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1、Sustainability in Private Equity,2024 October 2024Contents01|Introduction02|A Year of Sustainability Progress in the Private Markets11|How Private Equity Funds Can Meet Investor Expectations22|Where Are Private Equity Funds on Their Way to Net Zero?29|Appendix:About Our Research32|About the AuthorsB

2、OSTON CONSULTING GROUP 1IntroductionWe are pleased to present the 2024 edition of our annual report on sustainability in private equity(PE).Last year we shared our inaugural report,outlining the sustainability performance of the industry and its connection to value creation.This years data from the

3、ESG Data Convergence Initiative(EDCI)shows that,relative to their public compa-ny peers,privately owned companies performance on sustainability topics continues to be mixedoutperform-ing public entities in some areas,such as job creation,and lagging in others,such as board diversity.An encouraging f

4、inding is private companies improvement across various sustainability metrics during their tradition-al hold period,often outpacing their public peers.The inherent investment approach of PE firmswhich have a long-term focus and considerable influence over manage-ment of their portfolio companiesposi

5、tions them to drive improvements in the social and environmental perfor-mance of their companies,especially where there is a link to long-term value creation.Increasingly,this trend is helping to make sustainability a competitive advantage for private equity and the companies in which the sector inv

6、ests.While the exact value creation mechanisms vary by industry,this advantage can come through reduced operat-ing costs,lower risks,and new green growth opportunities.Over the past year,the conversation around sustainability in the private markets has continued to advance at pace.We have observed a

7、n acceleration in the number of dedi-cated climate funds and growth in sustainability-focused value creation efforts among portfolio companies.The EDCI has rapidly increased its coverage of the private equity universe,to more than 450 major PE general part-ners(GPs)and limited partners(LPs).With mor

8、e than 150,000 data points collected from approximately 6,200 PE-backed companies,we now have a significantly greater understanding of sustainability outcomes in the private markets.(See the appendix,“About Our Research.”)In this years report,we offer new insights on how sustain-ability in the priva

9、te markets has evolved over the last year,alongside deep dives into decarbonization and data-driven perspectives on the sustainability expectations of the industrys LPs and how GPs are organizing in response.We believe this report adds to the growing evidence that many PE firms are well-positioned t

10、o drive change on a variety of sustainability topics,while offering insights on how they can best realize this change in practice.Still,there is much work to be done.As the markets continuous-ly reward a long-term focus on sustainability,PE investors are well-positioned to pursue this opportunity,dr

11、iving value for investors and communities alike.By Benjamin Entraygues and Vinay ShandalAbout the EDCIThe ESG Data Convergence Initiative(EDCI)is a consortium of private equity general and limited partners whose goal is to create a critical mass of meaningful,performance-based sustainability data fr

12、om private companies by converging on a stan-dardized set of sustainability metrics for companies in the private markets.The data collected allows GPs and portfolio com-panies to benchmark their current position and assess progress toward sustainability improvements,while enabling greater transparen

13、cy and more comparable portfolio information for LPs.As more PE investors join the initiative,the data quality and richness of insights arising from the benchmark and annual survey will only continue to grow in accuracy and usefulness.If you are interested in learning more:Please visit the EDCI webs

14、ite for more information about the initiative,including how to participate.Feel free to contact the EDCI with any questions at infoesgdc.org.2 SUSTAINABILITY IN PRIVATE EQUITY,2024Conversations with private equity(PE)investors reveal a growing consensus:For many portfolio companies,sustainability ha

15、s become a proven lever for value creation,whether through reduced operating costs,lower risks,or green-related revenue opportunities.Thats why many PE firms are stepping up,driving tangible improve-ments in sustainability across their portfolios.For example,compared to the ESG Data Convergence Init

16、iative(EDCI)s 2023 benchmark,renewable energy use at portfolio com-panies is up,and both job creation and gender diversity representation in private company C-suites continue to outpace public companies.However,the picture isnt entirely rosy.Job creation at portfolio companies has sloweda reflection

17、 of the cur-rent economic climate and ongoing investment in digitiza-tion and automation.And private companies still trail their public peers in gender diversity at the board level.The substantial increase in EDCI data points available for analysis this year tells its own story.We collected over 150

18、,000 data points covering around 6,200 private compa-nies held by more than 260 PE firmsa 45%jump from last year.This uptick signals a strong push within the pri-vate equity ecosystem toward improving the quality and consistency of sustainability reporting.A Year of Sustainability Progress in the Pr

19、ivate MarketsBy Ben Morley,Vinay Shandal,Tim Mohin,Greg Fischer,Claudia Hobl-Felbermayr,Vivek Menon,Lorenna Buck,Benjamin Baxter,Matthew Elstone,and Mac HiblerBOSTON CONSULTING GROUP 3With another years worth of data to analyze,it is becom-ing increasingly clear that PE firms are well positioned to

20、make a real impact on the portfolio companies they own.While private companies often start with weaker sustain-ability profiles,those owned by PE funds that put a focus on sustainability show improvements across several critical metrics,on average,including renewable energy use and safety outcomes d

21、uring their traditional hold-period.This mirrors the broader ability of private equity to professional-ize and enhance businesses under their ownership.Making ProgressThe PE industry is increasingly recognizing that for many portfolio companies improving sustainability outcomes is good business.The

22、means of value creation will vary for different companies in different industries,but the oppor-tunities arising from stronger sustainability practices can take many forms,including:reduced operating costs,such as through energy effi-ciency measures and adoption of lower-cost renewable energy;lower

23、risks,such as by avoiding regulatory fines;new green growth and revenue expansion pathways through new circularity value pools,the ability to capture green premiums,and appealing to customers who have supplier sustainability targets;and the business opportunity inherent in a more diverse leadership

24、team driving company agendas forward.BCG highlighted previously how climate leaders can realize these and other commercial benefits and gain competitive advantage in two World Economic Forum reports:“Winning the Race to Net Zero”and“Winning in Green Markets.”Given the sheer scale of the private equi

25、ty industry,the potential for significant,lasting impact in the coming years is enormous.The good news is that many portfolio compa-nies under PE ownership are making strides across key sustainability metrics,and particularly in renewable energy usage,job creation,and C-suite diversity.Renewable ene

26、rgyGlobally,the commercial case for renewable energy is be-coming difficult to ignore,and leaders are responding by scaling up their usage.(See sidebar“The Renewable Energy Advantage.”)Since last year,both public and private markets in aggregate have nudged their renewable energy usage upward.Among

27、private companies that use renewables,the median EDCI company increased its usage to 30%in 2023,up from 28%last year.In comparison,public companies saw a rise from 29%to 32%over the same period.Even more promising is the narrowing gap between private and public companies in adopting renewable energy

28、.The percentage of private companies that boosted their renew-able energy usage by 25 percentage points or more rose by 2 percentage points from last year to 12%,compared to just 6%of public companies during the same period.At the regional level,private companies in North America still lag significa

29、ntly behind their European counterparts.Factoring in companies that use no renewables at all,the median European company sources 22%of its energy from renewables.By comparison,the median renewables source rate in North America is just 1%,up from 0%last year.Last years report noted that recent policy

30、 changes and incentives in the US could drive improvements in renew-able energy consumption.While these developments are still expected to shape the renewables trajectory,the Inter-national Energy Agency anticipates that the most signifi-cant impacts on the availability of renewable energy will not

31、materialize until the second half of the 2020s,given the lengthy deployment timelines.As a result,we expect a more rapid acceleration in renew-ables adoption among private companies in the US later in the decade,as policy support strengthens and cost com-petitiveness with fossil fuels improves.Alrea

