Intertrust N: How private equity can help fight climate change
Sustainable private equity is essential, as investors carefully consider climate-related risks in their portfolios and investments.
Private equity firms are no longer content to consider the effects of climate change on their investment decisions. They actively seek to reduce the climate impact of the companies in their portfolio. Sustainable private equity is moving from the niche to the general public.
In a roundtable with private equity and asset managers at the recent IPEM event in Paris, panelists from Intertrust Group and other organizations explored the role private equity can play in combating against climate change.
Human activity is changing the climate in ways that are unprecedented – and in some cases irreversible – according to the UN Intergovernmental Panel on Climate Change (IPCC). For the first time, the threat of climate change has been recognized at the highest level. If we do not act urgently, we will face increasingly extreme heat waves, droughts and floods.
So what can private equity do to help stop climate change? Can industry help repair the damage done?
Private equity impact investing supports climate compliance
Private equity has the opportunity to transform business models and help listed and unlisted companies become more energy efficient and climate friendly.
For Pierre Abadie, Group Head of Climate and Co-Head of Private Equity Energy Transition at Tikehau Capital, focusing on innovation is not the only answer if the world continues to emit huge amounts of CO2 every year.
“We can’t put more renewable energy into the system if we don’t change the way we use energy,” he said. Instead, sustainable private equity should focus on existing businesses that are economically viable but need to reduce their carbon footprint, become more energy efficient, and rely on renewable energy.
Sustainable private equity must also be the engine of innovation
However, private equity is also expected to help drive the innovation needed to tackle climate change.
Asset owners like Alecta, the Swedish provider of approved occupational pensions, need support to achieve the level of innovation needed to create new sustainable models, CEO Magnus Billing said.
“We are more in the mature part of the investment chain and need to be to be effective with our beneficiaries, but I think creating innovation is a role for private equity and we can intervene at a later stage, “he said. .
Alecta, owned by 2.6 million private clients and 35,000 corporate clients, has committed to achieving zero net emissions across its entire portfolio by 2050.
This ambitious commitment is supported by the strong regulatory will to achieve sustainability and net zero emissions goals, which has convinced investors and funds of the virtues of more sustainable portfolios. Investing with environmental, social and governance (ESG) impact is essential in this regard.
ESG impact investing as a source of new returns
Other asset managers, however, are looking to the broader impact investing industry to help support the economy and generate new sources of return.
“Our primary role is to generate returns for our clients. In the current environment of very low interest rates, we have looked for new sources of performance, ”said Philippe Dutertre, director of the asset management division of French insurer AG2R. La Mondiale. But the company’s private equity and private debt portfolios have also been assigned a sustainable goal to support small businesses and employment in France – particularly in the post-Covid-19 era.
Despite different industry approaches to ESG investing in general and ESG impact investing, sustainability is now widely seen as a necessary and critical benchmark for investing.
Intertrust Group: our commitment to the ESG vision
Our five sustainable goals are:
Education: educating employees and future employees is essential to our future
Gender equality: we are committed to achieving gender equality in our workforce
Economic growth: ensuring that our work is linked to economic growth
Reducing Inequalities: We introduced a new framework to ensure consistency in how we compensate and recognize our employees across different demographic groups
Climate action: we envision more flexible working practices and digital transformation