, activities or investments which are important to contextualise your responsible investment activities. KKR is a leading global investment firm with deep roots in private equity, diversified capabilities, and an impressive track record. When you partner with KKR, you benefit from decades of financial and operational experience, broad industry knowledge, and a powerful network of global relationships. Through an integrated approach, we work closely with companies and investment partners around the world to deliver flexible capital solutions. The power of partnership with KKR means we strive for better investments, stronger businesses, and shared success. With offices around the world, we seek to fulfill our mission one investor at a time, one company at a time-and we do this as one global firm. As investors with an industrialist vision, we think long-term, pursue the highest standards of excellence, and align our interests with those of all our investment partners by putting our own capital behind our ideas. Gateway asset class implementation indicators OO 12 Mandatory Gateway General OO 12.1 Select internally managed asset classes where you implemented responsible investment into your investment decisions and/or your active ownership practices (during the reporting year) Private equity Property Infrastructure None of the above OO 12.2 Select externally managed assets classes where you addressed ESG incorporation and/or active ownership in your external manager selection, appointment and/or monitoring processes (during the reporting year) Private equity None of the above 9

11 OO 12.3b If your organisation does not integrate ESG factors into investment decisions on your externally managed assets, explain why not. Fund of funds where KKR is unable to apply its approach to integrating ESG factors into investment decisions. 10

12 Kohlberg Kravis Roberts & Co. L.P. Reported Information Public version Strategy and Governance PRI disclaimer This document presents information reported directly by signatories. This information has not been audited by the PRI Secretariat or any other party acting on their behalf. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of the information presented, and no responsibility or liability can be accepted for any error or omission. 11

13 Responsible investment policy SG 01 Mandatory Core Assessed General SG 01.1 Indicate if you have an investment policy that covers your responsible investment approach. Yes SG 01.2 Indicate the components/types and coverage of your policy. Select all that apply Policy components/types Policy setting out your overall approach Formalised guidelines on environmental factors Formalised guidelines on social factors Formalised guidelines on corporate governance factors Asset class-specific guidelines Sector specific RI guidelines Screening / exclusions policy Other, specify (1) Prioritization scheme for assessing investments Other, specify(2) Coverage by AUM Applicable policies cover all AUM Applicable policies cover a majority of AUM Applicable policies cover a minority of AUM other (2) description Roles and responsibilities SG 01.3 Indicate what norms have you used to develop your RI policy. UN Global Compact Principles UN Guiding Principles on Business and Human Rights Universal Declaration of Human Rights International Bill of Human Rights International Labour Organization Conventions United Nations Convention Against Corruption OECD Guidelines for Multinational Enterprises Other, specify (1) other (1) description UN Principles for Responsible Investment 12

14 Other, specify (2) other (2) description IFC E & S Performance Standards and Equator Principles Other, specify (3) other (3) description PEGCC Guidelines for Responsible Investment None of the above SG 01.4 Provide a brief description of the key elements of your investment policy that covers your responsible investment approach [Optional]. As a signatory of UN PRI, Kohlberg Kravis Roberts & Co L.P. is committed to thoughtfully considering material ESG issues across its private markets businesses. In 2013, KKR codified our processes and procedures related to responsible investment by developing a global Private Equity ESG Policy, which was published publicly in The policy applies to KKR's private equity investments going forward and establishes the various roles and responsibilities of KKR executives. The policy details KKR's goals for ESGrelated performance, referring to existing responsible investment frameworks for guidance. In addition, we have included ESG considerations in the private equity Investment Committee (IC) and Portfolio Management Committee (PMC) guidance materials. During the diligence process, we reference a series of guides for an in-depth review of key ESG-related questions based on sectors and subsectors. These guides were developed by our ESG diligence team with the input and expertise of a global network of third-party consultants and advisors and using relevant best practice guides and principles. The team uses the guides and aims to continually refine them over time as new lessons are learned.some of KKR's partners are listed here: No SG 02 Mandatory Core Assessed PRI 6 SG 02.1 Indicate which of your investment policy documents (if any) are publicly available. Provide URL and an attachment of the document. Policy setting out your overall approach URL Asset class-specific guidelines 13

