Portfolio companies (PCs) can be deemed as “managed in alignment with net zero” when they meet the committed to aligning/ aligning/aligned/net zero criteria within the milestones outlined in the guidance.
As with all asset classes, the asset alignment target can be split into the five steps.
1. Setting the scope
Private equity investors are recommended to use the guidance for setting targets for buyout and growth equity investments, including related strategies such as co-investments, fund of funds, and secondaries.
New & existing funds – It is recommended investors establish approaches ahead of each new fund launch and that as many of their existing assets are managed in alignment with net zero ambitions.
Influence bands – Because of the different levels of influence GPs and LPs have, the assessing of alignment, the setting of targets, and approaches to delivering targets will differ. This guidance delineates between GPs’ and LPs’ approaches to target setting, based on the influence bands methodology. The influence bands establish objectives that are ambitious yet reflective of the practical circumstances that each investment type faces.
2. Assessing alignment
Investors are recommended to develop an approach to assessing the alignment of their private equity portfolios.
General partners
When developing their respective approach, GPs may want to consider the robustness of Paris-aligned targets (and exceptions), appropriate alignment milestones, cadence of assessment against criteria, acquisitions and buy-and-build strategies, and exits prior to alignment milestones.
GPs are recommended to assess PCs against NZIF’s alignment criteria.
