The climate transition continues to be a topic of strategic focus for asset owners and private equity managers alike, but major hurdles remain in order to implement and evidence the progress toward decarbonization.

In November 2022, Neuberger Berman presented 11 key issues asset owners who are interested in the net zero transition should take into consideration now, as well as the significant challenges that come with solving for them across all phases of the net zero transition (see Key Considerations When Navigating the Net-Zero Transition). Although private equity is a key piece to the net zero transition puzzle, the obstacles within private equity are unique to the asset class and the best practices are still in development. At a high level, one of the drivers is limited, inconsistent ESG and climate data disclosures, which makes measurement and setting targets particularly challenging.

In this paper, we outline some of these challenges and the work NB Private Equity undertook to address them by developing tools to potentially assess climate risk and net zero alignment of a private equity portfolio.

Key Takeaways

The Net Zero transition is a marathon, and it is a collective marathon where systemic change is required. At this stage, NB Private Equity remains focused on what is within its control by encouraging greater disclosure of climate data, while developing estimation tools and methodologies to inform engagement on climate-related topics and address current gaps in the market. We acknowledge we are still in the early stages of the climate transition including investor education. Our initial work has helped us to better understand and consider how we can address questions the broader industry is facing. Ultimately, dialogue with private equity managers also grappling with similar challenges will be key and we welcome the opportunity to engage in collaborative problem-solving on this important and material topic. Our role in helping to bridge LPs and GPs to align on expectations and timelines will be critical to drive action: meet the industry where it is and encourage practical tools to help the industry improve, step by step. GPs who lead in addressing the climate transition have the opportunity to distinguish themselves among peers to LPs who have set net zero targets. We continue to focus on encouraging climate data disclosures and contribute tools and guidance to the broader private equity industry, as the real change needs to take place at the portfolio company level, and only then, can an investor possibly realize net zero alignment within a private equity portfolio. We remain committed to helping our investors who are interested in assessing the progress of private equity managers on their climate initiatives and are also committed to helping the private equity industry up the curve and to drive improvements that ultimately can create value.

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