15 URL Sector specific RI guidelines Other, specify Other, specify We do not publicly disclose our investment policy documents SG 03 Mandatory Core Assessed General SG 03.1 Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process. Yes SG 03.2 Describe your policy on managing potential conflicts of interest in the investment process. In an effort to implement best-practices in our application and monitoring of conflict resolution, KKR has created a Global Conflicts and Compliance Committee. KKR's Global Conflicts and Compliance Committee is responsible for analyzing and addressing new or potential conflicts of interest that may arise in KKR's business, including conflicts relating to specific transactions and circumstances as well as those implicit in the overall activities of KKR and its various businesses. This committee is overseen by KKR's General Counsel, David Sorkin, and Global Chief Compliance Officer, Bruce Karpati. To note, KKR is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Advisers Act, providing additional oversight and governance with respect to conflicts of interest. In addition, KKR has an active Risk Committee composed of senior thought leaders from various business lines (e.g., private equity, credit, capital markets) and control functions (e.g., legal, public affairs, finance). The Risk Committee monitors and evaluates KKR's general business risks. No Objectives and strategies SG 04 Mandatory Gateway/Core Assessed General SG 04.1 Indicate if and how frequently your organisation sets and reviews objectives for its responsible investment activities. Quarterly or more frequently Biannually Annually Less frequently than annually Ad-hoc basis It is not reviewed 14

16 SG 04.2 Additional information. [Optional] Progress and goals for ESG-related programs in the private equity portfolio are assessed at least quarterly. Governance and human resources SG 06 Mandatory Core Assessed General SG 06.1 Indicate the roles present in your organisation and for each, indicate whether they have oversight and/or implementation responsibilities for responsible investment. Roles present in your organisation Board members or trustees Oversight/accountability for responsible investment Implementation of responsible investment No oversight/accountability or implementation responsibility for responsible investment Chief Executive Officer (CEO), Chief Investment Officer (CIO), Investment Committee Oversight/accountability for responsible investment Implementation of responsible investment No oversight/accountability or implementation responsibility for responsible investment Other Chief-level staff or head of department, specify Head of Global Public Affairs 15

17 Oversight/accountability for responsible investment Implementation of responsible investment No oversight/accountability or implementation responsibility for responsible investment Portfolio managers Investment analysts Oversight/accountability for responsible investment Implementation of responsible investment No oversight/accountability or implementation responsibility for responsible investment Dedicated responsible investment staff Oversight/accountability for responsible investment Implementation of responsible investment No oversight/accountability or implementation responsibility for responsible investment External managers or service providers Oversight/accountability for responsible investment Implementation of responsible investment No oversight/accountability or implementation responsibility for responsible investment Investor relations Other role, specify Other role, specify SG 06.2 For the roles for which you have RI oversight/accountability or implementation responsibilities, indicate how you execute these responsibilities. KKR's Global Public Affairs team, an internal team of experts, represents the core of the ESG-related expertise at KKR. The team was formed in 2008 to serve as a resource to KKR, our professionals, and our portfolio companies. The Global Public Affairs team is involved in the due diligence process for all potential private equity investments and also regularly engages with portfolio companies and external stakeholders. Overall, several individuals across KKR have a role in managing ESG issues, including investment team members and KKR's legal and compliance team. Investment Committees oversee ESG issues that are material to an investment and that have been raised to their attention when making an investment decision. Our Portfolio Management Committees and investment professionals have implementation roles with respect to material ESG issues that have been identified in the investment process. Ken Mehlman (Member), and member of the Global Management Committee, has ultimate responsibility of the Global Public Affairs team and over KKR's responsible investment efforts. KKR has three-time professionals, including Elizabeth Seeger (Director) and Ali Hartman (Principal), dedicated to working on KKR and KKR's private equity portfolio companies' overall sustainability programs. Additional members of the team are responsible for specific ESG opportunities based on their geography or subject matter expertise. Additionally, in order to better capture value associated with environmental performance management, in 2014, Alan Grant joined KKR Capstone and is 100% focused on environmental resource-related issues with a major focus on energy management. Alan is a Professional Engineer, a Certified Energy Manager, a Certified Building Commissioning Professional, and a LEED Accredited Professional. As of December 31, 2015, KKR Capstone is a team of approximately 50 full-time operating professionals who work exclusively with our investment professionals and portfolio company management teams or our designees. Executives from KKR Capstone play a significant role in managing and supporting KKR's ESG-related programs at KKR portfolio companies, including through the Responsible Sourcing Initiative and the Green Solutions Platform. More information on these programs is available at and In addition to our internal team and KKR Capstone, we have developed a strong network of external resources, such as non-profit organizations, membership organizations, and thought leaders, to help us manage critical issues, including evolving U.S. and non-u.s. rules governing investment activities generally, environmental and energy policy, labor relations, supply chain management, transparency, and other matters. 16