32、dy,there has been some progress in North America,with the percentage of private companies using no renewable energy decreas-ing from 54%in 2022 to 49%in 2023.The decision to switch to renewables can be complex,but as the commercial benefits become undeniable in many contexts,we urge PE firms to enco

33、urage their portfolio companies toward greater renewable energy useunlocking value for shareholders and stakeholders alike.As it stands,significant value is being left on the table.Job creationLast years EDCI results dispelled the myth that private companies are slower to create new jobs,net of attr

34、ition,than their public counterparts.This year,however,job creation has slowed across the boarddown from 9 net new hires per 100 full-time equivalent employees(FTEs)at private companies to 4 new hires,and from 5 to just 1 at public companies.This deceleration reflects the challeng-ing macroeconomic

35、environment,higher interest rates,slower company growth rates,and increasing emphasis on digitization and automation.Still,private companies con-tinue to create jobs at a higher rate than public ones.4 SUSTAINABILITY IN PRIVATE EQUITY,2024With over$246 billion in assets under management,Swedens EQT

36、is among the worlds largest private equity investors.Its also an investor that is making the adoption of renewable energy across its portfolio a top strategic priority.In doing so,EQT has increased the average share of renewable usage among its portfolio companies to 50%,significantly higher than th

37、e typical usage reported by EDCI members.“Encouraging portfolio companies to develop a renewable energy procurement model suitable for their ambition and industry is one of the first levers we look to pull as we estab-lish their decarbonization plans,”says Enol Osorio Rodri-guez,Director,EQT Infrast

38、ructure.To bring additional exper-tise to their portfolio companies,EQT partners with technical advisors like Schneider Electric and Southpole to assist in identifying the most appropriate instruments and sources of renewables,optimized specifically to each portfo-lio companys energy needs.Options i

39、nclude deploying on-site renewables,entering into Power Purchase Agreements with energy suppliers,and securing Energy Attribute Certificates(EACs)(instruments that represent proof of securing clean,carbon-free genera-tion of energy).These partnerships allow EQT to bring its considerable buying power

40、 to the table.For example,EQT in combination with the chosen technical advisor can negoti-ate bulk EACs to meet the needs of companies across the firms portfolio,often resulting in significant cost savings when compared to companies seeking such certificates individually.In partnering with managemen

41、t teams across its portfolio of companies to procure meaningful quantities of renewable energy,Osorio Rodriguez says,“We believe we are not only delivering on our climate ambitions but also building com-petitive advantage for our portfolio companies as they be-come more mature,cost-effective,and ind

42、ependent in a competitive and crowded market.”Osorio Rodriguez cites several commercial benefits for companies that have incor-porated renewables into their mix,all of which align with BCGs own experience,as we highlighted in last years article on renewable energy and PE.Companies entering into PPAs

43、 with agreed pricing achieve more stable energy costs and reduced price volatility.Renewables usage can also improve companies competitive positioning in supply chains with customers that incorporate emissions into procurement decisions.And companies deploying on-site renewables gain lower energy co

44、sts and greater reliability in the event of disruptions of the power grid.The Renewable Energy AdvantageBOSTON CONSULTING GROUP 5The slowdown is consistent across regions and sectors,with job creation in the US slowing more than in Europe or Asia,albeit from a higher baseline.At the sector level,the

45、 most notable declines were in Services and in Technology and Communications,where median net new hires per 100 FTE fell by 9 and 7.5,respectively.(See Exhibit 1.)Yet it is reas-suring that job growth remained positive despite significant layoffs at several major professional services and technology

46、 companies over the past year.Other sectors that saw signifi-cant shifts in hiring patterns included such workforce-intensive sectors as Food and Beverage and Infrastructure.DiversityFor the third year in a row,private companies are outpacing public companies in gender diversity at the C-suite level

47、,but they are still lagging at the board level.Seventy-seven per-cent of private companies have at least one woman in the C-suite,compared to 64%in public marketsa significant margin.But the proportion of private companies with at least one woman on their board rose 3 percentage points this year,to

48、61%,while a similar increase brought the per-centage for public companies to 89%.Discussions with leaders at several private equity firms suggest that a primary reason is the smaller board size at many private companies compared to public companies.This observation is supported by our research;the s

49、maller companies in our data set tend to have smaller boards.Nearly 70%of companies with more than$200 million in revenue have at least one woman on the board,compared to just over half of those with revenues under$50 million.(See Exhibit 2.)Moreover,portfolio company boards often include senior inv

50、estment team members from PE firms,who themselves tend not to be diverse at senior levels.Still,the slow prog-ress in this area is concerning,as diverse decision-making teams have been shown to drive better business outcomes.Expanding or diversifying boards is one of the easiest ways to foster bette

51、r company oversight,and we hope to see more progress in this area in the years ahead.Exhibit 1-Job Creation Rates Declined Across Public and Private Markets,but Private Companies Outpace Public Ones in Creating JobsSources:EDCI benchmark;BCG analysis.Note:Analysis includes only buyout companies.1Pri

52、vate benchmark only.Median change in net new hires(#per 100 FTE)PrivatePublicFinancialsN=662022N=64N=1,581N=4,484N=143N=142N=142N=14N=111N=145N=86N=25N=136TransportationTechnology&CommunicationsServicesResourceTransformationRenewableResources&Alt.EnergyHealth CareInfrastructureFood&BeverageConsumerG

53、oodsMedian change in net new hires by sector(#per 100 FTE)110.08.511.312.65.913.811.68.45.63.14.47.54.33.83.62.09.86.15.20.14.32.39541Extractives&MineralsProcessing54%81%2.54.27.59.03.94.05.53.25.52.1+1.220236 SUSTAINABILITY IN PRIVATE EQUITY,2024Holding OnAmong the key strengths of the PE investmen

54、t model is the longer time horizon that PE firms operate on compared to publicly traded companies,which are often under pressure to deliver quarterly results.This timeframe allows PE firms to focus on improving the performance of their portfolio companies over their period of ownership.Last year,the

55、 EDCI began asking GPs to provide data on how long they have held the companies in their portfolios.The goal was to gain a better understanding of how the hold period affects both financial performance and sustainability progress.The results are clear:Over the duration of a funds ownership of a comp

56、any,sustainability metrics improve on average,par-ticularly in renewable energy usage,work-related injuries,diversity,and employee engagement.Renewable Energy.As weve seen,private companies are increasingly adopting renewable energy.With an additional years worth of data,we can track this progress o

57、ver time.PE firms typically acquire companies with low levels of renewable energy usagejust 6%on average at acquisi-tion.But over the course of the ownership period,this figure climbs to 14%.(See Exhibit 3.)PE firms are captur-ing long-term commercial benefits from increasing renew-able energy usage

58、 over time and are often effectively incor-porating this as a strategic lever for meeting fund-level decarbonization commitments.Work-Related Injuries.The hold period also positively affects the rate of work-related injuries at private companies across most sectors.Overall,companies that have report

59、ed injury rates for the past two years have reduced their median rates from 2.2 per 1,000 FTEs in 2022 to 1.8 in 2023,an impres-sive 22%decrease.Some high-risk sectors,notably Infra-structure and Transportation,have made especially good progress in this regard,while others,including Resource Transfo

60、rmation and particularly Food and Beverage,have not.(See Exhibit 4.)The different absolute levels of injuries often reflect the nature of roles within those companies.For example,the Food and Beverage sector experiences high levels of injuries as workers can experience cuts,punctures,scrapes,burns,a

