Initiative Climat International (ICI), a global practitioner-led community of private equity firms and investors, is developing a new standard/guidance for accounting and reporting greenhouse gas emissions for the private equity sector.
The announcement was published in a report supported by the Principles for Responsible Investment (PRI) and endorsed by Carbon Disclosure Project (environmental disclosure platform) and sustainability-focused non-profit organizations.
The new guidance aims to establish ambitious targets for GHG emissions reduction and combine the industry knowledge and existing best practices to enable a consistent approach across the sector. In the current methods, the lack of consistency in approach obstructs the ability to compare portfolio companies and funds, affecting the GHG emissions integration into the investment cycle and aggregating comparable data on emissions across asset classes.
The report recommends an approach to measure emissions in direct application to the operations and investment activities. And such measures include: Identifying emission sources, data collection for the various emissions scopes, assessing the relevance and materiality of value chain emissions, calculation methodologies for scopes 1, 2, and 3 GHG emissions, and attributing and calculating financed emissions for each portfolio company.
Identified foundation steps to support private equity funds are:
- To identify emission “hotspots” within operations, value chains, or portfolios. To set climate science aligned targets to contribute to the 2015 Paris agreement.
- To orient financial flows with the climate change goals.
- To develop a strategy to support the transition to a net-zero economy.
- To respond to the General Partners (GP) and Limited Partners (LP) stakeholder requests.
- To contribute to the active identification, assessment, and management of climate-related risks and opportunities.
- To test the resilience of the portfolios or operations against different climate scenarios.
Private equity plays a significant role in bringing private companies to manage their emissions that face increasing pressure in measuring and reporting financed emissions, especially between General Partners and Limited Partners.
The observed gap within the public and private markets disclosures requires GHG accounting guidance to make it easier for companies across asset classes. The market looks forward to this standard to enable a streamlined approach for all portfolio companies to disclose their emissions.
