LPs’ expectations on their GPs’ Net Zero strategy
How do LPs integrate climate in their investments and what do they expect from their GPs in terms of climate and carbon commitment
View the full reportAs the climate crisis intensifies, the global push for Net Zero emissions trajectory and stricter regulations has made climate strategy a central focus for private market investors. To better understand how Limited Partners (LPs) play a pivotal role in driving change, Carbometrix has conducted a six-month study on how they reshape the global climate expectations on private markets and on how General Partners (GPs) can adapt.
Here are the key takeaways from our research:
Rising climate expectations from LPs
Limited Partners (LPs) are intensifying their focus on climate issues, driven by regulatory pressures (e.g., SFDR, TCFD) and their own Net Zero commitments, which increasingly extend to General Partners (GPs) and their portfolio companies.
Regulatory frameworks as catalysts
Regulations and frameworks, like the SFDR in Europe or the TCFD, and Net Zero initiatives have emerged over the past 10 years and are shaping the climate agenda on private markets, pushing LPs and GPs to align portfolios with Paris Agreement’s objectives and disclose standardised climate data.
European LPs lead the way
European investors are at the forefront of climate commitment due to strong regulatory requirements, business impact and societal expectations, positioning Europe as a global leader in sustainable finance.
Insurers and pensions funds at the forefront
Insurance companies and pension funds are among the most committed and active LPs in Net Zero initiatives. This is due to their specific understanding of climate risks and their long-term investment horizons.
ESG due diligences have become standard practices
LPs increasingly use ESG scoring during pre-investment due diligence, with stricter climate and carbon criteria to assess and compare GPs’ alignment with sustainability goals. For equal financial performance, they will choose the GP with the most robust and ambitious ESG policy.
Climate and carbon data quality is a key challenge
LPs struggle with inconsistent and unreliable carbon data, particularly in private equity markets. This challenge is amplified by regional discrepancies, with European GPs typically more advanced in carbon performance reporting. Thus, showing robust climate and carbon data governance is a key differentiating factor for GPs.
LP-GP collaboration to reach Net Zero
As more and more LPs commit to reaching Net Zero emissions by 2050, their GPs are expecting to mirror their climate ambitions, emphasizing collaboration on Net Zero targets and demanding measurable progress through transparent reporting.
Specific Net Zero frameworks exist for each type of investors
LPs and GPs willing to engage in a Paris-aligned decarbonization strategy can join different alliances or initiatives committing to reaching Net Zero emissions. They offer specific guidance depending on the characteristics of each investor with varying levels of ambition.