Private markets engagement is vital for achieving net zero, according to Mahesh Roy, an official at the IIGCC.
In the realm of private market investments, dialogue, partnership, and communication are the cornerstones of successful engagement. The integration of climate change considerations into investment strategies and processes is becoming increasingly crucial for value creation and risk management.
These engagements play a significant role in efforts to reach net zero, a goal that is paramount in the fight against climate change. The main tools for private market investors involve general partner-limited partner engagements and interactions between general partners and portfolio companies.
In private equity, limited partners can engage with general partners to drive net zero commitments. On the other hand, general partners can engage with co-owners of portfolio companies where they have less influence. A three-way engagement model is encouraged in private debt, involving general partners engaging with portfolio companies and private equity sponsors where applicable.
The level of influence private market investors have over portfolio companies depends on their position in the investment value chain. A general partner that can appoint a majority of voting seats on the portfolio company's board has more influence.
Regular communication and transparency regarding the transition of portfolio companies is important in private market engagements. The need for more and better quality data is a common challenge in both public and private markets, as it helps investors measure a company's progress against targets and orient on relevant topics for engagement.
The Institutional Investors Group Climate Change (IIGCC) recently published guidance material for private equity and private credit investors, aiming to close the gap between public and private markets by helping investors integrate climate change risks and opportunities into private markets investments.
Digital platforms like Anduin's Engagement Hub and Palico are transforming the private market landscape. Anduin's Engagement Hub provides a private, invite-only space for fund managers to present exclusive offerings, host curated events, and deliver a personalized investor experience while centralizing every investor interaction from due diligence to subscription in one seamless platform. Palico, an online marketplace, allows investors to buy and sell stakes in private funds efficiently and securely, enhancing liquidity and deal flow.
Portfolio management tools like Parqet offer simpler alternatives for investors to track and manage their investments, including private market assets. These tools are not only streamlining the investment process but also enhancing transparency and accountability.
The alignment maturity scale is used to define the transition of portfolio companies. Public markets-focused NZIF criteria and Climate Action 100+ indicators may one day become embedded in private markets. In private debt, the adoption of net zero practices is seen as a risk management tool and a value add in relationship management.
It's worth noting that only 30 of the world's top 100 carbon emitters are listed on a stock exchange. This underscores the importance of private market investments in the global fight against climate change. The "influence band" classification system distinguishes between direct and indirect influence, with more granular distinctions within each group.
In conclusion, private market investors have a material impact on companies and their orientation towards net zero. By embracing net zero engagement strategies, these investors are not only driving change within their portfolio companies but also contributing to a more sustainable future for all.
Read also:
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- President von der Leyen's address at the Fourth Renewable Hydrogen Summit, delivered remotely
- Unveiling Innovation in Propulsion: A Deep Dive into the Advantages and Obstacles of Magnetic Engines
- Intensified farm machinery emissions posing challenges to China's net-zero targets
