The Institutional Investors Group on Climate Change (IIGCC) has released private equity-focused guidance for its Net Zero Investment Framework.
“When it comes to net zero, private equity is currently a blind spot for institutional investors. This is an important step in bringing private markets in line with public markets,” said Stephanie Pfeifer, CEO of IIGCC.
The Paris Aligned Investment Initiative, a forum founded by IIGCC, released the Net Zero Investment Framework in March 2021. The original NZIF covered listed equity, fixed income, real estate and sovereign bonds.
The proposed new private equity guidance is released as an additional component to the NZIF and includes metrics, targets, scope of portfolio companies to be included in net-zero strategies and recommended actions for GPs and LPs. The component is open for public consultation until 27 February, with the final guidance expected to be pubished in the second quarter of this year.
“Net zero commitments might turn into disengagement if they are not properly managed,” and managers might exclude and divest from asset-heavy companies, Fabio Ranghino, IIGCC’s private equity working group co-lead and head of strategy and Sustainability at Ambienta, told RI’s sister title New Private Markets.
Many decarbonisation initiatives “might cost some operation[al] expenditure but don’t require additional capital investment [from the GP],” said Ranghino.
Instead, GPs should use their influence over portfolio companies to implement decarbonisation efforts, he added.
“Asset managers gather and speak about net zero, but they don’t do the actual job of reducing emissions,” said Ranghino. “Big asset managers have the managerial bandwidth to make an impact on portfolio companies and their supply chains. There are no excuses.”
The IIGCC framework comes as private equity giant Carlyle pledged yesterday to achieve Net Zero emissions by 2050 or sooner across its investments. The investor also set a number of interim goals including that 75% of its portfolio companies’ Scope 1 and 2 emissions will be covered by Paris-aligned climate goals by 2025; and that after 2025, all new majority-owned companies will set Paris-aligned climate targets within two years of ownership.
Meanwhile, the Science-Based Targets Initiative (SBTi) also published guidance and criteria for private equity on Net Zero last year.