18 SG 06.3 Indicate the number of dedicated responsible investment staff your organisation has. Number 3 SG 06.4 Additional information. [Optional] FTE does not include resources associated with KKR Capstone. KKR Capstone is not an affiliate or subsidiary of KKR. Please see Important Information at the beginning of this presentation for additional disclosure regarding KKR Capstone. Promoting responsible investment SG 08 Mandatory Core Assessed PRI 4,5 New selection options have been added to this indicator. Please review your prefilled responses carefully. SG 08.1 Select the collaborative organisation and/or initiatives of which your organisation is a member or in which it participated during the reporting year, and the role you played. Select all that apply Principles for Responsible Investment Your organisation s role in the initiative during the reporting period (see definitions) Basic Moderate Advanced 17

19 Provide a brief commentary on the level of your organisation s involvement in the initiative. [Optional] Participated as a member of the Private Equity Advisory Committee until end of term in December 2015 AFIC La Commission ESG Asian Corporate Governance Association Australian Council of Superannuation Investors BVCA Responsible Investment Advisory Board CDP Climate Change CDP Forests CDP Water CFA Institute Centre for Financial Market Integrity Code for Responsible Investment in SA (CRISA) Council of Institutional Investors (CII) ESG Research Australia Eumedion EVCA Responsible Investment Roundtable Extractive Industries Transparency Initiative (EITI) Global Investors Governance Network (GIGN) Global Impact Investing Network (GIIN) Your organisation s role in the initiative during the reporting period (see definitions) Basic Moderate Advanced Global Real Estate Sustainability Benchmark (GRESB) Institutional Investors Group on Climate Change (IIGCC) Interfaith Center on Corporate Responsibility (ICCR) International Corporate Governance Network (ICGN) Investor Group on Climate Change, Australia/New Zealand (IGCC) International Integrated Reporting Council (IIRC) Investor Network on Climate Risk (INCR)/CERES 18

20 Your organisation s role in the initiative during the reporting period (see definitions) Basic Moderate Advanced Local Authority Pension Fund Forum Principles for Financial Action for the 21st Century Regional or National Social Investment Forums (e.g. UKSIF, Eurosif, ASRIA, RIAA), specify Shareholder Association for Research and Education (Share) United Nations Environmental Program Finance Initiative (UNEP FI) United Nations Global Compact Other collaborative organisation/initiative, specify Regional private equity or growth capital associations and their responsible investment activities Your organisation s role in the initiative during the reporting year (see definitions) Basic Moderate Advanced Provide a brief commentary on the level of your organisation s involvement in the initiative. [Optional] Varied depending on the activities of the association, but included the contribution of case studies and speaking at events, such as with the PEGCC. Other collaborative organisation/initiative, specify Other collaborative organisation/initiative, specify Other collaborative organisation/initiative, specify SG 08.2 Additional information. [Optional] KKR has a number of partnerships and memberships that enhance our responsible investment efforts. Some of our partners are listed at and SG 09 Mandatory Core Assessed PRI 4 SG 09.1 Indicate if your organisation promotes responsible investment, independently of collaborative initiatives. Yes 19

