SBTi validation is becoming a must have

The initiative's applicability to both GP and portfolio companies means it is emerging as a 'gold standard' in private markets.

Given the number of ESG disclosure and reporting frameworks that are now on offer, there is a desire for particular initiatives to emerge as market leaders. When it comes to the creation of net-zero targets, there is reason to believe this is happening.

The Science Based Target initiative – established by the CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature in 2015 – is fast becoming the standard of choice among private markets firms.

In case you missed it: SBTi was frequently cited when we asked ESG professionals about their decarbonisation priorities. Genui, for example, has made it a top priority for the year ahead to ensure it is on track to achieve its SBTi targets. Oakley Capital is following the initiative’s development with a view to getting on a decarbonisation pathway soon. Ambienta committed to the initiative late last year.

Other firms have been engaging with SBTi for a while. EQT was the first firm to have its net-zero target validated in 2021, and was shortly followed by a handful of others including InvestIndustrial, Bregal Investments and Astorg.

SBTi has become the “gold standard” for net-zero targets among GPs, Permira climate specialist Euan Long told us after the firm had its target validated last week. One of its primary strengths, he said, is that it is not only focused on financial institutions; its priority has been corporates of all sizes, where it has achieved strong market penetration. By the end of 2022, companies engaging with SBTi represented over a third of the global economy by market capitalisation, according to the initiative’s latest progress report.

It did not publish the first draft of its private equity guidance until 2021.

All this means that SBTi allows fund managers to speak a “common language with our portfolio companies” as they implement their own decarbonisation pathways, Long says. SBTi-validated firms, such as Permira, EQT and others, are also seeking target validation for individual companies in their portfolios. Other standards, such as the Net-Zero Investment Framework from the IIGCC, are more focused on investors.

The validation process is no picnic: the main submission form is 52 pages long, and is followed by a potentially extensive dialogue with SBTi’s team. Approved firms must then periodically report their progress against the targets. It takes resource to achieve, but some investors – Wellcome Trust for example – view it as well worth it.

For the moment SBTi validation remains a minority sport among private markets firms; we expect this to change.