Net Zero – beyond ambition to imperative

Climate change is possibly the greatest financial and societal risk of our time. Last week, the IPCC (Inter-governmental Panel on Climate Change) released the first instalment of its 6th Assessment Report, issuing a “code red for humanity” (read the BVCA's statement on this report here). This summer, we have seen dramatic fires, heat waves, and floods. When these events happen closer to home, they stoke the public consciousness and make policy-makers more likely to act.

We also know that the climate transition represents a significant investment opportunity in areas such as electrification, infrastructure, and energy efficiency. Arguably, private market investors are well-placed to capitalise. According to the IEA (International Energy Agency), annual investment in low-carbon technologies in end-sectors (building retrofits, changing industrial processes, energy efficiency measures) could rise from $530bn to $1.7tn in the next nine years.

Companies and investors have begun to announce ambitions to become net zero emissions businesses. My organisation, RPMI Railpen, recently launched our Net Zero Plan, which outlines how we intend to meet our net zero goals, along with the analysis that supports our targets. As a pension provider for workers in the UK rail sector, we believe our Net Zero Plan goes hand in hand with our fiduciary duty and our purpose of securing our members’ futures.

No doubt, like many of our fellow BVCA members, we are also reacting to increasing disclosure requirements, such as the TCFD (Taskforce on Climate-related Financial Disclosures) and increasing attention on the disclosures we make. I doubt we have yet seen ‘peak disclosure’, as I think interest in climate issues is far from saturation.

From our perspective as an LP, climate risk and opportunity can influence our capital allocation decisions. The quality of a manager’s climate strategy is a factor in our assessment of potential GPs, as well as how we can support them in achieving this objective. We also assess financially material climate risks in the course of our co-investment due diligence. We have seen increases in sophistication and collaboration from the GP community, particularly in the UK. This helps us to meet our climate goals and deliver better outcomes to our members.

We meet many GPs and private businesses with an impressive story to tell on climate change. We see just as many examples of year-on-year improvement in climate or in ESG generally. As a returning judge of the BVCA Excellence in ESG Awards, it would be great to see this reflected in the applications we receive in 2021. Though broader than just climate change, the Excellence in ESG Awards would be a great place to showcase the work you have done and the progress you have made. 
 

Authored by Michael Marshall
Head of Sustainable Ownership, RPMI Railpen, and Judge, BVCA Excellence in ESG 2021

This article was originally published in 2021 as part of the BVCA's Excellence in ESG Awards, and some of the content may now be out of date. Please contact the BVCA if you have any queries or need further assistance.