Private Markets and Sustainability
Private market participants may see a direct benefit from having more hands-on and direct opportunities around sustainable investing.
We recently sat down with Blythe Clark, Director, ESG Advisors and she described the different level of control a private equity player has when it comes to sustainability.
“As an asset manager in private equity, you own the company and you have boots on the ground, so to speak. So it's a little more hands-on than if you own a stock or a bond. So, the challenge is that it's more hands-on. The benefit, I would say, what makes it potentially a bit easier, the flip side is that a private equity investor will typically have more control over their investments than a manager who holds a stake in a publicly traded firm.”
She notes private equity firms tend to have a more thematic investing approach, given the concentrated portfolios.
“I'll use climate as an example of some of the challenges a private equity investor faces. When it comes to measuring the carbon footprint of a portfolio in the public markets, so say a public stock portfolio, it can be as simple as purchasing a dataset, or uploading a portfolio to an online software service that subsequently spits out a detailed analysis of the portfolio's carbon footprint. When it comes to private equity, the businesses are typically smaller and they're privately owned, so they're generally not disclosing and maybe not even measuring a business' carbon footprint. So, when it comes to measuring the carbon footprint of a private equity portfolio, the investor doesn't have as many tools at their disposal. On the flip side, they have more control. What they can do is have a carbon inventory completed on each of their portfolio companies.”
Demand continues to increase for sustainability reporting in private markets, but Clark points out that there is help. There are resources to give directions around how to approach disclosure. The Institutional Limited Partners Association is one such resource for private equity investors who need insight on disclosure.
For more information, you can listen, read, or watch the complete interview here.
