Bain & Co. and CDP: Decarbonising Private Equity Owned Firms

Private equity (PE) firms are under growing scrutiny to tackle environmental issues and integrate sustainability into their investment approaches. 

Research from Bain & Company with CDP examining 824 PE-owned companies disclosing environmental and climate impacts through CDP looks at the progress, challenges and the strategies employed by frontrunners.

The research found five key actions that firms leading in decarbonisation are doing differently. 

“Decarbonisation is underway,” said Radhika Mehrotra, Associate Director Capital Markets at CDP, on LinkedIn.

“Leaders are leveraging and enhancing business outcomes – for their investors, clients and portfolios.”

How PE firms are tackling emissions reductions

Between 2021 and 2023, PE-owned companies showed gains in reducing their carbon footprint, with a median decrease of 5% in Scope 1 emissions and a significant 26% drop in Scope 2 emissions. 

The report says that these reductions translate to real business benefits, including improved operational efficiency, reduced carbon taxes and enhanced customer offerings.

Challenges persist, particularly with Scope 3 emissions.

Median Scope 3 emissions for PE-owned companies rose by 15% during the same period. 

This rise may reflect more comprehensive reporting, as companies broaden their disclosures and refine data collection. 

The reliance on grid decarbonisation for Scope 2 reductions poses a challenge, as demand for clean energy may strain electrical grids' capacity.

What do decarbonisation leaders do differently?

The report says firms that succeed in decarbonisation balance environmental goals with business realities, implementing both cost-saving measures and long-term investments in resilience and innovation. 

These five practices are common among decarbonisation leaders:

1. Balancing business value and climate impact
2. Setting science-based, absolute targets
3. Direct decarbonisation goals to operational leaders
4. Supply chain collaboration on scope 3 emissions
5. Holistic risk management with climate integration.

Successful companies are integrating decarbonisation into their core business strategy, prioritising initiatives that reduce emissions and enhance financial performance.

Companies implementing initiatives to reduce fugitive emissions saw a median reduction of 47 tonnes per million dollars of revenue between 2021 and 2023, compared to an increase of 6 tonnes for those without such initiatives.

“Among the top carbon reducers studied, 35% set science-based reduction targets, compared to just 16% of low performers,” the report says.

How can PE firms start to decarbonise?

For PE firms and portfolio companies seeking to accelerate decarbonisation, the report recommends:

• Assessing performance: Establish a carbon footprint baseline and formally disclose climate goals, results and risks. 
• Mapping a decarbonisation pathway: Set clear targets and prioritise initiatives based on business value.
• Communicating effectively: PE firms need to engage closely with portfolio companies, and both investors and portfolio companies should highlight decarbonisation achievements and associated financial benefits.

The report says: “We are in a dynamic moment. Yet one thing remains clear: Long-term decarbonisation is an important value driver in PE portfolios, and leaders are finding ways to ensure strong business outcomes.”

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