21 SG 09.2 Indicate which of the following actions your organisation has taken to promote responsible investment, independently of collaborative initiatives. Provided or supported education or training programmes for clients, investment managers, broker/dealers, investment consultants, legal advisers or other investment organisations Provided financial support for academic or industry research on responsible investment Encouraged better transparency and disclosure of responsible investment practices across the investment industry Spoke publicly at events and conferences to promote responsible investment Wrote and published in-house research papers on responsible investment Encouraged the adoption of the PRI Wrote articles on responsible investment in the media. Other, specify No SG 09.3 Additional information. [Optional] More information on how KKR promotes responsible investment is available in our report available at In 2014 and 2015, we participated in a variety of industry events and groups, including: Hosted ESG-focused events for fund investors in North America and Europe Provided feedback to the United Nations-backed Principles for Responsible Investment's reporting and assessment process Convened a working group of our U.S.-based private equity peers to discuss responsible investment practices and policies Served on the Private Equity Growth Capital Council Board of Directors, with KKR Global Head of Public Affairs Ken Mehlman as chair Contributed to the development of ESG disclosure guidelines through our involvement on the Standards Council of the Sustainability Accounting Standards Board (SASB) Sponsored and spoke at events in Asia including the IIX Impact Forum 2014, the Responsible Business Forum on Sustainable Development, and the 2014 Private Equity and Venture Forum in Hong Kong sponsored by the Asian Venture Capital Journal Participated in surveys and industry reports on trends and best practices This information will be updated in our 2015 report, due to be published in June Implementation not in other modules SG 14 Mandatory Descriptive General SG 14.1 Describe how you address ESG issues for internally managed assets for which a specific PRI asset class module has yet to be developed or for which you are not required to report because your assets are below the minimum threshold. 20

22 Asset Class Property Describe what processes are in place and the outputs or outcomes achieved Through KKR's real estate business, we target a variety of real estate opportunities, including direct investments in real property, debt, special situations transactions, and businesses with significant real estate holdings that can benefit from KKR's operational expertise. We are differentiated from standalone real estate players in our ability to leverage our history in the private equity industry portfolio as related to the understanding and management of ESG issues. In 2015, a number of the properties in which we invested focused on ESG initiatives in their operations or development. We also began to engage in a number of energy management initiatives such as lighting retrofits, steam-to-gas conversions, and heating efficiency upgrades with select real estate investments under the guidance of KKR Capstone's energy expert, who is a Professional Engineer, a Certified Energy Manager, a Certified Building Commissioning Professional, and a LEED Accredited Professional. For more, see and Infrastructure Increased levels of urbanization and demographic changes continue to require technological advances; reliable and clean sources of energy; and secure infrastructure to support trade, economic development, and public health. KKR continues to follow these trends and has built on our years of investing experience to drive value in the energy and infrastructure space. Between 2011 and 2015, KKR has invested approximately $1.6 billion into renewable energy projects and businesses. Water infrastructure is an area to which KKR has applied our skill set to provide solutions to societal challenges. Many municipalities have encountered difficulties in maintaining their water and wastewater systems. With these difficulties can come supply problems and health risks as well as frequent operational disruptions. KKR has invested in four water projects between 2011 and For more, see SG 14.2 Additional information [Optional]. URLs cited throughout this report are as of March 1, 2016 KKR Capstone is not an affiliate or subsidiary of KKR. Please see Important Information at the beginning of this report for additional disclosure regarding KKR Capstone. Innovation SG 17 Voluntary Descriptive General SG 17.1 Indicate whether any specific features of your approach to responsible investment are particularly innovative. Yes 21

