Private equity and infrastructure titans Ardian, The Carlyle Group, Global Infrastructure Partners, Macquarie Infrastructure and Real Assets and SoftBank Investment Advisers have teamed up to form One Planet Private Equity Funds. The group aims to “advance the understanding of climate-related risks and opportunities within our investment portfolios so that we can build better and more sustainable businesses”, they stated last week.
While these firms have individually been addressing some of these issues within their portfolios, the carpool itself has arrived late to the party. That’s because a multitude of similar groups formed by asset managers and institutional investors have arrived before. And we are certain more will come after.
The “understanding of climate-related” risks, we have no doubt, is entrenched in these organisations. After all, most of the GPs and LPs we has spoken to have said they have been taking ESG issues into consideration for a number of years. Climate change, therefore, is not a problem they are unfamiliar with.
While forming partnerships and working together is a first step in tackling something as critical and complex as climate change, it seems the infrastructure and private equity investor community should be well past this stage. What the world needs from this group – and others like it – is a clear roadmap to action.
However, while each new group trumpets its goals and objectives, the details explaining how those goals will be met are harder to come by. Announcing broad objectives does, of course, demonstrate a level of commitment. By doing so, firms go on the record with their plans and can be judged in the future by their clients, their partners and the industry at large. That’s not insignificant, and we don’t want to come across as unfairly pointing fingers at those trying to mitigate climate change.
But this is the rare case where oversharing is a virtue, and we would be much more interested to learn – at the point of announcement and in granular detail – the various steps firms are taking to mitigate climate change. Now and in the near term, at the asset, portfolio-company and firm level.
For example, if a firm is linking KPIs to its portfolio companies’ ESG performance, it should clearly communicate what those KPIs are, how progress or lack thereof will be measured and who will measure it. If a firm has targets – say, to reduce emissions – what are they, and are they binding? In addition, how will portfolio companies – and, indeed, managers themselves – be incentivised to meet those KPIs? Or penalised for failing to meet them?
Those are the types of announcements we could get really excited about – announcements that feature tangible examples, targets and results from an industry that is all about tangible assets.
Or put another way, when it comes to fighting climate change, please, don’t spare us the details.