61、nd falls when processing,packaging,trans-porting,and manufacturing foods.Diversity.The same hold-period phenomenon is also true for gender diversity in key management roles.Over 60%of companies held for more than two years have women on their boards,6 percentage points higher than those held for les

62、s than two years.Similarly,women play a role in the C-suite at almost 80%of companies held for more than two years,compared to 73%of those held for shorter periods.(See Exhibit 5.)Exhibit 2-Larger Private Companies Outperform Smaller Companies on Diversity MetricsProportion of companies with at leas

63、t one woman on board or in C-suite1N=469N=1,221N=1,636N=1,835N=378N=869N=1,359N=1,597Woman on board of directorsWoman in C-suite$200M52%59%54%74%58%77%68%82%Sources:EDCI benchmark;BCG analysis.Note:Scale reflects company annual revenue.1Includes all companies that provided data for 2023.BOSTON CONSU

64、LTING GROUP 7Exhibit 3-Renewable Energy Usage Increases Over a PE Firms Hold DurationMedian renewable energy usage by hold-periodN=298N=1,680N=1,0780 years1 to 3 years4 years6%8%14%Sources:EDCI benchmark;BCG analysis.Note:Includes data for companies that submitted renewable energy data in 2023,inclu

65、ding companies with 0%renewable energy use.Exhibit 4-Private Companies Reporting on Work-Related Injuries Show Progress Across Several SectorsMedian#of work-related injuries per 1,000 FTEs by sectorN=62N=185N=170N=21N=113N=202N=113N=37N=139TransportationTechnology&CommunicationsResourceTransformatio

66、nRenewableResources&Alternative EnergyInfrastructureHealth CareFood&BeverageExtractives&MineralsProcessingConsumerGoods18.31.116.24.518.27.625.08.211.017.416.60.01.617.17.324.28.410.4202220230.91.12.91.10.30.80.6+0.4+0.2Sources:EDCI benchmark;BCG analysis.Note:Does not include Services(N=141)or Fina

67、ncials(N=28)sectors,which had private market median injury rates of 0 both in 2022 and 2023.8 SUSTAINABILITY IN PRIVATE EQUITY,2024Employee Engagement.One area where the EDCI has had a particularly catalytic role has been the deployment and use of employee surveys.These surveys are vital for gaug-in

68、g employee engagement,offering avenues for them to provide feedback to management,and,when acted upon,improving the employee value proposition and reducing turnover.The use of these surveys has grown significantly among EDCI member companies,rising from 63%in 2021 to 74%in 2023.We at BCG are pleased

69、 to see that the EDCIs emphasis on best practices in sustainability is driving positive outcomes in this key area.Indeed,weve heard from EDCI members that including this metric has encouraged more wide-spread use of surveys across their portfolio companies.We expect this trend to continue as compani

70、es increasingly take the“no-regrets”path to actively engaging with em-ployees and gathering their feedback.However,employee surveys are only effective if they are completed and if employers act on the feedback they receive.Therefore,the EDCI also tracks survey completion rates.It is reasonable to as

71、sume that employees who believe their company approaches internal surveys with the intention of improving the employee value proposition are more likely to complete themand in turn benefit from the outcomes.And in fact,private companies with higher employee survey completion percentages experi-ence

72、lower employee turnover.(See Exhibits 6 and 7.)This is crucial:In many instances,lower employee turnover can directly impact performance,reducing employer ex-penses through lower recruiting and onboarding costs while boosting productivity.Reduced employee churn also opens up more opportunities for u

73、pskilling and promotion within the workforce.These insights align with recent research by Jobs for the Future and the Workforce&Orga-nizational Research Center,which highlights the critical role that PE firms efforts in managing human capital and fostering quality jobs can play in generating sustain

74、able,long-term value across their portfolio companies.Evidence from the third year of the EDCI continues to demonstrate that while PE-owned companies may initially have relatively weaker sustainability profiles,over the duration of a funds ownership they are able to significantly improve sustainabil

75、ity outcomes,including renewable energy use,safety,diversity,and employee engagement.These enhancements not only align with broader sustain-ability goals but also drive measurable business value,contributing to the long-term success and competitiveness of portfolio companies.This is no time for the

76、PE industry to become complacent.This years results also highlight the many opportunities for private companies to enhance their sustainability performance,particularly in rapidly scaling renewable energy adoption and diversifying board leadership.As the link between sustainability initiatives and c

77、ommercial success becomes increasingly evident,we anticipate that PE firms will continue to intensify their focus on these areas,pulling these levers strategically to create more value in the years ahead.Exhibit 5-Private Companies Improve Their Diversity Significantly Over a PE Firms Hold Duration%

78、of companies with at least one woman on board or in C-suite(by hold-period)N=805N=2,215N=853N=2,336Woman on BoardWoman in C-Suite2 years55%73%61%78%+6pp+5ppSources:EDCI benchmark;BCG analysis.BOSTON CONSULTING GROUP 9Exhibit 6-The Percentage of Private Companies Using Employee Surveys Has Increased

79、Considerably Since 20212023%of companies with employee survey coverage year-over-year2021202263%70%74%+11ppSources:EDCI benchmark;BCG analysis.Note:N=1,406.Exhibit 7-Private Companies with Higher Survey Completion Rates See Lower Employee Turnover Median turnover percentage based on employee survey

80、response rateLow response rate(lowest 33rd percentile)Medium response rate(mid 33rd percentile)High response rate(top 33rd percentile)N=946N=820N=85722%21%19%Sources:EDCI benchmark;BCG analysis.10 SUSTAINABILITY IN PRIVATE EQUITY,2024How Private Equity Firms Can Meet Investor ExpectationsBy Ben Morl

81、ey,Vinay Shandal,Greg Fischer,Astrid Latzel,Tariq Nanji,Daniel Oehling,Nili Gilbert,Benjamin Baxter,Matthew Elstone,Mac Hibler,and Carina LungAs a growing number of general and limited partners are focused on sustainability,several questions naturally arise:How do limited partners(LPs)assess the sus

82、tainability goals and performance of general part-ners(GPs)?Which climate investment strategies do LPs find most compelling?How are GPs organizing to drive sustainability in their portfolios?And what effect have their practices had on improving sustainability outcomes?To shed light on these question

83、s,in April 2024 we surveyed 231 members of the ESG Data Convergence Initiative(EDCI)170 GPs and 61 LPs.Respondents were split more or less evenly across size segments and geographies,with 51%based in Europe,the Middle East,and Africa;41%in the Americas;and 8%in the Asia-Pacific region.BOSTON CONSULT

84、ING GROUP 11The survey results reveal several key insights regarding LP beliefs,what they are looking for from their investments,how they are utilizing sustainability data,and how they are directing their capital.For GPs,the survey reveals insights about how private equity funds are engaging on sust

85、ainabili-ty,including which topics they prioritize,how they approach target setting,and how they organize to deliver outcomes.This article explores the findings from the survey,high-lights emerging best practices that we believe can be adopted more widely across the industry,and concludes with recom

86、mendations for how GPs and LPs can acceler-ate progress in these areas.LP ViewsFrom Disclosure and Reporting to Engaging with GPs on Sustainability to Investing in Climate SolutionsThe message from LPs is clear:Sustainability matters.Of the LPs we surveyed,85%said they expect to increase their prior

87、itization of sustainability-related topics over the next three years.And almost 70%agreed that“portfolio compa-nies that thoughtfully consider and manage sustainability considerations warrant a valuation premium to peers that do not.”This aligns with the findings of a survey that BCG and the Sustain

88、able Markets Initiatives Private Equity Taskforce(PESMIT)conducted,showing that 70%of private company leaders said they expect to be paid a premium upon exit for companies that effectively decarbonized during their PE hold period.This held especially true for high-emit-ting sectors such as energy,in

