Ethical Corporation recently published a comprehensive, well-researched article called “Private Equity – Easing the barbarians through the gate.” The article is about how the responsible investment movement and private equity are learning to work together.

The first major example of this new style of business is the partnership between the Environmental Defense Fund and Kohlberg Kravis and Roberts (KKR). In February of 2007, Jim Marston, head of the EDF’s Texas office, met with KKR Chairman Henry Kravis.

The EDF had already waged a PR campaign against the plants, so they were surprised to be invited by KKR to discuss the issue. The EDF was intent on stopping KKR’s latest acquisition, Texas Utilities (TXU), from building eleven coal-firing plants.

But Henry Kravis was determined to revolutionize both the image and the practices of KKR. Henry Kravis understood that environmental groups now have considerable leverage, especially as public opinion continually grows in support of preserving the environment. He knew the getting the plants approved would entail an extremely difficult regulatory and public relations battle, and besides, Henry Kravis is sympathetic to many environmental issues. So, Henry Kravis decided he wanted the EDF and the Natural Resources Defense Council to enter the negotiations of KKR’s $44 billion buyout of TXU.

The result was TXU scrapping plans for eight of its coal plants, along with significant investments in renewable energy, conservation, and efficiency measures.

The astonishing KKR deal is just the tip of the iceberg the reform of private equity. According to the National Venture Capital Association, venture investment in clean technology has jumped from just 2% to 17% of the total money vested. In February of 2009, The Carlyle Group and KKR formed the Private Equity Council to encourage the implementation of ESG, or “environmental, social and governance” guidelines. These guidelines include anti-bribery measures, more open communication with shareholders, and stricter adherence to labor and environmental regulations.

The new face of private equity is at sharp odds with its old image, formed by the “barbarians at the gate” story of KKR’s takeover of RJR Nabisco. Ken Mehlman, the KKR head of global public affairs, says the barbarian image days are over. “I hate hearing that phrase. I don’t believe it’s an accurate portrayal of who KKR was then but it’s certainly not who we are today,” Ken Mehlman said. “We’re committed to responsibly steward the companies we own. We’re committed to sustainability.”

Ken Mehlman launched his career as an environmental lawyer for Akin Gump Strauss before he became the chairman of the Republican National Comittee. KKR hired Ken Mehlman so the firm could build a strong relationship with the EDF.

“There was instant chemistry at KKR,” Ken Mehlman says. “I believe strongly that free enterprise, when it’s focused, can bring value to all stakeholders, not just shareholders. We now use environmental, social and governance measures as part of our due diligence in acquisitions and across portfolios.”

KKR and EDF recently announced the Green Portfolio project. “[We worked] to test a set of analytic tools to help companies improve in several key environmental performance areas,” Ken Mehlman says, “including greenhouse gas emissions, waste, water, forest resources and chemicals. KKR and EDF released the results of their pilot partnership at three companies: US Foodservice, Primedia and Sealy. The total savings with the Green Portfolio practices amounted to $16.4 million, while preventing more than 25,000 tons of greenhouse gas emissions.

“We’re making ESG part of our DNA. This is a process. We’re going to make mistakes, but we’re committed to learning and improving on our environmental and social practices,” Ken Mehlman says. “We’re already seeing the benefits and we are rolling initiatives out across our portfolio.”