Initiative Climat International (iCI), together with ERM today launches a new standard that for the first time sets out a consistent approach to greenhouse gas (GHG) emissions disclosure across the private equity sector.
The standard represents a practical application of the GHG Protocol and the Partnership for Carbon Accounting Financials (PCAF) Global GHG Accounting and Reporting Standard to private equity investing, and is designed to support ESG professionals at private markets firms.
Private equity General Partners (GPs) are being increasingly called upon to disclose climate-related data and establish ambitious targets for GHG emissions reduction across their portfolios. However, many GPs have not yet established robust processes for carbon footprinting data collection, target setting or benchmarking and there has to date been no agreed standard for aggregating and reporting this information at fund level.
The standard, developed by iCI with ERM, enables GPs to establish processes for carbon footpring data collection and calculation, thereby improving the quality of their GHG emissions reporting, providing a path to strategic portfolio analysis and target-setting to support the transition to a net zero economy. It provides guidance on a number of different topics, including:
- Calculating Scope 1, Scope 2 and Scope 3 emissions of the GP and each portfolio company
- Attributing GHG emissions from portfolios to GPs and Limited Partners (LPs)
- Aggregating emissions at the fund level and reporting to stakeholders
Private equity can play a pivotal role in getting private companies to accurately account for and manage their emissions, at a critical stage in the company’s lifecycle. The iCI aims to play an important capacity-building role to support the robust reporting of financed emissions in private markets, through this work and its wider activity across the sector.
Tom Reichert, ERM Group CEO, comments: “We are proud to partner with iCI in launching this new standard that will help shape the private equity sector’s approach to greenhouse gas accounting and reporting.
“The sector can play a significant role in helping its portfolio companies to deliver on their climate commitments, but for that to happen we need globally accepted standards.
“The application of this standard will enable a more consistent and streamlined approach to the calculation and disclosure of emissions, and will support private equity firms as they seek to understand and drive down emissions across their portfolios.”
Peter Dunbar, Head of Private Equity at the Principles for Responsible Investment, comments: “When it comes to measuring and reporting financed emissions, the private equity asset class remains a distance behind public markets. This excellent guidance will equip private equity ESG professionals with a blueprint based on preexisting global standards, which will help them improve the quality of their GHG emissions reporting. This improvement will benefit asset owners who often lack good quality reporting from private equity firms and enable the asset class to close the gap with public markets.”
Peter Ellsworth, Senior Director at Ceres, comments: “It is increasingly important to establish a common language concerning expectations between GPs and LPs, including how emissions data is collected and reported and progress is tracked. This guidance will significantly contribute to greater transparency in private equity and help build momentum on integrating net zero ambitions into investment practice.”
“To limit global warming to no more than 1.5 degrees Celsius, the capital markets require standardized corporate climate disclosures, including robust GHG emissions data,” comments Pratima Divgi, Head of Capital Markets, CDP North America. “But there is a clear gap in the availability and robustness of such disclosures within the public and private markets, which dilutes the climate ambition of the financial sector. Disclosure is a journey and companies across asset classes must urgently begin to engage in the climate transition. This GHG accounting guidance is a useful resource for private equity investors looking to engage with their portfolios on reliable emissions data as a crucial first step. Better awareness and disclosures will not only benefit private equity investors, but will also improve climate data transparency for other stakeholders such as banks, asset owners and corporate customers.”
About the Initiative Climat International (iCI)
iCI is a global, practitioner-led community of private equity firms and investors that seek to better understand and manage the risks associated with climate change.
iCI’s members share a commitment to reduce carbon emissions of private equity-backed companies and secure sustainable investment performance by recognising and incorporating the materiality of climate risk. In practice, this implies a commitment to effectively analyse and manage climate-related financial risk and greenhouse gas (GHG) emissions within their private equity portfolios, in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). Members commit to sharing knowledge, experience and best practice, working together to develop resources that will help standardise practices across the industry.
Over 160 firms representing over US$3 trillion have joined the iCI. The iCI is formally endorsed by the Principles for Responsible Investment (PRI), is a Supporting Partner of The Investor Agenda, and enjoys fruitful partnerships with CDP and Ceres, and private equity and venture capital associations BVCA and France Invest.
About iCI Carbon Footprint Working Group
The iCI Carbon Footprint Working Group has been proud to partner with expert consultancy ERM to develop this guidance. We thank the broader network of iCI members for their consultation, Montagu for their kind sponsorship of the design, and the various stakeholders that were interviewed during the research on this guide, including CDP, PCAF, IIGCC and SBTi.
iCI Working Group members:
- Egle Sakalauskaite, Bregal Investments (Co-Chair)
- Natasha Buckley, HarbourVest Partners (Co-Chair)
- Eimear Palmer and Ivo Dimov, ICG (Co-Chairs)
- Andrea Siaw, Hg
- Claire Sullivan, Investindustrial
- Kim Woehl and Stephen Cooper, Montagu
- Emin Aleskerov, Stirling Square
- Georgina Thomas, the Cibus Funds
- Joanna Houchell, TowerBrook
- Graeme Ardus and Sandrine Lalmant, Triton Partners
ERM is the business of sustainability.
As the largest global pure play sustainability consultancy, ERM partners with the world’s leading organizations, creating innovative solutions to sustainability challenges and unlocking commercial opportunities that meet the needs of today while preserving opportunity for future generations.
ERM’s diverse team of 7,500+ world-class experts in over 150 offices in more than 40 countries supports clients across the breadth of their organizations to operationalize sustainability. Through ERM’s deep technical expertise, clients are well positioned to address their environmental, health, safety, risk, and social issues. ERM calls this capability its “boots to boardroom” approach - a comprehensive service model that allows ERM to develop strategic and technical solutions that advance objectives on the ground or at the executive level.