Sandrine Lalmant, head of sustainability at John Laing, reflects on the past 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, the industry witnessed an existential debate about what exactly ESG should be. Regulators around the world are upping the ante on everything from greenwashed fund names to stricter climate target disclosures, while the very idea of ESG investing is increasingly politicised.
Private market firms in Europe are ramping up their efforts to be able to categorise their funds as light green funds “promoting E&S characteristics”, which are also known as Article 8 funds. In the PE industry, the proportion of these light and dark green funds is 13 percent, lagging public markets, where Article 8 and 9 funds now constitute over 50 percent of funds. When initiative Climat International, the PE climate initiative, recently ran a survey of its members, 50 percent responded that they are now considering categorising their next fund as light green. As a result, we expect to see a significant increase in light green funds in the near future.
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?
Where we have made the most progress as an industry is on the collation of carbon metrics and setting targets. The end of 2021 and 2022 saw a rise in private market firms committing to net zero after the science-based target setting guidance for private equity was published. There are now 18 firms who have set or committed to set science-based targets and many more are currently working on their firm’s near-term climate commitments.
There is also more transparency around how private market firms approach climate, although disclosures are still inconsistent across the sector. A few PE firms have published TCFD reports, and most firms are working on theirs. However, opinions differ over who within private market firms should be responsible for overseeing and managing climate change risks and opportunities, and the methodology to assess the impact on valuations remains early stage.
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 ran our first carbon footprint assessment this year and joined initiative Climat International. In 2023, we will focus on setting our near-term targets. Key initiatives include supporting our assets to set targets and decarbonise, developing our climate due diligence and mapping climate investment opportunities. We also want to assess the vulnerabilities of our assets to changing weather patterns due to climate change.
Aside from climate, which other areas of sustainability will be prominent on your agenda and why?
We recognise that we have a responsibility to use our influence to minimise the environmental and social impacts of our projects, resource consumption and biodiversity loss. Over 60 percent of our portfolio is in transport infrastructure, including roads and rail. Working with our partners to reduce the use of raw materials, recover demolition waste and enhance the durability of the renewed road/rail elements is therefore a key priority for us.
How are more emerging topics like nature/biodiversity occupying your time and resources?
The five main direct drivers of biodiversity loss – changes in land and sea use, overexploitation, climate change, pollution, and invasive alien species – are making nature disappear quickly. We monitor our projects’ impact on nature, which is included in our annual ESG questionnaire. For some of our projects in roads and wind power, biodiversity is already included in our action plan. For example, we have a renaturation programme in a bird sanctuary, an agreement with a biodiversity conservation trust, and we support reforestation programmes.