Poor data prevents decarbonisation targets for LP’s $11bn private funds portfolio

Border To Coast, a UK pension pool, is pursuing climate impact investments – such as Ardian-backed Hy24’s hydrogen fund – in lieu of a net zero pathway for its £10bn private funds portfolio.

Border To Coast Pensions Partnership, a UK pension pool, cannot set a net-zero target for its £9.8 billion ($11 billion; €11 billion) private markets portfolio “until the data quality improves”, said deputy chief investment officer Mark Lyon.

The £38.4 billion UK pension pool set a net-zero target for 2050 for Scope 1 and 2 emissions across “all its investments” in September 2021. It has now set interim decarbonization targets for Scope 1 and 2 emissions from its public equity and corporate fixed income assets, which make up 60 percent of its portfolio. And it has developed a “roadmap”, published earlier in October, that presents how it will achieve these targets.

Private markets, multi-asset credit, sovereign bonds asset, and Scope 3 emissions across its entire portfolio are not covered by net-zero targets. This is due to the lack of reliable and comparable emissions data for Border To Coast to conduct carbon footprinting, which it considers essential for setting achievable decarbonisation targets, Lyon told New Private Markets. “If we tried to wait until the data was perfect [to set total-portfolio targets] we would have run out of time to meet the 2030 targets.”

In lieu of private markets targets, Border To Coast is financing the transition with a £1.35 billion three-year allocation to climate funds in venture capital, private equity, infrastructure and private credit, said Lyon. This “Climate Opportunities” bucket focuses on six sectors: clean energy, technology, transport, industry, agriculture and carbon sequestration. Border To Coast deployed €100 million from this bucket to the Ardian and FiveT Hydrogen joint venture Hy24’s Clean H2 Infra Fund, which closed at €2 billion earlier this month.

Border To Coast expect its private markets portfolio “to have a lower carbon profile than our public equities and fixed income portfolios,” Lyon added.

For its private funds assets, the problem is “a combination of availability of data, because not all GPs will provide that information, and also having consistent data across our GPs, because we would aggregate each of our investments to what our exposure is”, said Lyon. Widespread uptake by GPs of the ESG Data Convergence Initiative – which Border To Coast is a member of – would ease the consistency issue. The pension pool expects it will be able to set private markets interim decarbonisation targets by 2025, Lyon added.