Nearly 70% of the world’s biggest limited partners (LPs) currently require their asset managers to assess climate risks when making investments, according to research published today.
An assessment of the 100 largest LPs, which between them run some $2.6trn in assets, found that 68 had publicly stated that climate should be part of the investment process.
“A significant number of these also state that climate risk management is a criterion in the GP selection process,” said Unwritten, the climate services provider that authored the report.
Just over half of US-based LPs expect their managers to conduct a climate risk assessment, rising to between 80% and 100% elsewhere in the world.
Whilst, overall, 72 of the 100 largest LPs publicly stated a requirement or expectation for climate risk assessment, only 46 expect their managers to have an emissions target, with a further 16 saying they would “prefer” one.
None require membership of the Net Zero Asset Managers initiative or an equivalent platform, according to the research.
Most of the LPs assessed were “not overly prescriptive” about what GPs should do to manage climate change, and “implicitly trust the judgement of their managers about what is appropriate for a given deal or portfolio”, said Unwritten.
“However, our analysis identified four expectations that are mentioned frequently by a wide range of LPs.”
These include integrating climate risk into the due diligence process, actively managing it through the hold period, ensuring senior leadership buys into the value of considering climate, and disclosing quantitative and qualitative information – usually in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
Mitigation strategies should include engagement with portfolio firms.
“Unlike public market counterparts, private market investors have the ownership, influence, and time to help their portfolio pull ahead,” Unwritten argued.
The findings come a week after the Principles for Responsible Investment (PRI) published a guide to help private markets investors address the sustainability of their portfolio companies’ supply chains.
“GPs can use the guide to inform their supply chain due diligence and ongoing management processes, while LPs can use it to better understand their GPs’ approaches to sustainable supply chains,” explained PRI.
“It also provides guidance applicable to private markets investors’ portfolio companies.”
It provides a general introduction for those less familiar with the topic, as well as guidance and case studies to help investors with a more mature approach to benchmark their progress against broader industry practices.
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