89、dustrials,and transportation.Still,it is important to clarify what prioritizing sustainability actually means.LPs have long valued better reporting and disclosure,but how much are they measuring and rewarding improvements in sustainability outcomes?And given their interest in sustainability,are LPs

90、directing capital towards specific sustainability goals such as climate change?Data CollectionHistorically,the challenge for many LPs has been the lack of reliable and consistent reporting on sustainability met-rics.So it is unsurprising that 90%of LPs cite reporting and transparency among the reaso

91、ns they collect sustainability data from the GPs with whom they invest.(See Exhibit 1.)However,through the EDCI,LPs now have unprecedented visibility into the sustainability performance of the portfolio companies owned by many of the GPs in which they invest,along with insights into how these perfor

92、mance outcomes compare to their peers.Constructive Engagement It is also very encouraging that a high proportion of LPs cite the desire to engage constructively with GPs on their sus-tainability priorities as a reason for collecting data.Gaining insights from sustainability data is a natural evoluti

93、on for LPs,particularly given their conviction that improving on these metrics can increase the value of their investments.In fact,we have heard from leading LPs that they are using these insights to have constructive conversations with GPs about the strengths and challenges within their portfolios,

94、and to provide guidance to GPs on improving sustainability outcomes over time.Exhibit 1-LPs Collect ESG Data for Both Internal Portfolio Analysis and Engagement with GPsWhich of the following reasons for collecting GP ESG data are most important for you?%of responses1To understand our portfoliosperf

95、ormance on ESG To engage constructively with GPs ontheir ESG prioritiesTo provide consolidated reportingon ESG to stakeholdersTo highlight importance of ESG topicsto our stakeholdersTo collect evidence that our investmentsare making a positive contributionTo inform investment allocation decisions1st

96、 choice2nd choice3rd choice571618444228886203337222410907571201412Sources:EDCI annual member survey 2024;BCG analysis.1Ranking of up to 3 answers possible.12 SUSTAINABILITY IN PRIVATE EQUITY,2024Willingness to Improve It is notable that few LPs say they use the sustainability data they collect today

97、 from GPs to directly inform their investment allocation decisions.This is likely because most LPs do not yet have the full track record of sustain-ability data needed to make informed decisions,but this is expected to evolve in the coming years.Despite this,LPs are clearly willing to act on sustain

98、ability considerations.An overwhelming 98%of LPs say they would walk away from an investment if the manager was not adequately committed to sustainability.The primary reason cited was the risk of negative publicity,which high-lights the level of concern LPs have about how their invest-ment activitie

99、s may be perceivedbut also shows that they understand just how important sustainability issues have become.(See Exhibit 2.)LPs have also adopted an“its not about where you start,but where you finish”approach to analyzing sustainability risk.The survey shows that LPs are less likely to allocate to GP

100、s lacking the intention to improve on poor sustainability management and performance than to those whose cur-rent sustainability performance is poor but who acknowl-edge the importance of addressing it.Many LPs are willing to allocate to GPs if they can demonstrate a credible plan for improving on s

101、ustainability outcomes of their portfolio companies over the duration of the hold period.Thats the strategy used by PGGM Investments,a pension fund service provider based in the Netherlands with approxi-mately$270 billion in assets under management on behalf of pension fund PFZW.PGGM carries out wha

102、t it calls a“GP ESG Assessment”during due diligence of each potential investment,designed to“assess a GPs ability to effectively manage ESG risks and opportunities,”says Karin Bouw-meester,sustainability and ESG expert at PGGMs private equity team.The firm conducts the assessment every year during t

103、he ownership period.While good scores on the evaluation matter,and low scores can be a reason to decline to invest,Bouwmeester notes that PGGM in certain cases is also“willing to invest with GPs with lower scores if they are committed to improving over time.”Directing Capital to Climate LPs currentl

104、y vary on the sustainability issues that matter to them most.Unsurprisingly,they attributed the greatest weight to the climate change/net zero topic.(See Exhibit 3.)The second most important topic was reporting and trans-parency,a concern that does not bear directly on improving sustainability but r

105、ather on the ability for LPs to track their investments commitment to and progress on sustainability issues.Other direct sustainability issues,such as diversity,equity,and inclusion(DEI)and board practices,while still important,were less top-of-mind.Exhibit 2-LPs Cite Bad Publicity and Lack of Commi

106、tment to Improve on Sustainability Outcomes as Top Reasons to Decline an InvestmentWould any of the following ESG-related factors cause you to walk away from an investment allocation?%of responses1Potential risk of negative press/PRLack of desire to improve on poor ESG performanceMisalignment with f

107、unds ESG mindsetLack of or poor ESG management capabilitiesPoor current ESG performance Lack of or poor ESG reporting capabilitiesWe would not walk away from an investmentallocation for ESG reasons1st choice2nd choice3rd choice35251861222182218121426595941393314212622 810Sources:EDCI annual member s

108、urvey 2024;BCG analysis.1Ranking of up to 6 answers possible.BOSTON CONSULTING GROUP 13Given their belief in the importance of climate change,its not surprising that 40%of LPs have capital allocated specifi-cally to climate investing.When asked to specify which types of investment theses they prefer

109、 to pursue,responses among LPs were relatively evenly divided between low-emit-ting companies,companies working on climate solutions,and heavy emitters that are trying to decarbonize.Although these capital allocation strategies are still in the early stages of development,we advocate for LPs to dire

110、ct their investment dollars not just toward low-emitting sec-tors but also to the more challenging and increasingly valuable task of investing in GPs willing to drive the grey-to-green transitiona critical path to global decarboniza-tion.Given LPs belief in a potential valuation premium for business

111、es that effectively manage sustainability,there is significant value to be gained by purchasing companies that have yet to set out on their sustainability journeys and transforming them into green leaders that can benefit from a valuation premium.Equally,the sustainability tran-sition will require m

112、any new,innovative business models focused on effectively scaling new technologies.PGGM takes this approach,aiming to have 30%of its assets under management contribute to the UNs Sustain-able Development Goals(SDGs)by 2030,half of which should contribute to climate-related SDGs.Climate is a key area

113、 for them,and the firm has a mandate to invest in private companies and infrastructure projects focused on avoiding so-called Scope 4 emissions that occur predomi-nantly outside of a companys own greenhouse gas(GHG)inventory as the result of consumers using the companys products and services.LPs lik

114、e PGGM have chosen this approach“because you can apply it quite broadly across asset classes,investment strategies,and climate topics,”says PGGMs Bouwmeester.To provide a tangible example,the pension fund PFZW invests in early-stage climate solution companies such as SCW Systems(SCW),an energy servi

115、ces company with a mission to contribute to the cooling of the planet.SCW has developed two independent technologies that assist in delivering on its mission.The first consists of converting organic waste streams,such as sewage sludge and plastics,into green gas and green hydrogen,both of which have

116、 a major role to play in the energy transition.The second involves a technology for capturing carbon dioxide from the atmosphere using less energy for the direct air capture process than previously thought likely.Exhibit 3-Climate Change/Net Zero Is Most Prevalent Sustainability Topic for LPsWhich o

117、f the following ESG topics are most top-of-mind for your organization?Please allocate 100 points across the topics.LPs N=50Climate change/net zeroReporting/transparencyDEIHuman rightsRegulationResponsible AIBiodiversity/natureEffective board practicesSupply chain risksCybersecurityEmployee value pro

