The Institutional Investors Group on Climate Change has launched a guide for private equity investors that aims to create greater understanding of the risks and opportunities posed by climate change and related policy developments.
The guide is aimed at pension fund trustees who are limited partners in private equity funds, as well as private equity fund managers and general partners who are managing these funds.
In addition to increasing awareness of the potential impact of climate change among these investors, the document provides guidance on how such factors might be considered by LPs when selecting their managers and by GPs when selecting investments.
Peter Dunscombe, chairman of IIGCC, says: “Climate change has an impact on all types of asset classes. But while publicly listed companies have long been required to disclose information relating to the potential impact of climate change on their business, the private equity community has not been obliged to research or communicate comparable information. With legislation such as the CRC Energy Efficiency Scheme coming into effect as soon as April, this guide is a signal to the sector that now is the time to step up its attitude to climate change.”
The guide is set out as a series of questions broken down into two sections. The first includes questions that LPs and their advisers should ask their existing or potential GPs and the second section contains questions that GPs should ask of the management of their portfolio companies and target investments.
The questions cover four key aspects of climate change and private equity investment:
1. Awareness: are GPs and their portfolio companies aware of climate change issues, regulations and trends?
2. Measurement: what are GPs and their portfolio companies doing to assess their climate change exposure and what this might mean for long-term profitability?
3. Adaptation and mitigation: what are GPs and their portfolio companies doing to change their business practices or to adapt to climate change?
4. Opportunities: what are GPs and their portfolio companies doing to access new markets and other opportunities presented by climate change?
Simon Walker, chief executive of the British Venture Capital Association, says: “The BVCA welcomes the publication of ‘A Guide on Climate Change for Private Equity Investors’. The growing problem of climate change is one which private equity must address. As governments across the world step up their efforts to combat growing environmental challenges, it is essential that private equity investors are equipped with the right tools to adequately assess the impact new policy initiatives, and the wider economic effects of climate change, could have on their investments.”
