The year 2015 represented a critical juncture for all investors concerned with climate change. Scientists confirmed that 2015 was the hottest year on record, global clean energy investments hit a record high of $329 billion in 2015 and, perhaps most important, the COP21 conference held in Paris in December resulted in an agreement by 195 countries to hold the global average temperature to less than 2°C. Consequently, investors and businesses are increasingly joining development banks, industry associations, government agencies and NGOs in initiatives like the Green infrastructure Investment Coalition to develop strategies for the rapid transition to a low-carbon economy.
Climate change is a genuine risk for PE investors. New regulations and increased influence from LPs are driving action everywhere. In France, for example, the Energy Transition for Green Growth Act passed in August 2015 requires all asset owners and managers to disclose their exposure to climate change risk and conduct carbon footprint assessments of their portfolios.
In our previous issue of News from the Front Line: ESG Insights, our premier issue, we introduced the many aspects of ESG that are of concern for private equity LPs and GPs. In this issue we focus entirely on climate change, both as a source of risk, as well as a source of new opportunities. In the three articles that follow, our contributors describe their efforts to discover new opportunities amid massive changes. First South Pole Group shares practical advice for investors concerned with how to properly assess climate change risks. Then, the Swedish pension fund, AP6, talks about conducting carbon impact assessments across their portfolio and using it as an engagement tool with their GPs and portfolio companies. Finally the Long-term Infrastructure Investors Association (LTIIA) discusses why climate risk is particularly relevant for infrastructure investors and how it’s helping its members navigate in a rapidly changing economy.
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