‘Leading edge’ GPs start to align on climate

Some managers – mostly in Europe – are starting to speak a common language on climate change, but US managers are lagging, say panellists at PEI’s Responsible Investment Forum: Europe.

Private equity GPs are starting to rally around the Initiative Climat International (iCI), a network committed to understanding and reducing the carbon emissions of private equity-backed companies, according to panellists at PEI’s Responsible Investment Forum: Europe. “It is around 40 signatories in France, 16 in the UK… we have some interest in Australia and a budding network in the US,” said Cornelia Gomez, head of ESG & Sustainability at European private equity firm PAI Partners.

iCI began as a network for French general partners but has expanded to become a global initiative sponsored by the Principles for Responsible Investment. “The DNA of the initiative is pragmatism,” said Gomez, who added that there were “no free rides” for those participating, with all firms expected to contribute to the shared knowledge. “It is about growing and improving together.”

Private equity firms are at various stages of engagement with the issue of climate risk; some have yet to address it all, while others have worked to measure their portfolio’s carbon footprint, integrate climate risk into their investment due diligence processes and begin to consider the opportunities for value creation, as well as downside risk.

Suzanne Tavill, managing director and head of responsible investing for StepStone Group, said that while the likes of the GPs represented on the panel – PAI and Triton Partners – represent the “leading edge” on climate change awareness, there are huge disparities among managers, to some extent drawn along geographical lines. “Europe and the UK are definitely leading; we see it when we conduct due diligence… who’s got ESG policies, climate policies,” she said. “Asia is quite mixed in term of geography – there is certainly increased awareness in Japan and parts of China.

“The unfortunate laggard is the US. [However,] we are certainly seeing signs of that changing: both from a number of GPs and the LP universe becoming more vocal on the topic and adopting climate change policies.”

Use of a “common language” among private equity firms for measuring carbon emissions is essential, said Gomez. “We will be selling our assets to each other … it is crucial that we speak the same language.” As Tavill noted, it is an area “crying out and perfectly suited for standardisation”.

But what of those GPs who don’t see detailed engagement on climate change as a worthwhile exercise? Tavill’s message to managers is that there is real value to be had from a having “thoughtful positioning” around climate change. With GPs at different levels of ability to assess climate-related risks and opportunities. “We speak to them about arbitrage: ‘Which side of the trade do you want to be on?’”

For those looking for more information on iCI, Gomez recommended the PRI’s collaboration page.