No matter through what lens you look at the breakdown of global Greenhouse Gas (GHG) emissions, buildings always make up a significant portion.
The industry has had to deal with numerous significant challenges over the years, and the latest one is managing ESG and climate-related risks. The good news is that when it comes to ESG risk, the sector is ahead of the curve in incorporating ESG measurement into their overall risk management practice. However, as the old adage goes, the devil is in the detail. And measuring the impact of climate change, which has been more rapid, devastating and all-encompassing than anyone could have imagined, is notoriously difficult. Difficult, but not impossible.
In this article, we take a closer look at Private Equity and the role it can play in tackling climate change. The good news is that it can and does play a significant role. In addition to measuring their own carbon footprint, PE firms are in a unique position to control and influence their portfolio companies, particularly important given that ESG and specifically climate-related risks are increasingly material for private equity investors.
Concerns over climate change continue to dominate with hurricanes, floods and other natural disasters taking place with alarming regularity, against a backdrop of an annual rise in global temperature that threatens to disrupt the global ecosystem.
The role that small and mid-sized companies play in creating jobs, driving innovation, and leading the GDP growth of pretty much every developed economy in the world is well known to us all. As are the traditional challenges they face; managing cash flow, keeping up to date with new technology advancements, a lack of dedicated resources and attracting investment are just a few challenges on a very long list. But I would argue that the new kid on the block – ESG Strategy – has the potential, when fully addressed, to offer small and mid-sized companies a real and distinct competitive advantage.
Few would disagree with the fact that ESG concerns have rarely garnered more attention than right now, yet the ‘social’ aspect of risk remains the least referenced and measured aspect of the ESG discipline.
As planet earth retreated into phase one lockdown last year, the global consulting firm Bain, very presciently pronounced “Covid-19 was a dress rehearsal for climate change”. While this remains true and will be an enduring headline, 2020 will also be remembered as the year that the Environmental, Social and Governance (or ESG) agenda took center stage in boardrooms and businesses around the world.
Environmental, Social and Governance (ESG) factors are being used increasingly by the investor and finance communities to assess the sustainability and risk profile of companies.
There is increasing pressure on organizations to demonstrate and display their social credentials, underscored in 2020 when the pandemic highlighted both known and unknown social inequalities.
Strong company governance structures drive value-creation
Governance covers a range of matters including tax strategy, corporate risk management, executive compensation, donations and political lobbying, corruption and disclosure.