The Institutional Investors Group on Climate Change has released private equity-focused guidance for its Net Zero Investment Framework: the first guidance for LPs and GPs to align their portfolios to net-zero carbon emissions by 2050.
“When it comes to net zero, private equity is currently a blind spot for institutional investors. This is an important step in bringing private markets in line with public markets,” Stephanie Pfeifer, CEO of IIGCC and one of New Private Markets’ ‘Ten people who will shape sustainable private markets in 2022’, said in a statement.
The Paris Aligned Investment Initiative, a forum founded by IIGCC, released the Net Zero Investment Framework in March 2021. The original NZIF covered listed equity, fixed income, real estate and sovereign bonds. The private equity guidance is released as an additional component to the NZIF and includes metrics, targets, scope of portfolio companies to be included in net-zero strategies and recommended actions for GPs and LPs. The component is open for public consultation. IIGCC was one of the founding networks of the Net Zero Asset Managers initiative, which has 220 signatories representing $57 trillion in assets under management.
“Net-zero commitments might turn into disengagement if they are not properly managed,” and managers might exclude and divest from asset-heavy companies, Fabio Ranghino, IIGCC’s private equity working group co-lead and head of strategy and sustainability at Ambienta, told New Private Markets.
Many decarbonisation initiatives “might cost some operation[al] expenditure but don’t require additional capital investment [from the GP],” said Ranghino.
Instead, GPs should use their influence over portfolio companies to implement decarbonisation efforts. For example, said Ranghino, portfolio companies can switch to a renewable energy supplier and retrofit resource-efficient apparatus in assets.
“Asset managers gather and speak about net zero, but they don’t do the actual job of reducing emissions,” said Ranghino. “Big asset managers have the managerial bandwidth to make an impact on portfolio companies and their supply chains. There are no excuses.”