Committing to the 1,5 degree target
As presented on November 8, 2021, the Science Based Target initiative (SBTi) has released a tailored guidance, written in partnership with Anthesis and supported by the UN PRI and signatories of Initiative Climat International (ICi), to drive much needed near-term action to enable a wide adoption of science-based targets by private equity investors. Financial institutions play a critical role in decarbonizing the economy and driving sustainable practices. The new guidance is tailored to the unique business models and asset classes of private equity firms to align their investment portfolios and operations to well-below 2°C and 1.5°C climate scenarios.
Alberto Carrillo Pineda, Managing Director and Co-founder of the SBTi, commented: “The urgency to make significant change, quickly, has only increased in this last year. Since the latest IPCC report, we know there is an immediate urgency to shift to more sustainable practices as soon as possible – especially in the financial sector. A tailored guidance for private equity firms helps achieve these goals by enabling efficiency and accelerating the process for investors to establish science-based targets. It is a massive success within the sustainable finance sector and will drive change at the pace we need.”
Six private equity firms to have their 1.5°C science-based targets validated are Astorg, Bregal Investments, FSN Capital, Hg, Intermediate Capital Group (ICG) and Investindustrial have already proven the effectiveness of the guidance by setting approved and validated targets aligned with 1.5°C. Altor, Eurazeo, Montagu Private Equity, Tikehau Capital and Triton Partners also committed to have their SBTi targets approved within two years.
SBTi states that these firms are leading the decarbonization effort within the sector by shifting their engagement strategies to prioritize sustainability and low-emissions practices. The guidance was developed in consultation with leading sector experts, NGOs and PE firms representing a total assets under management of more than a trillion euros.”
The guidance identifies challenges private equity firms commonly face to develop and achieve targets, and provides recommendations to overcome these common barriers, taking regional differences into consideration. Its release intends to raise the ambition of the private equity industry by defining and promoting best practice in science-based target setting and providing methods, criteria, guidance and tools to reduce the barriers to adoption and implementation.
For the development of this guidance, the SBTi formed an Expert Advisory Group, a group of volunteer advisors from the private equity industry, academia, consultancies, non-profit and multilateral organizations with in-depth knowledge of science-based target setting for the private equity industry. The EAG serves in a technical advisory capacity for the SBTi private equity sector project and provides requested input and advice to priority topics and decisions.
Private equity firms are encouraged to use the guidance to set emissions reductions targets across their operations and portfolio company engagement targets aligned with the goals of the Paris Agreement. In addition, the SBTi is developing a Net-Zero Standard for Financial Institutions that is expected to be released in 2022 to help the sector standardize and drive financial climate action.