Project Case Study
Greenhouse Gas Accounting Assessment for PE Fund Portfolio
Challenge
A large Private Equity Fund with over $50 billion in assets under management was concerned about the accuracy of Greenhouse Gas Emissions accounting across a portfolio of over 40 global companies, as well as the individual companies’ regulatory risk related to GHG emissions disclosures. The funds concerns were exacerbated by an increasingly complex regulatory environment that would likely require them to report on Scope 3 Category 15 – Finance Emissions, the emissions from their investments. For the fund to properly measure its financed emissions, it requires highly accurate scope 1 and scope 2 emissions from its portfolio companies.
Solution
FSI was engaged to craft a survey, with input from the ESG lead at the PE Fund that would gauge the accuracy of each company’s GHG emissions, and their regulatory risk based on their geographic footprint. FSI distributed the survey across the portfolio, gathering company specific information on a variety of inputs including, but not limited to:
- In-house expertise of GHG accounting
- Insourcing v outsourcing of GHG accounting
- Technology utilization
- Data Quality (actual data v estimates)
- Resources expended (dollars and time)
FSI collected the accuracy and regulatory risk inputs and then applied a proprietary score to the results to plot each company on an X (accuracy) and Y (regulatory risk) axis, dividing the portfolio companies into 4 quadrants – high accuracy/low risk, low accuracy, high risk, high accuracy/high risk, low accuracy/low risk – enabling the PE Fund to take steps to close the accuracy gap in light of emerging regulatory risk.
Impact
The company achieved a new level of clarity and alleviated blind spots across its portfolio related to GHG emissions accuracy. While nearly all the portfolio was reporting on its emissions, the degree of accuracy and confidence across the portfolio was highly variable. FSI developed company-by-company tear sheets that highlighted areas of improvement that they could address to improve the accuracy of their emissions and get ahead of future regulatory risk in the US, and Europe.
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