Adam Heltzer, global head of the ESG group at Ares Global Management, reflects on the last year and looks ahead to 2023.
Looking back at 2022, were there any pivotal events, moments or developments in terms of sustainability in private markets?
In 2022, we believe climate became the undisputed number one ESG topic globally for private markets firms. Following the aspirational atmosphere of COP26 and the launch of GFANZ, firms met the tough reality that net-zero implementation is complicated, with few frameworks ready for “prime time” across private markets asset classes.
ESG regulations across the US, Europe and Asia have had a huge impact, both in terms of making ESG programmes more explicit and transparent, and broadening the set of senior executives outside the ESG function – C-suite, portfolio management, investor relations, legal, compliance, etc – who feel ownership on the topic.
2022 was also the year that drew greater ESG scrutiny, most notably in the US. The clearest impact will likely be managers hemming more closely to fiduciary and value creation arguments for their ESG goals while de-emphasising sustainability outcomes as a goal in its own right.
Lastly, it was a big year for standardising ESG data collection efforts. While a major advancement in terms of setting a floor for ESG KPIs, there remains a meaningful gap in how managers translate this into the “so what?” 2023 must be the year of building strategic intent behind ESG data collection, including tighter partnership across asset classes – especially private equity and private credit – to drive impact at portfolio companies.
Thinking specifically about private markets, do you think the industry has made progress on climate in the last year? Where are the bright spots? Where has it disappointed?
This past year witnessed several new capital raises for climate-focused funds, including within our own infrastructure business, which will accelerate the scaling of much-needed climate solutions. We have also seen a mainstreaming of emissions measurement, sustainability linked loans tied to decarbonisation and TCFD reporting.
That said, there is still a lot of work to do. We hope that the emergence of “greenhushing” – pulling back public climate commitments given shifting goal posts and/or regulatory scrutiny – does not detract from progress against the global net zero 2050 ambition and 2030 interim targets. Rather, we hope it sparks private markets investors to engage on real-world decarbonisation with portfolio companies, then report out transparently on progress.
Looking ahead to 2023, what is your firm’s next priority in terms of the climate? What would you like to have completed over the next 12 months?
We have just come off of a second annual climate change off-site with 40 colleagues from across the firm. The theme was “accelerating decarbonisation” and focused on how we can drive meaningful action within each asset class, with the ultimate goal of working towards a transparent, pragmatic net zero commitment. In the next 12 months, we are aiming to make a meaningful leap forward on our emissions baseline in our portfolios and to build institutional capacity for engaging on decarbonisation. We’ll be publishing our second TCFD-aligned climate action report and adding a dedicated climate change lead to steer the effort.
Aside from climate, which other areas of sustainability will be prominent on your agenda and why?
• Scaling DEI impact in our investment platform through our AmpliFY DEI initiative.
• Forming a long-term strategic vision for ESG data.
• Positioning Ares to thrive amidst an evolving ESG regulatory landscape.
How are more emerging topics like nature/biodiversity occupying your time and resources?
Nature is our biggest carbon sink and strengthens the world’s resilience to the physical impacts of climate change. At the investment level, we aim to evaluate environmental risks around waste, pollution, biodiversity and nature loss, where material, through ESG due diligence. As a firm, we are also monitoring initiatives such as the TNFD and the UN Biodiversity Conference (COP 15) to stay close to emerging trends on biodiversity as they evolve.