Following guidance from the Science Based Targets Initiative, seven private equity firms’ set ambitious, near-term climate targets, demonstrating leaders hip in prioritizing sustainability and low-emissions practices in their sector.
The Challenge
The private equity sector, which reached an all-time high of $7.3 trillion in assets under management in 2020, has a significant economic and climate impact. Through their long-term investment strategies and influence over portfolio companies, private equity firms can play a critical role in shifting investments to clean energy and other low-carbon activities.
Setting near- and long-term “science-based targets” — emissions-reduction targets aligned with what scientists say is necessary for holding global temperature rise to 1.5 degrees C (2.7 degrees F) or 2 degrees C (3.6 degrees F) — can help usher in a low-carbon world. These seven firms are showing progress, but this kind of target setting is still nascent in the finance sector, especially in private equity.
WRI’s Role
The Science Based Targets Initiative (SBTi), a partnership between WRI, CDP, UN Global Compact and the World Wide Fund for Nature, published its first Financial Sector Science Based Targets Guidance in October 2020 to support financial institutions in setting emissions-reduction targets for their investment and lending portfolios. However, the guidance was not readily applicable to the private equity sector, and firms needed more sector-specific technical nuances to set and achieve their targets. SBTi then released new guidance in November 2021 tailored to the unique business models and key asset classes of private equity firms.
The Private Equity Guidance was principally authored by WRI staff and Anthesis Group, a global sustainability consultancy. We developed it through an inclusive, transparent and multi-stakeholder process, including close consultations with the SBTi finance team and a 32-member Expert Advisory Group comprised of individuals from private equity, academia, consultancies, non-profits and multilateral organizations.
The Outcome
As of November 2021, seven private equity firms representing $232 billion (€204 billion) of total assets under management had set validated, near-term emissions-reduction targets through SBTi: Astorg, Bregal Investments, EQT, FSN Capital Partners, HG Capital, Intermediate Capital Group and Investindustrial. Some committed to make 100% of their portfolios consist only of SBTi-approved companies by 2030.
Since the project launch, another 10 private equity firms committed to set approved science-based targets within 24 months, and more continue to join.
These firms are leading the decarbonization effort within the private equity sector by shifting their investment strategies to prioritize sustainability and low-emissions practices in their portfolios and operations. Their actions could have ripple effects — especially as firms engage with investees’ boards and management teams to fully integrate climate targets into companies’ operations and value chains.
