Private debt and equity fund managers lag far behind infrastructure and property fund managers in disclosing their emissions data, research from investment consultancy Hymans Robertson shows.
Hymans Robertson, which has a client base of UK institutional investors, sent surveys to the managers of 137 funds that its clients are invested in. The results showed 48 percent of infrastructure funds and 44 percent of property funds surveyed provided data on their portfolios’ carbon emissions, while only 9 percent of private equity funds and no private debt funds did so.
The findings suggest many GPs, particularly in private equity and private debt, do not collect carbon emissions data for their funds’ portfolios, Simon Jones, head of responsible investment at Hymans Robertson and an author of the report, told New Private Markets.
This puts investors in a difficult position for several reasons. According to a recent survey by the UK’s Pensions and Lifetime Savings Association, 57 percent of its pension fund members have set net zero targets and a further 18 percent plan to do so in the next two years across their entire portfolios – including public and private markets investments.
“[Investors] can set targets against emissions but [they are] at the behest of asset managers to make changes to reduce emissions at the underlying asset level,” said Jones. Without a fund’s emissions data, investors have little evidence to suggest that their fund managers “have a handle on the climate issues that [their portfolios] face”.
Hymans Robertson is not yet seeing the lack of emissions data impacting where the firm’s clients invest, said Jones: “In the short term, nothing is going to happen in the way of asset allocation. Asset owners need to engage with asset managers and charge them to do more to obtain the data. But longer term, I think you’ll find that where data isn’t available, asset owners will put in place minimum standards around data reporting for where they invest.”
There is also a regulatory concern. UK pension funds have an obligation to publish annual reports aligned to the Taskforce on Climate-related Financial Disclosures’ framework – a rule that came into effect from 1 October, 2021 for pension schemes with assets greater than £5 billion ($5.86 billion; €5.84 billion), and will come into effect on 1 October, 2022 for pension schemes with assets over £1 billion.
The lack of emissions data received by pension schemes impacts the disclosures they can include in their annual TCFD reports. While this does not force pension schemes into regulatory breaches – trustees are required to provide emissions data “as far as you are able”, according to the UK’s pensions regulator – it is important for many pension schemes to “have those gaps filled”, Jones said.
Part of the TCFD reporting requirements include four climate-related metrics: two emissions-related metrics, one metric on portfolio alignment and one other metric that the pension scheme determines relevant. “We’ve talked to asset owners about using data quality for that fourth metric,” said Jones.
Such a metric would be determined by whether there are gaps in the portfolio emissions data and whether emissions have been estimated by the pension fund or obtained by the fund manager from the portfolio company.
“This data point is relatively easy to get to grips with and is measurable,” said Jones. “It serves a couple of purposes: it can encourage asset owners to engage directly with asset managers to ask for better and more complete data, and it becomes easier to set a target against that metric because it is directly influenceable [by the LP and GP].”