By Dan Primack
February 28, 2013

FORTUNE — Henry Kravis, co-founding CEO of Kohlberg Kravis Roberts & Co. (KKR), says that his firm is focused on both shale gas investments and environmental issues — and doesn’t see any conflict between the two.

KKR has invested heavily in fracking, a natural gas and petroleum extraction technique that uses highly-pressurized liquid to create fractures in sedimentary rock layers (i.e., shale) that sometimes can be found more than one mile below the ground. Not only does KKR create and support exploration and drilling companies for both proven and unproven shale fields, but also invests in related service providers and even is developing housing for a fracking boomtown called Williston, North Dakota.

Fracking has revolutionized the U.S. energy sector, to the extent that many predict energy independence within the next decade. But some people also worry that the process creates dangerous chemical byproducts that could seep into local water tables. In fact, shale-heavy New York State still does not permit fracking within its borders — a moratorium that is unlikely to be lifted anytime soon.

Kravis acknowledges the concerns, but finds them to be mostly unfounded. Speaking this morning at the SuperReturns International conference in Berlin, Kravis said: “There will be some minor mishaps in that industry, but a large amount of study has gone into it and there is no proof yet that it’s something that’s going to hurt the water tables… The facts are that there has not been widespread pollution or widespread contamination, because this gets done so far below the water tables.”

What makes this issue a bit thorny for KKR is that the firm has spent the past seven years trying to establish its environmental bona fides. It was among the first private equity firms to formalize an ESG (environmental, social and governance) policy, and one year later worked hard to secure environmental group endorsements for its record-breaking buyout of Texas energy company TXU (a deal which, ironically, has suffered from fracking’s impact on natural gas prices). For KKR’s latest ESG report, go here.

“We didn’t focus on ESG nutl 2006, and it was a huge mistake as I look back on it,” Kravis said. “We now have a green portfolio program with 24 of our portfolio companies signed on… It helps the environment, and also helps the companies. The 16 U.S. companies using the program saved $644 million over the past two years, which means they are doing well by doing good.”

When asked what would happen to KKR’s fortunes if a fracking accident caused a broader crackdown on the process by U.S. regulators, Kravis suggested that the answer is portfolio diversification. “The first thing you need to differentiate is if you’re fracking on federal lands or on private lands,” he explained. “And then you make sure that you also have assets in multiple states, since regulation on this is more likely on the state level than on the federal level. And you also don’t put all of your money into fracking. Instead, you make it a part of a more diversified energy investment strategy.”

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