118、position5%2%1%6%6%6%8%9%11%15%29%Sources:EDCI annual member survey 2024;BCG analysis.14 SUSTAINABILITY IN PRIVATE EQUITY,2024GPs See the Link Between Sustainability and Value CreationMany of the GPs we surveyed are committed to sustainabili-ty,with half of respondents saying it is fundamental to the

119、ir firms purpose.(See Exhibit 4.)An even larger proportiontwo-thirdssaid sustainability is important because it helps reduce risk in their portfolio companies.Helping attract capital from LPs and boosting their portfolio companies revenues were cited significantly more frequently than historically i

120、mportant drivers of sustainability activities such as regulation or compliance,further supporting the belief that sustainability efforts are important for overall value creation and capital formation.As with LPs,climate change,reporting,and DEI were the sustainability issues to which GPs attributed

121、the greatest weight.(See Exhibit 5.)The high importance of reporting and transparency for both GPs and LPs is not surprising,as many investors are preparing to respond to requests for a variety of new sustainability reporting standards,such as those of the Corporate Sustainability Reporting Directiv

122、e(CSRD)or the International Sustainability Standards Board(ISSB).However,GPs also place significant emphasis on a broader range of topics,including cybersecurity,supply chain risks,and the employee value propositionall im-portant social and governance issues that are likely more tangible for GPs eng

123、aged in the day-to-day management of their portfolio companies.Exhibit 4-GPs See ESG as Fundamental Because It Helps Them Reduce Risk,Attract Capital,and Grow RevenuesWhich of these following statements best resonate with your firms beliefs about ESG?ESG is important because it helps us reducerisk i

124、n our portfolio companiesESG is a fundamental element of ourfirms purposeESG is important because it helps usattract capital from LPsESG is important because it helps us growrevenues in our portfolio companiesESG is important because it helps us becompliant with regulatory requirementsESG is importa

125、nt because it helps improvethe way we conduct due diligenceESG is important because it improves ourpublic reputationESG is important because it helps us reduce costs in our portfolio companiesESG is important because it helps usattract top talent%of responses11st choice2nd choice3rd choice2139136683

126、30615121093322 3156648473227261310931914119754Sources:EDCI annual member survey 2024;BCG analysis.1Ranking of up to 3 answers possible.BOSTON CONSULTING GROUP 15Committing to SustainabilityWhile many GPs have stated their commitment to sustain-ability more broadly,fewer than 30%of those surveyed hav

127、e committed publicly either to reducing emissions or to increasing diversity.While there is room for improvement here,it is encouraging that the majority of those making public commitments to emissions reductions have either sought and received external validation of their emissions targets or are l

128、ooking to do so.(See Exhibit 6.)Still,it is worth noting that GPs based in Europe,the Middle East,and Africa are far more likely to make such public commit-ments than are GPs in the Americas45%versus just 16%and to back them up with external validation of their emissions targets.Public commitments t

129、o reducing emissions can have a significant impact.The EDCI benchmark data shows that the median Scope 1 and Scope 2 emissions intensity at portfolio companies owned by GPs with public commit-ments was more than 40%lower than at companies with-out such commitments.In addition,private companies have

130、been more successful in reducing emissions at portfo-lio companies than those without decarbonization strate-gies in place.(See“Where are Private Equity Firms on Their Way to Net Zero?”)It should be noted,however,that GPs with public firm-wide commitments to emissions reductions tend to invest pre-d

131、ominantly in relatively lower-emitting industries.For example,they are almost twice as likely to invest in the Technology and Communications sector,the second lowest emitting sector after Financials.In contrast,the average share of portfolio companies in the top-five highest emit-ting sectorsExtract

132、ives and Minerals Processing,Food and Beverage,Transportation,Resource Transformation,and Infrastructureat GPs without public firm-wide com-mitments is 37%,compared to just 26%at those with commitments.(See Exhibit 7.)Given the urgency of ad-dressing climate change,its critical that more GPs with hi

133、gher exposure to heavy-emitting assets also establish equivalent emissions targets and that those with public commitments step up and lean into the challenge of trans-forming heavy emitters.Many GPs have,however,made commitments to lower emissions at specific companies within their portfolios.After

134、all,public commitments dont necessarily need to be applied equally across a diverse portfolio.For example,some GPs are making forward-looking commitments to put in place validated decarbonization plans at portfolio com-panies within a set time period of ownership.Exhibit 5-GPs and LPs Are Focused On

135、 a Range of Sustainability Topics,with Both Emphasizing Climate ChangeWhich of the following ESG topics are most top-of-mind for your organization?Please allocate 100 points across the topics.6%6%6%4%3%7%5%8%7%6%2%1%7%9%11%8%12%11%14%15%21%29%Climate change/net zeroReporting/transparencyHuman rights

136、RegulationResponsible AIBiodiversity/natureGPs N=132LPs N=50Effective board practicesSupply chain risksCybersecurityEmployee value propositionDEISources:EDCI annual member survey 2024;BCG analysis.16 SUSTAINABILITY IN PRIVATE EQUITY,2024Exhibit 6-One-Third of GPs Committed to Reducing Emissions Have

137、 Received External Validation;Another One-Quarter Are Seeking ItHas your firm made any publiccommitments to reduceemissions within your portfolio?%of responsesYesNoYesNoYes,achieved external validationYes,external validation is in progressNo,but our firm is actively planning to seek external validat

138、ionNo,our firm has not sought external validation and is not currently planning to seek itN=147N=41N=147If Yes:Has your firm sought externalvalidation of these commitments(e.g.,SBTi approval of targets)?%of responsesHas your firm made any publiccommitments to improve diversityin their portfolio comp

139、anies?%of responses732737724327129Sources:EDCI annual member survey 2024;BCG analysis.Exhibit 7-GPs with Emission Reduction Targets Own Companies with Lower Emissions than Noncommitted GPs,and Invest Less in High-Emitting SectorsMedian of Scope 1 and 2 GHGemissions intensity,2023Share of companies p

140、er sector,20231Sectors sorted from highest to lowest intensityNumber ofportfoliocompanies880848ReductioncommitmentNo reductioncommitmentReductioncommitmentNo reductioncommitmentExtract&MinFood&BevTransportationResource TransInfrastructureRenewablesHealth CareCons GoodsServicesTech&CommsFinancialsHig

141、hestintensityLowestintensity6%31%16%17%18%9%10%11%12%7%7%10%2%2%4%1%4%3%13%5%6%5%5.38.941%Sources:EDCI annual member survey 2024;EDCI Benchmark data 2024;BCG analysis.Note:GHG=greenhouse gas.1Includes only companies with Scope 1 and 2 emissions data available for 2023.Many private equity funds emplo

142、y decarbonization as a strategic lever to improve financial results.18 SUSTAINABILITY IN PRIVATE EQUITY,2024Whether done at the aggregate level or at the level of individual portfolio companies,we hope to see greater use of public commitments in the future.The EDCI can be a helpful tool to support G

143、Ps in this effort,as they have sometimes shied away from setting targets in the past due to the lack of sufficient data on key sustainability metrics.For the first time,GPs have a data-backed view on how their emissions compare to peers across their portfolios and can make more informed decisions ab

144、out their decar-bonization ambitions and targets.Being Accountable for DiversityCommitment to diversity has a similar effect on actual re-sults.At GPs with a commitment to improving diversity(which most frequently targets improvements at the board level),65%of their portfolio companies had at least

145、one woman on their boards,compared to 56%at GPs without such commitments.These results were consistent regardless of the GPs sector composition or headquarters location.Further evidence of the impact of public diversity commit-ments can be seen in how the share of women on boards has improved over t

