SBTi to release additional guidance for private equity firms

The Science-Based Targets initiative (SBTi) is about to release an FAQ document that provides additional guidance on setting decarbonisation targets for private markets firms that invest across multiple asset classes.

The upcoming FAQ, set to be released next month, will address “a broad range of common questions and challenges we get from private equity firms, one of the main ones being how we do the aggregation and the treatment across different asset classes,” Nate Aden, SBTi’s financial sector lead, told New Private Markets.

The document will also outline how private equity firms with listed equity can set carbon reduction targets for these companies, Aden explained.

SBTi is an organisation that assesses companies’ decarbonisation pathways and validates net-zero targets in line with the 2015 Paris Agreement. In November 2021, it released specific guidance for private equity firms that include setting decarbonisation targets for portfolio companies.

Since the guidelines were released, several private equity firms have received, or are in the process of receiving, SBTi approval for their firms’ and portfolios’ emission reduction targets, including EQT, Astorg, Bregal Investments, FSN Capital, Hg, ICG and Investindustrial.

While this cohort of early adopters is a positive sign that the industry wants to commit to credible carbon reduction initiatives, SBTi validation has yet to become mainstream practice among private markets firms.

One GP told New Private Markets that a number of private equity firms have been waiting for more clarity and guidance on how to set targets across a range of sectors and business activities before they take the plunge.

SBTi believes the upcoming guidance will provide further clarity and anticipates an “uptick in the number of private equity firms seeking to get their targets set” as a result, Aden said.

SBTi is also in the process of producing a Net-Zero Standard for financial institutions that will include private equity firms. This is due to be published next year.

“Right now, what SBTi has published is the near-term framework of targets five to 10 years out. The new Net-Zero Standard is intended to supplement that for financial institutions that want to go beyond their 1.5C target to align with net zero further down the line,” Aden said.