23 SG 17.2 Describe any specific features of your approach to responsible investment that you believe are particularly innovative. To better understand how to approach ESG risks and opportunities as a Firm, in 2011 we analyzed our relative degree of influence and control over ESG factors in the pre-investment and investment phases across our asset classes. Based on this analysis, we continue to prioritize efforts to integrate ESG considerations in the private equity investment process. KKR's approach to responsible investment in private equity is focused on value creation, which we achieve in partnership with investors, our portfolio companies, and credible third-party advisors. In recent years, we have been expanding this approach, as well as our internal expertise and the expertise of our third-party partners, beyond private equity to other asset classes, such as real estate and infrastructure, where relevant. See for more. To date, we have engaged with non-governmental organizations, community groups, and other stakeholders interested in our private equity portfolio companies. In addition to the PRI, KKR is formally involved with Business for Social Responsibility and, in 2013, became a member of Ceres' Investor Network on Climate Risk in order to understand and continue to stay ahead of emerging best practices on environmental, social, and governance issues. In 2014, KKR became a member of the Global Impact Investor Network. In 2015, KKR joined the Clinton Global Initiative and made a commitment to action related to workplace wellness. Furthermore, in 2008, we entered into a partnership with the environmental advocacy non-profit, the Environmental Defense Fund. Through this first-of-its-kind partnership, known as the Green Portfolio Program (GPP), we sought cost-effective ways to measure and improve the efficiency and environmental performance of our global private equity portfolio companies, similar to the way we drive operational and financial improvement. Since its inception in 2008, 27 portfolio companies took part in the GPP. In 2014, 21 of the participating KKR private equity portfolio companies released results. Collectively, through their efforts in key environmental performance areas, these companies have achieved an estimated $1.2 billion in financial impact and avoided approximately 2.3 million metric tons of GHG emissions, 6.3 million tons of waste, and 27 million cubic meters of water use. In 2015, we re-launched the program as the Green Solutions Platform, which builds upon the core components of the GPP but expands the focus beyond ecoefficiency to eco-innovation and eco-solutions. The initial program results included 22 participating companies from KKR's private equity, infrastructure, real estate, and special situations funds. Our proactive approach to ESG, regulatory and stakeholder management is critical both to differentiate ourselves as a trusted and thoughtful partner when we pursue investment opportunities and also to create value once we own a portfolio company. To communicate this value, we have published an annual ESG report since our 2010 report, published in Our most recent report is available at No 22

24 Kohlberg Kravis Roberts & Co. L.P. Reported Information Public version Direct Private Equity PRI disclaimer This document presents information reported directly by signatories. This information has not been audited by the PRI Secretariat or any other party acting on their behalf. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of the information presented, and no responsibility or liability can be accepted for any error or omission. 23

25 Overview PE 03 Voluntary Descriptive PRI 1-6 PE 03.1 Provide a brief overview of your organisation s approach to responsible investment in private equity. Our approach to responsible investment in private equity is disclosed publicly on our web site at and in our most recent ESG report at We work to understand the impacts of the companies in which we invest and believe that our understanding of ESG issues improves our opportunities to create shared value. In line with this belief, we have made a public commitment to formally incorporate the consideration of ESG factors into our investment processes. In 2009 we became signatories of the globally recognized voluntary framework of the United Nations-backed Principles for Responsible Investment (PRI), and helped lead the development of the Private Equity Growth Capital Council's (PEGCC) Guidelines on Responsible Investment. These principles and guidelines serve as valuable platforms for formalizing and focusing our responsible investment efforts, raising internal awareness, and providing a common language and set of expectations for our investment partners, our portfolio company management teams, and other stakeholders. Just as importantly, we see the value of interacting with and learning from others who share this commitment. Therefore, we work regularly with our peers in these communities to help develop tools and resources and to learn from each other. At KKR, we are committed to thoughtfully considering ESG issues as they pertain to our private equity investments. For us, this approach means more than just responsible investing; it means smart investing. As part of our commitment to this investment approach, KKR worked with other members of Private Equity Growth Capital Council (PEGCC) to develop Guidelines for Responsible Investment in These guidelines serve as a platform for formalizing and focusing our responsible investment efforts - and those of our peers in the private equity industry. In accordance with these guidelines, KKR's private equity funds commit to take environmental, social, governance, and labor issues into account when making and managing investments: - Consider environmental, public health, safety, and social issues associated with target companies when evaluating whether to invest in a particular company or entity, as well as during the period of ownership. - Seek to be accessible to, and engage with, relevant stakeholders either directly or through representatives of portfolio companies, as appropriate. - Seek to grow and improve the companies in which they invest for long-term sustainability and to benefit multiple stakeholders, including on environmental, social, and governance issues. To that end, Private Equity Growth Capital Council members will work through appropriate governance structures (e.g., board of directors) with portfolio companies with respect to environmental, public health, safety, and social issues, with the goal of improving performance and minimizing adverse impacts in these areas. - Seek to use governance structures that provide appropriate levels of oversight in the areas of audit, risk management, and potential conflicts of interest and to implement compensation and other policies that align the interests of owners and management. - Remain committed to compliance with applicable national, state, and local labor laws in the countries in which they invest; support the payment of competitive wages and benefits to employees; provide a safe and healthy workplace in conformance with national and local law; and, consistent with applicable law, respect the rights of employees to decide whether or not to join a union and engage in collective bargaining. - Maintain strict policies that prohibit bribery and other improper payments to public officials consistent with the U.S. Foreign Corrupt Practices Act, similar laws in other countries, and the OECD Anti-Bribery Convention. - Respect the human rights of those affected by their investment activities and seek to confirm that their investments do not flow to companies that utilize child or forced labor or maintain discriminatory policies. - Provide timely information to their limited partners on the matters addressed herein, and work to foster transparency about their activities. - Encourage their portfolio companies to advance these same principles in a way which is consistent with their fiduciary duties. PE 04 Mandatory Core Assessed PRI 2 24