146、ime.For example,consider portfolio companies with over 25%women on their boards.At GPs with diversity commitments,the proportion of these com-panies increased from 24%in 2021 to 33%in 2023.The number of these companies at GPs without diversity com-mitments increased only half as muchfrom 16%to 20%.(

147、See Exhibit 8.)Setting targets can play a valuable role in the journey toward improved sustainability and diversity,especially within a collaborative framework that can help provide a structured approach to target setting and avoid many of the challenges and risks of doing it in isolation.Targets al

148、so provide a useful communication tool to engage with stakeholders and use as an accountability mechanism.TeamworkWithin private equity,there is no one-size-fits-all approach to how sustainability teams are,or should be,structured.Three-quarters of the GPs we surveyed devote fewer than three full-ti

149、me staff members to sustainability,a figure largely dependent on the size of the fund.At nearly half of them,the head of the sustainability team reports directly to the CEO,while just 20%of sustainability teams are integrated directly into portfolio and investment teams,reporting to either the chief

150、 investment officer,the head of portfolio and value creation,or other investment profes-sionals.(See Exhibit 9.)These differing reporting lines appear to have a consider-able impact on how sustainability teams spend their time.Sustainability teams whose heads report directly to invest-ment professio

151、nals spend 36%of their time on sustainabil-ity reporting and regulatory compliance,compared to 44%when they report to the CEO.And these teams spend 44%of their time directly supporting portfolio companies with sustainability issues,compared to 38%when they report elsewhere.(See Exhibit 10.)Exhibit 8

152、-GPs with a Diversity Commitment Have More Women on Their Boards%of total companies by share of women on boardWith diversity commitment25%1%to 25%0%25%1%to 25%0%2021288407202320212023Without diversity commitment332743402433534631341620Number ofportfoliocompaniesSources:EDCI annual member survey 2024

153、;EDCI Benchmark data 2024;BCG analysis.BOSTON CONSULTING GROUP 19Exhibit 9-GP Sustainability Teams Are Integrated into Portfolio and Investment Teams at Just 20%of Private Equity Funds20%To whom does your head of ESG(or equivalent role)report?N=148CEO/Founder/Managing PartnerCOOHead of Portfolio/Val

154、ue CreationChief Investment OfficerInvestment professionalHead of IRGeneral Counsel/Chief Compliance OfficeBoard(incl.ESG committee)Other C-suite15%3%3%3%3%4%11%18%48%Sources:EDCI annual member survey 2024;BCG analysis.1Includes Chief Risk Officer,Chief Strategy Officer,Chief Talent Officer,Chief Fi

155、nancial Officer,CFRO.Exhibit 10-Reporting Lines Impact Activities on Which GP Sustainability Teams Spend TimeHow does your ESG team spend their time?Avg.share of time allocatedLP ESG reportingRegulatory compliancePublic-facing ESG reportingSupporting individual PortCoswith ESG initiativesPortfolio-w

156、ide ESG initiativesSupporting PortCos with ESGtopics as it relates to exitreadiness/sales processesESG diligence of new investmentsMarketing of ESG initiatives6%15%14%16%14%5%4%4%3%5%6%16%15%19%21%4%18%18%19%12%11%11%12%8%12%12%13%11%19%N=131N=96N=22N=13TotalHead of ESG(or equivalent role)reports to

157、:CEO/COO/Other1Investment/portfolio teams2Head of IR/General Counsel 42%39%44%38%36%44%43%37%20%12%24%Sources:EDCI annual member survey 2024;EDCI Benchmark data 2024;BCG analysis.1Founder,Managing Partner.2Head of Portfolio/Value Creation,Chief Investment Officer,Investment professional.20 SUSTAINAB

158、ILITY IN PRIVATE EQUITY,2024Because GPs with sustainability teams embedded into investment teams spend more time engaging directly with portfolio companies,its not surprising that portfolio com-panies at these GPs systematically deliver stronger out-comes across the EDCI metrics.For example,they rep

159、orted 2 percentage point higher median rates of renewable energy usage and 50%less work-related injuries,on aver-age,in 2023.(See Exhibit 11.)This in turn ultimately leads to commercial value creation in the form of reduced ener-gy costs,reduced employee costs,and a more diverse leadership group pus

160、hing company agendas forward.In contrast,GPs whose sustainability teams spend the majority of time focused on reporting see systematically lagging outcomes at their portfolio companies across most metrics,compared to those that focus on supporting port-folio companies with sustainability initiatives

161、 and due diligence.For example,they have a 5 percentage point lower median renewable energy adoption rate and a lower median share of women in their C-suites.Action Steps for GPs and LPsWith an increased emphasis on sustainability,many LPs are rapidly evolving their practices to respond to stakehold

162、-ers and directing capital effectively to those GPs best placed to deliver on sustainability and social impact.The result:they are creating value for their shareholders and stakeholders alike.Yet the data also shows that both GPs and LPs are still on a journey to achieve their sustainability goals,a

163、nd that there are significant gaps and areas where best practices are yet to be adopted at scale.Based on the data,we recommend that GPs take the follow-ing steps to improve their sustainability activities and results:Rethink internal operating models and empower sus-tainability leaders to accelerat

164、e action by embedding sustainability teams within broader portfolio and invest-ment capabilities.Incentivize sustainability leaders to focus on value creation through clear performance met-rics,so that sustainability becomes core to the ongoing evaluation and management of every portfolio company.Co

165、nsider making thoughtful public sustainability targetstailored,potentially,to individual assetsfor key issues such as emissions and diversity,and use them as a communication and accountability tool to support progress on outcomes.Share with LPs how you are investing in support of the climate transit

166、ion,and dont shy away from talking about how your portfolio might initially include invest-ments in unloved low-performing assets if youre focused on improving these assets over time to capture future expected valuation premiums.As for LPs,we recommend that they accelerate their efforts to make data

167、-driven sustainability improvements:Use sustainability data not only as a reporting tool to drive transparency but also to inform investment de-cisions and engage constructively with GPs on how to improve sustainability.Given LPs belief that sustainability improvements drive value,we hope to see mor

168、e of their capital allocated to climate solutions and grey-to-green transitions that drive real-world outcomes.Exhibit 11-GPs with Sustainability Teams Embedded in Investment Teams OutperformMetric1Renewable energyGender diversityWork-related injuriesJob creationEmployee engagementFirms show about 2

169、pp(27%)higher renewable energy adoption across their portfolio companies,which holds across most regions and sectorsOutperformingUnderperformingAverage/In-lineTheir portfolio companies achieve greater gender diversity,especially across the C-suite,with 5pp more womenFirms report 50%less injuries per

170、 FTE across their portfolio companies(which is true across most sectors),with no difference in the severity of injuriesTheir portfolio companies create more jobs(both with and excluding M&A),while also maintaining a 2pp lower annual turnover rateA higher share of their portfolio companies engage emp

171、loyees by conducting a survey and have a more engaged workforce,with a 2pp higher response rate for employee surveys2023 performance compared to non-embedded peers2 Key insights for GPs whose head of ESG is embedded in investment teamsSources:EDCI annual member survey 2024;EDCI Benchmark data 2024;B

172、CG analysis.1Summary of most relevant metrics shown.2Median values in 2023 for portfolio companies of GPs who integrate their head of ESG into investment-related roles vs.those who dont.BOSTON CONSULTING GROUP 21With a total of$8.7 trillion in assets under manage-ment,the private equity(PE)industry

173、makes up a substantial part of the global economy,giving PE firms significant influence over their portfolio companies efforts to reduce their greenhouse gas(GHG)emissionsand creating value at the same time.We know that many private equity funds employ decarbonization as a strategic lever to improve

