KKR Partners With EGC To Drive Real Estate Decarbonization

KKR, a leading global alternative asset and private equity investor, has announced a strategic partnership with German energy service provider EGC to accelerate decarbonization efforts in the real estate sector. The partnership is part of KKR’s broader commitment to tackling climate change and investing in sustainable solutions, particularly in asset-heavy industries undergoing a “brown-to-green” transition.

Buildings remain one of the most significant sources of greenhouse gas (GHG) emissions globally, contributing heavily to climate change. They also pose a unique challenge due to their long lifespan, making the transition to more sustainable energy solutions complex and gradual. According to the European Commission, buildings account for 40% of total energy consumption in the EU and 36% of energy-related GHG emissions. A huge percentage of around 80% of the energy consumption of a household is spent on hot water, cooling, and heating. Knowing the problem, the EU has launched ambitious climate ambitions, including achieving zero-emission new buildings by 2030 and abolishing fossil fuel heating systems altogether by 2040.

Founded in 2021, EGC has emerged as a key player in the decarbonization of heating systems in buildings, helping clients design, finance, and implement energy-efficient solutions. The company provides end-to-end support for planning and developing energy and building technology systems, as well as owning and operating central heating units and electricity supply networks. Currently, EGC manages a real estate portfolio of approximately 2 million square meters for over 100 clients and operates around 800 central heating units across Germany. The company’s expertise and growing market presence have made it an attractive partner for investors looking to drive meaningful progress in energy transition efforts.

As part of the newly announced agreement, EGC’s founding family and current shareholders will retain a stake in the company and continue to play an active role in management. The deal also includes ITG, an engineering service provider that is part of the EGC Group. In addition to financial backing, KKR has brought in experienced industry leadership to strengthen EGC’s growth strategy. Michael Lowak, former CEO at European energy service provider GETEC Group, will be appointed as Chairman of EGC with a strong background in the energy transition market.

Lowak emphasized the importance of EGC’s role in enabling landlords to effectively plan, implement, and finance the decarbonization of their properties. He noted that the company’s efforts contribute significantly to both the real estate industry and Germany’s broader energy transition goals. Expressing enthusiasm for the new role, he stated that he looks forward to leveraging his expertise to further EGC’s growth in partnership with KKR.

KKR is funding the investment through its Global Climate Strategy, a dedicated initiative launched in 2023 within the firm’s infrastructure unit. This strategy marks an expansion of KKR’s climate-focused investments, particularly in industries that require large-scale transformation to meet decarbonization targets. The firm has identified real estate as a critical area for emissions reduction and sees energy efficiency solutions as a key component of the transition.

In a statement announcing the partnership, Vincent Policard, Partner and Co-Head of European Infrastructure at KKR, highlighted the firm’s commitment to sustainable real estate solutions. He noted that as a significant investor in the real estate sector, KKR recognizes the urgent need to drive energy-efficient practices to reduce emissions. Policard emphasized that the real estate sector is a key focus area within KKR’s Climate Strategy, given its substantial carbon footprint and the potential for impactful change through targeted investments.

Beyond financial investment, KKR is also introducing an employee ownership and engagement model at EGC following the completion of the transaction. The firm developed this model in 2011 and has since successfully implemented it in 60 portfolio companies worldwide, benefiting over 150,000 non-management employees. The model aims to ensure that all employees play an active role in shaping the future of EGC, fostering a culture of shared responsibility and long-term growth.

Ryan Miller, Managing Director in KKR’s European Infrastructure team, underscored the importance of innovative solutions and long-term capital in advancing Germany’s energy transition at the required pace. He pointed to a growing demand for contracting solutions in the real estate sector and noted that the market remains highly fragmented, presenting significant opportunities for growth. Miller expressed confidence that, together with EGC’s management team, KKR can position the company as a leading decarbonization partner for the real estate industry in Germany.

This strategic partnership comes at a critical time as Europe intensifies its efforts to achieve net-zero emissions in the built environment. With stringent regulatory targets and increasing pressure on property owners to implement sustainable energy solutions, the collaboration between KKR and EGC is expected to play a crucial role in accelerating the transition to greener buildings. By bringing KKR's financial know-how and strategic capabilities together with EGC's technical knowledge and operational acumen, the joint venture has a goal to promote significant progress towards the decarbonization of heat systems and in the end shape a better, more sustainable future.