Sophie Durham, head of ESG at Igneo Infrastructure Partners, reflects on the past year and looks forward to 2023.
Looking back at 2022, what pivotal events, moments or developments in terms of sustainability in private markets stood out to you?
2022 was a tumultuous year for ESG. Russia’s invasion of Ukraine and the ongoing energy crisis in Europe present risks and opportunities for the continent’s energy transition – and investors in that sector. We saw some high-profile investigations into alleged greenwashing by asset managers, as well as growing scrutiny of ESG approaches and debate as to whether the financial industry is delivering quickly enough on its promises.
This was also the year the EU’s Sustainable Finance Disclosure Regulation and Taxonomy rules really started to come into play. For me, the European heatwave was also a pivotal moment: 2022 was Europe’s hottest summer on record, with huge areas affected by extreme temperatures, drought and wildfires. It was a stark reminder of the physical impacts of climate change and the need to manage the risks and opportunities that these pose to our investment portfolios.
Has the private funds industry made progress on climate in the last year? Where are the bright spots? Where has it disappointed?
Good progress has been made in awareness of the issue and the role of the financial sector, as well as setting targets and improving reporting. Some of that is voluntary (like the Net Zero Asset Managers Initiative, which has grown to almost 300 signatories, for example), and some of it has been driven by new regulation, particularly in Europe. We also continued to see an increase in engagement on this topic from our investors. The challenge now is to turn all this into real actions ‘on the ground’. We cannot risk letting long-term aspirations and reporting frameworks distract us from achieving real, immediate improvements in managers’ portfolios. Private funds have a unique opportunity to do that, through proactive asset management and our close engagement with portfolio companies.
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?
By the end of 2023, we want all our portfolio companies to have implemented “Climate Action 1,2,3!”: our action plan to ensure short-term progress towards our goal of net zero emissions by 2050 or sooner. This involves all portfolio companies taking three key actions: 1) setting their own long-term net zero targets along with short- and medium-term emissions reduction targets; 2) conducting a detailed assessment of climate-related risks and opportunities and integrating conclusions into their business plans; and 3) putting in place measures to ensure good governance of climate-related risks and opportunities. Nine of our 12 European portfolio companies have set emissions targets to date and based on these, our emissions are projected to decrease 58 percent by 2030, and 68 percent by 2050. By the end of next year we aim for all companies to have robust targets in place that see our projected emissions driven down to net zero.
Aside from climate, which other areas of sustainability will be prominent on your agenda and why?
We have Five Minimum Standards for ESG performance, which have proven materially relevant and have delivered real improvements to all of our infrastructure businesses. These cover health and safety; environmental performance; diversity and inclusion; good governance; and employee engagement, and we closely engage all of our portfolio companies on these topics. After climate change, diversity is the topic on which we get the most questions from our investors, and an area where I’d like to see more progress in the portfolio.
How are more emerging topics like nature/biodiversity occupying your time and resources?
We constantly monitor emerging ESG risks and opportunities that are relevant to our portfolio and update our Five Minimum Standards in response. Last year, for example, we added new expectations around cyber security, modern slavery, and measuring Scope 3 greenhouse gas emissions; I am sure that 2023 will throw up other new challenges for our portfolio to tackle.
Sophie Durham joined Igneo in 2021 and has been head of ESG since March 2022.