Your Net-Zero Strategy
Finding the emissions in private equity and debt funds
5 minute read The private capital that investors deploy to start and grow companies had a smaller carbon footprint than the funds used to buy distressed debt, an analysis by MSCI and Burgiss finds.
- Finding the emissions in private equity and debt funds
- How climate risk could affect corporate bonds
- How climate change could impact credit risk
- Aligning private equity portfolios with net-zero
- Getting to net-zero for endowments
- Taking your portfolio’s temperature
- Addressing climate risk through engagement
- Unpacking climate-related risks and opportunities
- Measuring the climate-alignment of your portfolio
- Categorizing climate-related financial risk
- Climate risk in equity and fixed income portfolios
- Aligning with TCFD recommendations
Venture and expansion capital funds showed the lowest average carbon intensity among seven types of private capital funds, while distressed debt funds had the highest, according to the analysis, which examined 5,152 private funds that together held USD 2.9 trillion as of November 2021.
The lower carbon intensity – measured in tons of carbon dioxide equivalent (CO2e) per USD 1 million in sales —  of venture and expansion capital reflected their focus on comparatively low-emissions industries, with more than half (54%) the value of their holdings in information technology and communication services. Fifteen percent of the value of distressed debt holdings, by contrast, came from the emissions-intensive energy, materials and utilities sectors.
The analysis comes as institutional investors sharpen their focus on the sources of greenhouse gas emissions in their portfolios. The growth in investment in private funds — a traditionally opaque corner of the financial industry — is spurring investors to look more closely at the carbon footprint of such funds.
“The measurement of carbon emissions in private capital is crucial for limited partners to realistically evaluate the environmental exposures and risks in their portfolios,” write MSCI’s Rumi Mahmood and Abdulla Zaid of Burgiss, who co-authored the analysis.
Landscape today: Average carbon intensity by private asset fund type
Data as of November 2021. The analysis is based on the aggregated underlying holdings’ valuation of USD 2.9 trillion held across 5,152 funds. Source: MSCI ESG Research LLC, Burgiss LLC
Distressed debt funds reflected the impact on emissions of the utilities sector, which showed an emissions intensity nearly 30 times the overall average intensity of 11 sectors examined. Emissions intensities in utilities reached 1,655 tons of carbon dioxide equivalent (CO2e) per USD 1 million in sales, compared with 477 and 324 tons of CO2e per million dollars in sales for the materials and energy sectors, respectively.
Mezzanine and senior debt funds demonstrated much lower levels of carbon intensity, thanks to their exposure to the utilities, materials and energy sectors of just 7% and 8%, respectively.
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New Frontiers in Carbon Footprinting: Private-Equity and -Debt Funds. A look at the carbon-emissions intensities of private-equity and -debt funds.
