iCI Releases New GHG Emissions Disclosure Guidance for Private Equity

iCI Releases New GHG Emissions Disclosure Guidance for Private Equity

FigBytes

This week, the Initiative Climat International (iCI) published new emissions disclosure guidance that sets out a consistent approach to GHG accounting and reporting for the private equity industry. This guidance is designed to advise general partners (GPs), portfolio managers, and sustainability professionals on how to disclose climate-related data and establish ambitious targets for GHG emissions reduction across their portfolios.

With governments like Canada, the USA, and the EU releasing plans to implement mandatory climate disclosure requirements, and the increasing pressure from stakeholders to disclose climate-related data and take action to reduce emissions, this guidance presents an opportunity for private equity firms to take charge by proactively implementing GHG accounting and reporting across their portfolios.

What is The Initiative Climat International?

The Initiative Climat International is a global community of private equity firms and investors that aim to understand and manage the risks associated with climate change. The iCI includes more than 160 international firms representing over US$3 trillion in assets under management.

iCI’s members share a commitment to:

  • Reduce carbon emissions of private equity-backed companies
  • Secure sustainable investment performance
  • Recognize and incorporate the materiality of climate risk
  • Share knowledge, experience, and best practices
  • Develop resources that will help standardize practices across the PE industry

The iCI is a Supporting Partner of The Investor Agenda and supported by the Principles for Responsible Investment (PRI).

What is the iCI’s New Guidance for GHG Accounting and Reporting in Private Equity?

The report from the iCI, GHG Accounting and Reporting in Private Equity, acts as a practical guide designed to support GPs, portfolio managers, and sustainability and ESG professionals at private equity firms as they collect and report on climate-related data from across their portfolios.

The guidance outlines the process of GHG emission collection, accounting, and reporting that PE firms must undertake across their portfolios to gather climate-related data. The iCI recognizes the unique business models and investment characteristics of PE firms and provides a private equity, industry-specific overlay to global reporting standards and frameworks.

The iCI guidance is a practical application for private equity firms of the GHG Protocol and the Partnership for Carbon Accounting Financials (PCAF)’s Global GHG Accounting and Reporting Standard for the Financial Industry. It also draws on information from a wide range of established sources, such as TCFD, SBTi, CDP, and the IIGCC, to ensure alignment and consistency across the industry.

The guide brings together industry knowledge and existing best practices, in addition to practical examples, to enable a consistent approach across the private equity industry. It provides direction on a number of different topics, including:

  • Calculating Scope 1, Scope 2, and Scope 3 emissions of GPs and each of their portfolio companies
  • Attributing GHG emissions from portfolios to GPs and Limited Partners (LPs)
  • Aggregating emissions at the fund level and reporting to stakeholders

The guidance is divided into three sections that outline the process a private equity firm should undertake when accounting and reporting its GHG emissions:

  1. GHG EMISSIONS ACCOUNTING: SCOPES 1, 2, AND 3
    • Five step process for GHG emissions accounting
      • Step 1 – Choose appropriate reporting boundaries
      • Step 2 – Identify emissions sources
      • Step 3 – Collect source data
      • Step 4 – Select appropriate emission factors
      • Step 5 – Calculate emissions
  2. GHG EMISSIONS ACCOUNTING: FINANCED EMISSIONS
    • Guidance on how to report financed emissions (Scope 3, category 15) by funds, GPs, and LPs, including attribution and aggregation of emissions
      • How to calculate financed emissions
      • Examples of calculating attributed (financed) emissions and aggregating emissions
  3. REPORTING & METRICS
    • Walk through of key metrics and best practices for reporting GHG emissions to LPs (and other stakeholders) and in public disclosures
      • GP reporting on emissions: Fund reporting vs public disclosure
      • GHG accounting metrics: Absolute emissions vs intensity-based emissions

With this new guidance, private equity firms can satisfy their stakeholders desire for climate-related disclosures while taking the first step to reducing emissions using this standardized approach from the iCI.

Why is the iCI’s New Emissions Disclosure Guidance Important?

With 100s of reporting standards and frameworks, the iCI’s guidance aims to provide private equity firms with and a clear and consistent approach to emissions reporting across their portfolios. This will help GHG accounting and reporting transition from ‘would-be-nice’ to ‘need-to-have’ for GPs and fund managers.

Private equity can also play a unique role, encouraging companies in their portfolios to implement GHG accounting and reporting and reduce impacts. As the iCI states, “Private equity can play a pivotal engagement role in getting private companies to accurately account for and manage their emissions, at a critical stage in the company’s lifecycle.”

GHG emissions accounting is an important first step for companies, as it offers a foundation to support private equity firms and their portfolio companies to:

  • Identify emission ‘hotspots’ within operations, supply chain, or portfolios
  • Establish targets to help contribute to global emissions reduction plans
  • Align financial flows with the goals of the Paris Agreement
  • Develop a strategy to support the transition to a net-zero economy
  • Understand and improve climate reporting
  • Respond to GP and LP stakeholder requests
  • Test the resilience of the portfolio or operations against different climate scenarios
  • Contribute to active identification, assessment, and management of climate-related risks and opportunities

GHG emissions accounting and reporting is necessary to fully understand a carbon footprint. With more climate-related data, financed emissions can be calculated and targeted actions taken to reduce impacts and align with global emissions reduction plans.

The iCI helps guide GPs and portfolio managers to:

  • Establish processes for carbon footprint data collection and calculation
  • Improve the quality of their GHG emissions reporting
  • Conduct strategic portfolio analysis and risk assessments
  • Set targets to support the transition to a net-zero economy

“This new guidance for private equity is a necessary step forward to improving the quality of GHG emissions reporting from firms and their portfolio companies. A standardized approach to carbon disclosure helps firms better understand their climate risk and make better decisionsfor their portfolios and the planet.” Ted Dhillon, FigBytes CEO & Co-Founder, shared on the iCI release.

Still overwhelmed by GHG accounting and reporting? FigBytes can help. Our comprehensive ESG Insight Platform automates GHG emissions data collection and reporting to frameworks and standards that ensure compliance with mandatory disclosures and alignment with mission critical KPIs.

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