The decarbonization journey in private equity brings specific challenges and opportunities. LPs increasingly demand robust, transparent carbon metrics reporting, pushing GPs to gather accurate, consistent data from portfolio companies – often small firms without advanced data-tracking systems. On the opportunity side, reducing carbon emissions can drive operational efficiency by optimizing energy and resource use, minimizing waste, and promoting a better understanding of the company’s overall value chain. These efforts lower costs, boost productivity, contribute to protecting or increasing value, and create a virtuous cycle of sustainable investment and performance.
4 main levers to decarbonize your portfolio
Addressing decarbonization challenges in private equity requires time, collaboration, and a strong commitment to mitigation. Based on our hands-on experience, AXA Climate identified the following categories of measures for both LPs and GPs to effectively support their portfolio companies:
Governance support
- Secure executive leadership sponsorship to advocate for policy changes.
- Establish robust governance to integrate decarbonization goals into investment strategies.
- Set clear reporting standards and ensure that each organization develops a pragmatic, step-by-step approach, adapted and aligned with its maturity level and specificities.
Expertise sharing
- Provide access to specialized knowledge through internal or external expertise.
- Showcase best practices from peers actively advancing in their decarbonization efforts.
Value chain engagement
- Encourage decarbonization practices across the entire value chain of portfolio companies.
- Support companies in engaging their value chain partners by informing them about decarbonization strategies.
Financial backing
- Provide financial support and incentives to help companies balance decarbonization costs, fund R&D, and launch pilot projects.
How can AXA Climate help you in your journey?
Numerous standards, methodologies, frameworks, initiatives, and tools set out common practices around decarbonization (e.g., SBTi, NZIF, NZTP, NZAOA, NZAMI, etc.). While a common language around decarbonization is essential, we believe that leveraging these existing frameworks to tailor a decarbonization strategy is crucial for an actionable plan. Processes and decarbonization levers can vary significantly, even within the same investment sector, depending on individual portfolio companies and specific funds.
At AXA Climate, our role is to guide and encourage thoughtful consideration of criteria relevant to each partner’s unique context, respecting their singularity, and approaching decarbonization as pragmatically and transparently as possible.
Therefore, for several months, we worked with Abenex, a longstanding player in the Small and Mid-cap private equity market. In line with its commitment to the SBTi, Abenex actively supports the decarbonization of its own activities at GP level and across its portfolio. For its portfolio companies, Abenex needed to understand the decarbonization potential by sector of activity relevant to its portfolio: which have the highest decarbonization potential? What are the hardest to abate?
Our approach categorized Abenex’s investee companies in ten sectors, based on their activities. To gain a comprehensive understanding, we specifically evaluated decarbonization levers in terms of their relevance for Abenex’s portfolio companies and investment teams, as illustrated in the snapshot of our study below. This was achieved by assessing the maturity, complexity, and decarbonization potential of each lever, and placing these factors in the context of the sector’s share in global emissions and average emission trends.
This approach was then complemented by deep-dive assessments and the development of ad-hoc decarbonization plans for selected portfolio companies, to be further scaled over time. This reflects Abenex’s sustainability leadership and its long-term commitment to responsible investment.
“We are proud to support our portfolio companies in implementing impactful sustainable measures towards decarbonization. The Abenex Sustainability Team provides strategic and operational support, ensuring commitment, impact and value creation to make an ever-greater future, positively contributing to society” comment Julie Petithomme, Sustainability Director and Sandra Pekle, Sustainabilty Associate at Abenex. “
To find out more about Abenex and its strong commitment to sustainability.