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Private Equity

Below is NZIF 2.0 implementation guidance for private equity. For approaches to achieving the asset level targets and more detailed guidance, please click on the NZIF 2.0 guide below.

Alignment targets
  • Asset alignment target: A % of invested/committed capital or financed emissions to be managed in alignment with net zero by 2030 and an increased % by 2040; achieve 100% net zero by 2050. GPs can also set this target for each fund.
  • Engagement threshold target: Complete the specified engagement actions for all (100%) applicable private equity investments.
Scope
  • GP buyout fund
  • GP growth fund
  • GP continuation fund
  • LP investments in buyout, growth or continuation funds
  • LP co-investment
  • GP fund of funds
  • LP-led secondaries
Managed in alignment with net zero
  • In addition to NZIF’s typical system for asset alignment, a concept called “managed in alignment with net zero” is used to address the asymmetric information relationship between General Partners (GPs) and Limited Partners (LPs) with respective to underlying PCs.
  • PCs must progressively achieve each alignment category within a time limit. For new funds raised after committing to net zero, a GP must establish and disclose a target percentage of invested capital that will be managed in alignment with net zero.
  • Timelines and measurement of actions are based on a fund’s cycle, reflecting that an investor’s influence exists when the company is within their portfolio.
  • When investments span multiple influence bands, the weighted average of invested capital based on the anticipated distribution should inform target setting.
Criteria underpinning alignment assessment
Key
  • Green ticks represent when a criterion is required to be fulfilled for a particular alignment category to be obtained.
Criteria
Committed to aligning
Aligning to a net zero pathway
Aligned to a net zero pathway
Achieving net zero

*Ambition: Long term goal for the company to be net zero emissions by 2050 or sooner.

Governance: Board oversight for climate risk and execution of climate strategy. Climate risk management and strategy are discussed by the Board at least once a year.

Disclosure: Annual disclosure to investors of scope 1, 2, and material scope 3* absolute GHG emissions. Public disclosure is best practice but not an expectation.

Targets: 5– to 10-year Paris-aligned GHG emissions reduction target (scope 1, 2, and material scope 3*).

Emissions performance: Cumulative YoY reduction meets or exceeds the linear annual reduction established as the target for scope 1, 2, and material scope 3* emissions.

Climate strategy: A proportionate plan is established that sets out the measures to deliver the target. For high impact material sectors, the strategy should be quantified and include CAPEX and OPEX required to achieve targets.

Company with emissions intensity required by the sector and regional pathway for 2050 and whose ongoing investment plan or business model will maintain this performance.

Fund vintage

PCs meeting the portfolio alignment criteria listed above, within milestones established to the right, are considered managed in alignment with net zero" and the capital invested in them will count towards coverage targets established by GPs.

Funds launched 2023-2029
1 year after deal close
2 years after deal close
By exit
Not required
Funds launched 2030-2050
1 year after deal close
2 years after deal close
4 years after deal close
No later than 2050

*Additional alignment criteria that a corporate within a high impact material sector needs to meet.

% of invested/committed capital managed in alignment with NZ by...
Asset classes
Band
2030
2040
2050
2060
DIRECT
  • GP buyout fund
  • GP growth fund
  • GP continuation fund
1a
80% Invested cap.
100% Invested cap.
100% Invested cap.
40% Invested capital
1b
30% Invested cap.
80% Invested cap.
100% Invested cap.
40% Invested capital
1c
20% Invested cap.
80% Invested cap.
100% Invested cap.
40% Invested capital
INDIRECT
  • LP investments in buyout, growth or continuation funds
  • LP co-investment
  • GP fund of funds
  • LP-led secondaries
2a
44% Committed cap.
100% Committed cap.
100% Invested cap
40% Invested capital
2b
33% Committed cap.
100% Committed cap.
100% Invested cap
40% Invested capital
2c
10% Committed cap.
80% Committed cap.
100% Invested cap.
40% Invested capital
Illustrative glide path thresholds
NZIF Targets

* LPs set their targets using committed capital because it is a metric they have more direct control over, and it more accurately reflects current actions taken. LPs are encouraged to simultaneously report current performance using invested capital., as this reflects how capital is actually deployed at a given time. Because of investment periods and the one-year window to achieve the first milestone, invested capital performance is expected to lag committed capital.

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Useful resources

Explore further IIGCC resources which offer additional guidance or information which is complimentary to the use of NZIF.

16.05.23
Resources

Net Zero Investment Framework Component for the Private Equity Industry

This guidance is intended to support any private equity investors who are active in buyout, growth, and associated...
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Related links

Net Zero Engagement Initiative

Set up to build on and extend the reach of investor engagement.

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Net Zero Asset Managers

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Paris Aligned Asset Owners

Asset owners committed to transition investments to achieve net zero by 2050 or sooner.

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Investor strategies

Helps members to effectively integrate climate risks and opportunities.

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