Alvar de Wolff, managing director, head of ESG and responsible investing at Bregal Investments, reflects on the past year and looks forward to 2023.
Looking back at 2022, were there any pivotal events, moments, or developments in terms of sustainability in private markets?
Like most in the industry, data and regulation have remained a key focus for Bregal in 2022 – specifically, how we are responding to increased LP requests for data, while meeting regulatory requirements and avoiding greenwashing. In this regard, the ESG Data Convergence Initiative (EDCI) has been a great step towards rationalising the complexities of GP-LP ESG data requests and providing the first attempt to benchmark ESG performance across private equity, and we are glad to be a part of it.
It has also been promising to see progress being made to challenge the pervasive issue of greenwashing in both public and private markets – as demonstrated by SEC announcements and UK advertising watchdog rulings in the past year. I see this as a strong sign that the market is coming to terms with what genuine action on sustainability issues looks like, and should encourage greater ambition and credibility across the board.
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?
Absolutely, progress is being made across both public and private markets when it comes to climate – look at the SBT (Science Based Targets) and NZAM (Net Zero Asset Managers) targets being set by various actors – but, unfortunately, that is not the full picture.
A more pertinent question would be “is this progress fast enough?”, to which I would argue “no, it’s not” – more investors need to commit to managing their portfolios in line with the Paris Agreement targets, and companies need to be looking at credible emissions reduction plans, with beyond-value-chain-mitigation contributions in the short term. On the bright side, we are seeing a proliferation of start-ups in the climate technology space that will certainly help accelerate action, but we can’t sit around and wait for technology to catch up – we need to act now.
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?
This year was successful for Bregal in terms of portfolio climate action, with over 20 percent of our eligible invested capital having set climate targets validated by the Science Based Targets initiative (SBTi). This follows the private equity-specific guidance we helped to develop with the iCI group and SBTi last year.
In 2023, our priorities will include doubling-down on portfolio company Scope 3 emissions – improving data quality and, where possible, collecting supplier specific data; undertaking a more substantial climate related risk assessment – utilising geospatial risk data to undertake a fund-wide physical climate risk assessment; and continuing to push our companies to set science-based targets, towards our 2025 coverage target of 40 percent which we set in 2021.
Aside from climate, which other areas of sustainability will be prominent on your agenda and why?
A particular focus for us in 2023, since the launch of our new impact platform – Bregal Sphere – will be investing in nature: helping to improve supply chain resilience, adaptation and mitigation to climate change, and supporting the economy shift towards a nature-positive state.
The holistic benefits of nature-based solutions cannot be stated enough. Yet there is a significant financing gap, highlighted by the UN Environment Programme’s recent 2022 State of Finance for Nature Report, which must be addressed.
At the same time, there are other fundamental issues that need further attention – particularly around diversity, equity and inclusion (DE&I), moving beyond measurement and into concrete actions, and assessment of human rights related risks and issues within private markets. We expect to devote significant resources to these topics in the coming years.
How are more emerging topics, like nature, occupying your time and resources?
Nature and biodiversity are at the top of our agenda, both from a risk and opportunity perspective. On the risk side of the equation, we are thinking in terms of our portfolio, the impact it has on nature and biodiversity, and how to align our existing ESG approach with the emerging recommendations of the Taskforce for Nature-related Financial Disclosure (TNFD).
On the other hand, the opportunity is clear; corporates with ambitious climate and nature strategies are increasingly seeking opportunities to invest in high-quality nature-based solutions, and other climate technologies, to support decarbonisation strategies and move towards a nature-positive economy. This has begun to manifest itself in such corporates investing in some of the leading climate and nature-related private markets funds, and we will seek to accelerate such action through our recently announced impact platform, Bregal Sphere.
Editor’s note: This article has been corrected to reflect that Alvar de Wolff is head of ESG and responsible investing at Bregal Investments, rather than Bregal Capital, which is a separate entity.