Blackstone leans on portfolio company for decarbonisation effort

Sphera, a Blackstone portfolio company collecting ESG data, is integrating into the firm’s decarbonisation efforts while also expanding across private markets to help standardise sustainability reporting.

Last year, amid soaring demand for ESG reporting, Blackstone purchased Sphera, a Chicago-based software company, in a deal valued at $1.4 billion. At the time, the firm described the importance of ESG as a “key thematic investing focus” moving forward.

The firm also spent much of last year building its in-house sustainability resources through a string of hires.

Now Blackstone is placing Sphera at the centre of the firm’s ESG strategy, which includes the goal to reduce portfolio greenhouse gas emissions by 15 percent. “Sphera joins a platform of companies, tools and resources available to Blackstone portfolio companies to support their carbon reduction goals,” the service provider said in a statement this week.

Blackstone manages $881 billion in assets across private equity, credit and real assets strategies. Last year, its private equity group informed chief executives of its portfolio companies of new quarterly reporting requirements, an initiative that the real estate group implemented in 2019.

The firm’s portfolio companies are not required to use Sphera’s reporting system, according to a Blackstone spokesperson, who declined to comment on whether portfolio companies receive fee discounts or must pay for participation.

In an emailed statement, James Mandel, Blackstone’s chief sustainability officer, said Sphera’s “technical rigour” for ESG reporting will help the firm better assess Scope 1 and 2 emissions from its portfolio. “This partnership will help us to take a strategic and robust approach to greenhouse gas emissions data.”

Chicago-based Sphera aggregates data collected from business operations “to understand what the carbon footprint is at the product level”, according to Paul Marushka, Sphera’s chief executive.

“Our niche is serving in the operational ESG space and what’s happening at the plant manufacturing level,” Marushka told New Private Markets. The ESG information Sphera measures includes air, water, waste and carbon emissions data, as well as corporate risk management and diversity, equity and inclusion reporting.

But the main focus for Sphera, which began as a software-as-a-service provider for environmental health and safety reporting, is on emissions reporting, in part driven by market demand.

“We measure carbon footprinting and emissions, and then companies can do what-if analysis associated with that,” Marushka said, adding that the company’s work with Blackstone stems from the firm’s need for an ESG data provider “that’s not just helping with change but measuring that change”.

Sphera’s operational footprint extends across 80 countries and 3,000 companies, and it is beginning to work with other private markets firms as well as institutional investors.

The company is also positioning itself to play a role in broader industry initiatives to standardise sustainability metrics, such as the ESG Data Convergence Project. This initiative, which launched last September and is co-led by Carlyle and the California Public Employees Retirement System, is a growing ESG reporting effort that now includes more than 100 LPs and GPs representing $8.7 trillion. It aims to serve as a “long-term mechanism for improving comparative reporting”, according to a Carlyle statement.

Sphera has met with representatives for the ESG Data Convergence project, as well as the Boston Consulting Group, which is compiling a report for the project that’s expected to be released later this year.

Like-for-like ESG data reporting has become a sustainability priority for private markets investors. According to Marushka, in today’s market, reporting sustainability metrics “in a consistent manner” is imperative for risk management. He said spotty ESG data could even open investors to the possibility of unintentional greenwashing.

“If you miss [data] you may be only underwriting partial information,” Marushka said.