How to report portfolio greenhouse gas emissions is something that many private markets firms will undoubtedly be considering. Guidance released today could provide meaningful assistance on this. Initiative Climat International (iCI), a network of private equity GPs who collaborate on managing climate risks and opportunities, has partnered with consulting firm ERM to create guidance that “sets out a consistent approach to GHG emissions disclosure across the private equity sector”.
“Many GPs have not yet established robust processes for carbon footprinting data collection, target setting or benchmarking, and there has to date been no agreed standard for aggregating and reporting this information at fund level,” the organisations wrote in a statement today.
The standard provides GPs with guidance on various elements of GHG reporting, including:
- Calculating scopes 1,2 and 3 emissions of the GP and each portfolio company;
- Attributing GHG emissions from portfolios to GPs and LPs;
- Aggregating emissions at the fund level and reporting to stakeholders.
The Principles for Responsible Investment (PRI) backed the initiative. Two other sustainability-focused non-profits – Ceres and CDP – have endorsed it.
“When it comes to measuring and reporting financed emissions, the private equity asset class remains a distance behind public markets,” said Peter Dunbar, head of private equity at the PRI. “This excellent guidance will equip private equity ESG professionals with a blueprint based on preexisting global standards, which will help them improve the quality of their GHG emissions reporting.”
Climate reporting is becoming a reality around the world. In the UK, for example, larger companies have to make a number of disclosures around climate risk (although GHG reporting is not necessarily one of them). Meanwhile in the US, the Securities and Exchange Commission has proposed climate-centric disclosure requirements, including elements of GHG calculation and reporting, for larger listed companies.
Aside from regulation, investors in private equity funds are asking for the data. “We need the [overall] carbon emissions, and our percentage of that either to the fund or to the company, depending on what level it’s being reported at,” one LP told delegates at PEI Media’s Responsible Investment Forum in New York in March. “Right now, we don’t have either one of those. So our ask is just for the carbon emissions data.”
The discussion was conducted under Chatham House rules, meaning speakers could not be identified. Of its private equity assets, the LP said: “We have a pretty good sense of what we hold, at least indirectly through our fund managers. But there’s no greenhouse gas data whatsoever. We literally have no data.”