Private equity gets net-zero guidance

Forming the private equity component of the Net Zero Investment Framework

Guidance for private equity has launched to drive the sector towards net-zero investing.

The Net Zero Investment Framework Component for the Private Equity Industry has been designed by the Institutional Investors Group on Climate Change (IIGCC), sustainability non-profit Ceres and consultancy Anthesis.

The private equity guidance establishes a consistent approach to measuring progress towards net zero with an emphasis on real economy decarbonization of portfolio companies.

It aims to standardize target setting, engagement and reporting between limited partners, general partners, and portfolio companies to support progress toward net zero at scale.

The guidance is intended to support any private equity investors who are active in buyout, growth and associated strategies.

While asset allocation may play a significant role in an investor’s net-zero strategy, the primary focus of the private equity guidance is decarbonization goals. 

Decarbonization at the portfolio company level, expressed through targets and science-based decarbonization strategies, is a key driver to the real-world emissions reduction required to meet the Paris Agreement’s goals.

The guidance takes into account the unique characteristics of the private equity asset class and provides an avenue to progress the integration of climate change risks and opportunities into private equity investment. 

In doing so, it aims to catalyze climate-related action across the private equity industry.

Net Zero Investment Framework

The guidance forms the private equity component of the Net Zero Investment Framework (NZIF), the most widely used net-zero framework for investors, taking the total number of asset classes covered to six.

 The NZIF aims to provide a consistent foundation for asset owners and managers to align portfolios with net-zero emissions by 2050 or sooner. 

Misa Andriamihaja, private equity lead at IIGCC, said: “We are pleased to bring to market this Net Zero Investment Framework component for the private equity industry. 

“With this guidance, we sought to support lead partners’ and general partners’ efforts, targets and actions in order to achieve real decarbonization at the level of portfolio companies. 

“Bespoke net-zero target types and tailored engagement actions sit at the core of this game-changing guidance for all private equity investors to start and progress in their net-zero journey.”

Peter Ellsworth, senior director at Ceres, said: “This guidance, developed with significant input from general partners and lead partners, will provide an on-ramp for lead partners, general partners and their portfolio companies that would like to better understand what a pathway toward net zero looks like. 

“These private equity-backed companies, which number more than 15,000, three times the size of the US listed market, will be the public companies of the future that contribute to the clean energy transition

“They need a decarbonization strategy they can develop in collaboration with their general partners. This guidance will promote such action and improve communication among all parties in this asset class.”