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Stonepeak to institute ‘ESG-linked performance compensation’

Infrastructure giant expects to tie performance compensation to ESG KPIs for future funds.

Infrastructure firm Stonepeak will see the “performance compensation” for its core infrastructure strategy – a permanent capital vehicle – increase or decrease in line with ESG performance, the firm has said.

Stonepeak will set three KPIs for each asset around greenhouse gas emissions reductions, gender diversity and worker health and safety. The firm said: “Progress against those targets will be measured on an annual basis, verified by third parties, and reported upon.

“In the event that these targets are not met, Stonepeak will forfeit a portion of its performance compensation from the strategy, and in the event of ESG outperformance relative to specific targets, Stonepeak’s performance compensation would be adjusted upward.” The firm did not disclose the percentage of performance compensation it will put on the line, but the potential upward and downward adjustments will be equal in measure, New Private Markets understands.

The firm said that the “long duration and essential” nature of the core infra assets makes the fund “an ideal setting” for the new performance structure. It also noted the firm “expects that ESG-linked incentives will feature in the firm’s future investment products”.

There is a small but growing trend for private fund firms to link a portion of their carried interest to ESG or impact metrics.

Michael Dorrell, the firm’s chief executive and co-founder said: “While historically confined to the impact space, we believe ESG-linked performance compensation structures will become a more widely utilized tool across mainstream private equity strategies over time, given their ability to directly align ESG performance with economic outcomes for investment managers.”