174、 financial results through growing reve-nues,lowering costs,and reducing risk,which we discuss in depth later in this article.Are PE firms making the most of this opportunity?To answer the question,this year the ESG Data Convergence Initiative(EDCI)introduced several new metrics aimed at measuring t

175、he progress that PE-backed companies are making toward decarbonization.Developed in close collab-oration with a range of industry associationsin particular the Initiative Climat International(iCI)and the Institution-al Investors Group on Climate Change(IIGCC)and with strategic guidance from BCG,thes

176、e metrics focus on three distinct questions for PE firms:Where Are Private Equity Firms on Their Way to Net Zero?By Ben Morley,Vinay Shandal,Jens Burchardt,Naomi Desai,Elfrun Von Koeller,Johannes Glugla,Benjamin Baxter,Matthew Elstone,Mac Hibler,and Alex Romagnoli22 SUSTAINABILITY IN PRIVATE EQUITY,

177、20241.Do their portfolio companies have a decarbonization strategy in place?2.Do they have a near-term GHG emissions reduction target?3.And do they have a long-term 2050 net zero ambition that is aligned with the Paris Agreement?The new metrics were intentionally designed to reflect the nature of th

178、e PE ownership model.PE firms typically own their portfolio companies for five to seven yearsa hold period that gives them enough time to implement decarbonization initiatives,even though they are unlikely to fully realize their net zero ambitions during the ownership period.This years results also

179、help us shed light on several additional questions:What impact do near-term decarbonization strategies and emissions reduction targets have on a portfolio companys emissions performance during the hold period?How are investors approaching the establishment of these near-term strategies and targets i

180、n ways that improve enterprise value?And what is the impact of near-term emissions targets on the long-term net zero trajectory of these companies?The answers to these questions are critical to the PE industrys ability to continue creating value in a rapidly evolving world.Signs of ProgressHow many

181、privately owned companies are actually taking steps to decarbonize and commit to net zero?That is a key question as climate change becomes an increasingly im-portant priority for both general partners in PE firms and the limited partners that invest in them.DecarbonizationAt present,just 22%of PE-ow

182、ned companies have a decar-bonization strategy in place.(See Exhibit 1.)While this is likely an improvement from a few years ago,its still a small percentage,and lower than the 29%of public com-panies that have implemented such strategies.This gap is understandable:Public companies have been working

183、 on decarbonization for several years,especially after COP 26,held in Glasgow in 2021,which led to a wave of companies announcing strategies and commitments.Still,the small slice of PE portfolio companies committed to decarboniza-tion makes clear how much work remains for the industry if it is to ma

184、ke meaningful progress on this dimension.Once they have established a decarbonization strategy,private companies often put in place an associated short-term GHG emissions reduction target.Nearly 20%of private companies have set a five-to ten-year emissions reduction targeta valuable tool for trackin

185、g and measuring progress,and for demonstrating to key stakeholders their commit-ment to decarbonization and accountability for progress.Exhibit 1-Private Markets Are Beginning to Incorporate Decarbonization;Long-Term Paths to Net Zero Are EmergingDoes the company have adecarbonization strategy in pl

186、ace?Yes,with board oversightNoNot providedYes,but withoutboard oversightYes,and is Paris-aligned(covering Scope 1,2 and 3)3NoNot providedYes,but not Paris-alignedYes,aligned with a net zero pathwayNo,and no planto set oneNo,but we plan to establish this in the near term(2 years)Not providedNo,we hav

187、e a long-term goal but not fully alignedwith a net zero pathwayDoes the company have a long-term net zero goal?2Does the company have a short-term GHG emissions reduction target in place?123%54%6%16%28%53%9%33%31%19%6%11%10%Sources:EDCI benchmark;BCG analysis.Note:N=5,761 private companies;GHG=green

188、house gas.1Timeframe for short-term GHG reduction target is 5 to 10 years.2Timeframe for long-term net zero goal is by 2050.3Includes only those Scope 3 emissions that could materially affect a companys financial or environmental reporting.BOSTON CONSULTING GROUP 23Net Zero Considerably fewer privat

189、e companiesjust 11%have made longer-term net zero commitments,while an addition-al 6%have longer-term decarbonization goals in place that are not fully aligned with a net zero pathway.Given the relatively short investment hold periods in PE,this isnt surprising.However,another 19%of private companie

190、s do say they plan to establish a long-term net zero path within the next two years,an encouraging sign of growing commit-ment to emissions reductions on the part of the PE industry and the companies it owns.A closer look at the kinds of private companies that are devising emissions strategies and s

191、etting both short-and long-term goals,and where they are located,provides insight into where progress is happening and where its most needed.Strategy and LocationThe global decarbonization strategy rate of 22%is predomi-nately driven by companies based in Europe,where 35%of private companies have a

192、strategy in place.This isnt surpris-ingdecarbonization is more central to European company strategies and is supported by a wider range of commercial forces,including government regulation and clear customer preferences for greener offerings.In contrast,only 10%of private companies in North America

193、and 23%in Asia have decarbonization strategies.These differences are also true in the case of long-term net zero pathways.Company Size Larger private companies are making significant strides toward a long-term net zero pathway(as well as in their decarbonization strategy coverage).Among companies wi

194、th more than$200 million in revenue,22%have a net zero path in place and a further 19%plan to do so within two years.(See Exhibit 2.)This is likely the result of the capital intensity and scale of these companies,combined with the complex task of establishing a thoughtful long-term net zero commitme

195、nt.Larger companies are better positioned and capitalized to do the hard work required to feel comfortable committing to such initiatives.They are also more likely to be preparing to list on public markets,and once public,they will face even greater pressure to commit to net zero goals.Sector Goals

196、Looking across sectors,we saw relatively consistent levels of commitment to reaching net zero.The proportion of compa-nies with a long-term decarbonization goal in place is general-ly between 15%and 20%across a wide range of sectors.(See Exhibit 3.)This is despite very significant differences in ave

197、rage emissions intensity across sectors and the respective feasibility of decarbonization plans based on the cost-compet-itiveness of current technologies available in each sector.Exhibit 2-More Large Companies Are Setting or Planning to Set Long-Term Net Zero Goals than Small CompaniesSources:EDCI

198、benchmark;BCG analysis.Survey question:Does the company have a long-term net zero goal?Private company commitments to a long-term net zero path(%)$200m$50m to$200mN=1,795N=1,747N=1,74736%32%28%33%33%30%20%20%19%6%7%7%4%9%15%Yes,aligned with a net zero pathwayNo,and no plan to set oneNo,but we plan t

199、o establish this in the near term(2 years)Not providedNo,we have a long-term goal but not fully aligned with a net zero pathway24 SUSTAINABILITY IN PRIVATE EQUITY,2024Its also worth noting that in every sector there are clear leaders setting an example for those companies that are not yet on a path

200、to net zero and have no plans to set one.This is often due to the lack of a perceived net zero pathway for many companies in the sector,yet these leaders have demon-strated that a trajectory toward net zero is possible,even in sectors where its traditionally viewed as challenging.A Broad Push to Dec

201、arbonizeRegulators,investors,employees,customers,and other stake-holders are upping the pressure on companies to decarbonize.The relative degree of pressure to decarbonize in the short term varies considerably among sectors,as does the complexity and return on investment of the abatement levers avai

202、lable to com-panies.Companies in sectors with relatively low-emitting busi-ness models,such as Healthcare,face relatively less pressure on average,while high-emitting companies in sectors like Transpor-tation,Resource Transformation,and Extractive Minerals and Processing face considerably more.(Of c

