Initiative Climat International (iCI), a practitioner-led forum of private equity firms and investors, has with consultancy ERM Group developed a standard that sets out a consistent approach to greenhouse gas (GHG) emissions accounting and reporting for portfolio companies, private equity funds and GPs.
With the help of the standard, GPs should be able to enable asset owners to better compare their GHG emissions data for their portfolios and compile their own carbon footprints for target-setting towards the delivery of net-zero ambitions, iCI and ERM said in the standard overview.
According to its creators, 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.
It also draws on sources such as the Task Force on Climate-related Disclosures, the Science-based Targets Initiative and CDP.
The standard enables GPs to establish processes for carbon footprint data collection and calculation. 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.
Peter Dunbar, head of private equity at the Principles for Responsible Investment, which has formally endorsed the iCI, said application of the standard “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, added: “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 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 Dunbar, head of private equity at the Principles for Responsible Investment
“This guidance will significantly contribute to greater transparency in private equity and help build momentum on integrating net zero ambitions into investment practice.”
The iCI was originally launched as the iC20 (Initiative Climat 2020) in 2015 by a group of French private equity firms to contribute to achieving the Paris Agreement’s objectives. It has since expanded internationally and now counts more than 160 firms representing over $3trn (€2.8bn) in assets under management as of 31 March 2022.
In partnership with ERM, the standard was developed by the iCI Carbon Footprint Working Group, which is co-chaired by Egle Sakalauskaite, Bregal Investments, Natasha Buckley, HarbourVest Partners, and Eimear Palmer and Ivo Dimov of ICG.
Tom Reichert, global chief executive officer of ERM, said: “The private equity 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.”
Citing PwC research, Fidelity International today said ESG-linked assets could account for between 27% and 42% of the entire private markets sector in Europe by 2025, compared with today’s 15%.