The path to Net Zero and the role of private equity and venture capital

“The BVCA supports the objectives of the Paris Agreement and welcomes the commitment from the UK and a growing number of major economies to achieve Net Zero by 2050.

As the representative body for UK private equity and venture capital – an industry that supports many thousands of businesses across the UK and worldwide – we want to see our members deliver on their own Net Zero goals and support climate transition around the world.

We are working with our members to make that commitment a reality through the investments they make, the development of consistent standards, the adoption of technology and innovation, and the commitment to industry and global initiatives such as the UN Race to Zero.”

The BVCA’s position on climate change and Net Zero

The BVCA is committed to ensuring that the UK’s private equity and venture capital industry plays a leading role in global efforts to eliminate the causes and combat the effects of climate change. As either majority or significant minority owners, principally of unlisted, small or medium-sized businesses, PE/VC funds managed by BVCA member firms are well-placed to drive the low carbon transition in areas of the UK and global economies that public markets cannot reach.

Investing in solutions

Our members’ funds are finding and helping to grow innovative UK and global businesses that offer solutions to the world’s climate problems, investing in portfolio companies that are, for example, commercialising electric motors that protect rare earth minerals, making hydrogen power more efficient and available for consumer use and developing the technology for sustainable electric air travel.

Collaborating to drive down emissions in the real economy

Our members are also invested in over 5,000 UK companies and are actively supporting these businesses to reduce their greenhouse gas emissions. Over 100 (and counting) UK and European-based PE/VC firms, representing more than $700m AUM, have joined the UN PRI-backed Initiative Climat International (iCI).

iCI fosters industry-wide collaboration amongst PE/VC firms in achieving the objectives of the Paris Agreement through public commitments, knowledge sharing and the development of tools to help firms measure and report on their portfolio companies’ carbon footprints, and set science-based emissions reduction targets.

Many other BVCA members, investors and fund managers alike, have joined international initiatives with similar aims, such as the Institutional Investors Group on Climate Change or Ceres.

Making Net Zero a reality

The BVCA actively encourages the PE/VC fund industry to continue deepening its engagement on Net Zero and broader climate issues, including through engagement with initiatives such as iCI, IIGCC and Ceres. These focus on collecting data, agreeing common methodologies and sharing best practice to make Net Zero a reality. The Investor Climate Action Plans Expectations Ladder and Guidance also offers an inclusive framework for firms at different stages of their climate journey. As well as building the necessary climate-related knowhow, these networks offer pathways that PE/VC firms can follow towards making their own Net Zero commitments or joining broader climate initiatives, such as the Net Zero Asset Managers Initiative (a partner in the UN Race to Zero Campaign). Over 20 BVCA member firms, GPs, LPs and service providers alike, have already joined the Net Zero Asset Managers Initiative, including the following PE firms: Bregal Investments, Bridges Fund Management, Brookfield Asset Management, Earth Capital, Hg, ICG, Macquarie Infrastructure and Real Assets, Pemberton and Tikehau Capital.

Industry-specific tools

A critical piece of the Net Zero puzzle for PE/VC firms, one not provided by Net Zero initiatives aimed at the broader asset management sector, is a technical toolkit designed for the specific characteristics of PE/VC fund industry. Achieving Net Zero emissions, for closed-ended funds¹ pursuing multi-year growth strategies across portfolios of mostly unlisted SMEs, depends on the availability of specific PE/VC-focussed methodologies for obtaining and analysing the metrics required to set robust, science-based climate targets.

This is why the BVCA fully supports the collaboration between iCI and the Science Based Targets Initiative (SBTi) on new, sector-specific guidance that allows PE/VC firms to set comparable and achievable science-based climate targets. Several BVCA firms have already had targets approved or plan to in the next two years. As PE/VC-specific frameworks like the SBTi sector guidance and iCI’s work on carbon footprint measurement are finalised and put into practice, an increasing number of BVCA member firms are likely to see meaningful pathways towards Net Zero.

As consumer demand, investor preference and sustainability regulation increasingly reflect the urgency of the climate emergency, our member firms are keenly aware of their responsibility as stewards of thousands of UK businesses and the opportunity to play a vital role in the transition to a Net Zero economy. The BVCA will continue to support the PE/VC industry in shouldering that responsibility and seizing that opportunity, by signposting resources and networks that will help and encourage our members to fulfil their potentially enormous contribution to achieving the world’s Net Zero ambitions.

¹ A closed-ended fund is one where an investor cannot withdraw their money until after a certain time period, e.g. 10 years.