26 PE 04.1 Indicate if your organisation s investment guidelines for private equity refer to responsible investment. Our investment guidelines do refer to responsible investment PE 04.2 Describe how your organisation s investment guidelines outline your expectations on staff and portfolio companies approach towards ESG issues [Optional]. In addition to our policies and commitments, which we state publicly at and the guidance we provide regarding discussions within the Investment Committees and Portfolio Management Committees includes reference to the identification, assessment, and management of material ESG issues for private equity portfolio companies. Our investment guidelines do not refer to responsible investment We do not have investment guidelines Fundraising of private equity funds PE 05 Mandatory Core Assessed PRI 1,4,6 PE 05.1 Indicate if your most recent fund placement documents (private placement memorandums (PPMs) or similar) refer to responsible investment aspects of your organisation. Yes PE 05.2 Indicate how your fund placement documents (PPMs or similar) refer to the following responsible investment aspects of your organisation: Policy and commitment to responsible investment Approach to ESG issues in pre-investment processes Approach to ESG issues in post-investment processes No Not applicable as our organisation does not fundraise Pre-investment (selection) PE 07 Mandatory Gateway PRI 1 PE 07.1 During due-diligence indicate if your organisation typically incorporates ESG issues when selecting private equity investments. Yes 25

27 PE 07.2 Describe your organisation's approach to incorporating ESG issues in private equity investment selection. KKR shares this information publicly at and in the annual ESG report at Good investments begin with rigorous due diligence on key business drivers, such as macroeconomic trends, customer preferences, and raw materials prices. KKR investment professionals consider how these factors provide opportunities and pose risks to growth and success over the long term. KKR due diligence also includes a review of how potential portfolio companies manage or are affected by environmental, social, and governance issues. Material ESG considerations that are discovered in the diligence phase can have an impact on our investment decisions. We formalized our ESG due diligence efforts in 2011 by assembling our team of internal experts and establishing regular meetings. In recent years, we developed a process that allowed us to monitor relevant deals and their associated ESG issues throughout the pre-investment phase. We also deepened the resources available during the diligence process by creating a series of relevant industry guides and continue to improve our efforts over time. No PE 09 Mandatory Core Assessed PRI 1,3 PE 09.1 Indicate which E, S and/or G issues are typically considered by your organisation in the investment selection process and list up to three typical examples per issue. ESG issues Environmental List up to three typical examples of environmental issues Compliance with applicable laws and regulation Effect of limited resources, such as water scarcity, on risks and opportunities Performance of products from a resource efficiency perspective Social List up to three typical examples of social issues Worker health and safety Human rights management in the supply chain Labor relations and employee engagement Governance List up to three typical examples of governance issues Corruption and bribery Transparency and reporting Engagement with stakeholders 26