203、ourse,certain compa-nies in each sector may produce considerably more emissions than others,and thus face more pressure.In the Technology and Communications sector,for example,a data center will have a very different emissions profile than a software business.)More-over,the nature and degree of pres

204、sure from regulators,custom-ers,and employees will also vary by region.Its encouraging that companies in sectors under the greatest pressure are also the most likely to have decar-bonization strategies.(See Exhibit 4.)Successfully execut-ing these strategies should position these industries well to

205、benefit from powerful commercial tailwinds in the coming years.At the same time,companies in low-emitting sectors would be wise to continuously track how strategic pres-sures are evolving.Many low-emitting companies in the Technology sector,for example,are currently experiencing a rapid growth in em

206、issions due to the considerable energy intensity of generative AI,and the pressure to reduce the related emissions is growing.Exhibit 3-Proportion of Portfolio Companies with Long-Term Net Zero Plans Is Relatively Even Across SectorsShare of sector with a long-term path to net zero(%)393633323332202

207、63529332731343728223626352720141516194224332272516520966675101114121281410101791428ConsumerGoods146543871714061151334035157Average emissions intensity(tCO2e/$M)Extractives&Minerals ProcessingFinancialsFood&BeverageHealth CareYes,aligned with a net zero pathway(i.e.,NZ emissions by 2050 or sooner)No,

208、we have a long-term goal but are not fully aligned with a net zero pathway(i.e.,NZ emissions by 2050 or sooner)No,but we plan to establish this in the near term($200m$50m$200m$5mNot providedAmericasEMEAAsia PacificNot providedTechnology&communicationsServicesHealth careResource transformationConsume

209、r goodsInfrastructureFood&beverageFinancialsOther$5m$50mPrivatebenchmarkPublicbenchmarkPrivatebenchmarkPublicbenchmarkPrivatebenchmarkPublicbenchmark8224873119356519103344484410121612964658101216149297131130 SUSTAINABILITY IN PRIVATE EQUITY,2024Private companies overall submission rate for sustainab

210、ili-ty metrics rose to an average of 70%this year,up from 67%last year.(See Exhibit 2.)Response rates on environmental metrics continued to trail those regarding social issues,most likely because of the difficulty and complexity in-volved in collecting this data.Still,the submission rates of these m

211、etrics continued to rise,particularly regarding Scope 3 emissions,which rose nearly 10 percentage points.Approximately 60%of portfolio companies submitted data about the new metrics designed by the EDCI to track progress on decarbonization and net zero commitments introduced this year,an encouraging

212、 result for new metrics.The EDCI benchmark has been shared with all participat-ing general and limited partners for their internal use through an online platform,with firms able to conduct their own customized analysis of the benchmark data.For 2024,a number of additional features have been added to

213、 the online platform to make the data as useful as possible for premium EDCI members.These include the ability to analyze the benchmark at more granular subsector levels,visualize portfolio performance via a heatmap against benchmarks,share data among GPs and LPs directly with-in the platform,and vi

214、sualize the benchmark on their own third-party tech platforms,among others.EDCI Member SurveyThis years report also includes insights from our annual EDCI member survey,which captures anonymous feed-back from our GP and LP members on a range of topics,including LP expectations for working with PE fu

215、nds and how GPs are responding.The survey elicited more than 230 responses this year170 from GPs and 67 from LPsmore than half the EDCIs membership.Much like the overall membership demographics,respondents were split relatively evenly between small,medium,and large firms,while 51%were headquartered

216、in Europe,the Middle East and Africa,41%in the Americas,and 8%in the Asia-Pacific region.(See Exhibit 3.)Sources:ESG Data Convergence Initiative(EDCI)benchmark;BCG analysis.1New metrics for 2024.Exhibit 2-Submission Rates Increased for Most Metrics This Year,Rising to a Nearly 70%AveragePrivate comp

217、any metric submission rate by metric category,2023 vs.2024(%)GHG emissionsScope 1Scope 2Scope 3DecarbstrategyShort-termtargetLong-termtargetRene-wables2023InjuriesFatalitiesInjurydaysOrganichiresTotalnew hiresTurnoverWomenon boardLGBTQGroupsunder-representedon boardsWomenin C-suiteEmployeesurveySurv

218、eyresponserateNet zero1RenewableenergyWork-relatedinjuriesNet new hiresDiversityEmployeeengagement2024 Avg.70%(+3pp vs.23)6834588789817386839613336094486969436961608888837586849515377794552024Optional metric6665BOSTON CONSULTING GROUP 31Sources:ESG Data Convergence Initiative(EDCI)annual member surv

219、ey;BCG analysis.Note:A total of 249 responses were received from 237 firms;data as of 5/10/2024.For consolidation purposes,firm-type chart includes four firms that selected“Other.”Demographics are similar to EDCI membership,with slightly lower share of small LPs.AUM=assets under management,AUA=asset

220、s under administration.1Investment consultant.2LPs:Small AUM is$100B.GPs:Small AUM is$15B.ICs:Small AUA$500B.3Includes responses of firm type“Other.”Exhibit 3-EDCI Member Survey Captured Feedback from More than 230 MembersResponses by firm typeResponses by AUM2Location(headquarters)N=237N=237N=67N=1

221、70N=237N=67N=170TotalGPLP/OtherTotalGPLP/Other24%9%27%42%33%38%167(70%)61(26%)34%30%32%28%8%7%9%42%43%40%50%50%51%6(3%)3%0%3(1%)PE GPLP/IC1PC GPOtherMediumSmallLargeEMEAAmericasAPACN/A332 SUSTAINABILITY IN PRIVATE EQUITY,2024About the Authors Benjamin Entraygues is a managing director and senior par

222、tner in BCGs Paris office.You may contact him by email at .Alex Romagnoli is a lead analyst in BCGs Boston office.You may contact her by email at .Ben Morley is a partner and associate director at the firms Boston office.You may contact him by email at .Carina Lung is a lead knowledge analyst in BCG

223、s Munich office.You may contact her by email at .Vinay Shandal is a managing director and senior partner in BCGs Toronto office.You may contact him by email at .Astrid Latzel is a managing director and partner in BCGs Berlin office.You may contact her by email at .Benjamin Baxter is a principal at E

224、xpand Research in London.You may contact him by email at .Claudia Hobl-Felbermayr is a partner and associate director at BCGs Vienna office.You may contact her by email at .Daniel Oehling is a managing director and partner at the firms Singapore office.You may contact him by email at .Greg Fischer i

225、s a partner and director at BCGs London office.You may contact him by email at .Johannes Glugla is a managing director and partner at the firms Hamburg office.You may contact him by email at .Mac Hibler is a project leader at BCGs Chicago office.You may contact him by email at .Elfrun Von Koeller is

226、 a managing director and senior partner at BCGs Denver office.You may contact her by email at .Jens Burchardt is a managing director and partner at BCGs office in Berlin.You may contact him by email at .Lorenna Buck is a senior advisor on ESG and DEI at the firms Boston office.You may contact her by

227、 email at .Matthew Elstone is a project leader at Expand Research in London.You may contact him by email at .Naomi Desai is a partner in BCGs Toronto office.You may contact her by email at .Tariq Nanji is a partner and associate director in the firms Toronto office.You may contact him by email at .V

228、ivek Menon is a managing director and partner in the firms Toronto office.You may contact him by email at .Nili Gilbert is a senior advisor in BCGs New York office.You may contact her by email at .Tim Mohin is a partner and director in BCGs Pittsburgh office.You may contact him by email at .For Furt

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