28 PE 09.2 Additional information. [Optional] KKR's due diligence process focuses on issues material to each company and its industry and does not seek to apply a one-size-fits-all approach. For more on the KKR diligence approach, please view and the most recent ESG report at Post-investment (monitoring and active ownership) PE 13 Mandatory Gateway/Core Assessed PRI 2 PE 13.1 Indicate whether your organisation incorporates ESG issues in investment monitoring of portfolio companies. Yes PE 13.2 Indicate the proportion of portfolio companies where your organisation included ESG performance in investment monitoring during the reporting year. >90% of portfolio companies 51-90% of portfolio companies 10-50% of portfolio companies <10% of portfolio companies (in terms of total number of portfolio companies) PE 13.3 Indicate ESG issues for which your organisation typically sets and monitors targets (KPIs or similar) and provide examples per issue. ESG issues Environmental List up to three example targets of environmental issues Compliance with applicable laws and regulation Performance of products from a resource efficiency perspective Potential future regulation affecting products or services Social List up to three example targets of social issues Worker health and safety Human rights management in the supply chain Labor relations and employee engagement Governance 27

29 List up to three example targets of governance issues Corruption and bribery Transparency Engagement with stakeholders We do not set and/or monitor against targets No PE 13.4 Additional information. [Optional] Our relationships with our private equity portfolio companies are overseen by our investment teams with support from KKR Senior Advisors, internal experts, and external advisors, as necessary. Each region has a Portfolio Management Committee (PMC), which monitors each company's progress and advises them on strategies for realizing value on material issues. The ESG challenges and opportunities faced by private equity portfolio companies can vary greatly over time and are based on industry, geography, and stakeholders. Therefore, our approach to ESG-related issues is highly customized and collaborative. KKR monitors the material ESG issues of its private equity portfolio companies by regularly assessing whether there are any material issues for each company and, if so, whether the portfolio company could benefit from KKR's support and management. In many cases, the answer to both questions may be no, making the total monitored companies <100%. The percentage above refers to the percentage of companies where ESG issues are evaluated to determine if such issues are material, which is greater than the percentage of companies where a material issue is identified and regularly addressed through the PMC process. PE 14 Mandatory Core Assessed PRI 2 PE 14.1 Indicate if your organisation tracks the proportion of your portfolio companies that have an ESG/sustainability-related policy (or similar guidelines). Yes PE 14.2 Indicate what percentage of your portfolio companies has an ESG/sustainability policy (or similar guidelines). >90% of portfolio companies 51-90% of portfolio companies 10-50% of portfolio companies <10% of portfolio companies 0% of portfolio companies No (in terms of total number of portfolio companies) PE 14.3 Additional information. [Optional] For the purposes of this exercise, KKR is defining "ESG policy" as any public written material that describes a goal or vision related to any environmental, social, and/or governance issues that are material to that company. 28

30 Communication PE 20 Mandatory Core Assessed PRI 6 PE 20.1 Indicate whether your organisation proactively discloses ESG information on your private equity investments. Disclose publicly provide URL provide URL PE 20.2 Indicate whether the type of ESG information you proactively provide to the public is the same as that you provide to your clients (LPs)/beneficiaries. Yes No PE 20.3 Indicate the type of ESG information that your organisation proactively discloses to the public. ESG information in relation to our pre-investment activities ESG information in relation to our post-investment monitoring and ownership activities Information on our portfolio companies ESG performance Other, specify PE 20.4 Indicate your organisation s typical frequency of disclosing ESG information to the public. Quarterly or more frequently Biannually Annually Less frequently than annually Ad-hoc/when requested, specify PE 20.5 Indicate the type of ESG information that your organisation proactively discloses to your clients (LPs)/beneficiaries. ESG information in relation to our pre-investment activities ESG information in relation to our post-investment monitoring and ownership activities Information on our portfolio companies ESG performance Other, specify 29