TCFD reporting project
Since 2018 we’ve been working to take our climate reporting to the next level, by developing a pioneering new climate mapping tool with global consultancy ERM.
ERM is a leading, global sustainability-focused management consultant:
working with leading organizations, including 50% of the Fortune 500 companies in the past five years
across in excess of 160 offices in more than 40 countries
Private markets fund managers, investors and lenders
around the world supported with ESG efforts
ESG assessments conducted annually
for private equity managers portfolio companies
Sole consulting firm engaged by the TCFD
Engaged by the UN PRI private equity working group to create LP-GP reporting guidance
We’ve spent much of the past year testing the tool across our infrastructure portfolios, where it is already providing us with important data on the risks – and opportunities – associated with climate change across the sectors and regions in which we invest. At its core, the tool is a sophisticated heat map that helps us to understand where, and when, climate change could impact our infrastructure assets. As the project develops, we will aim to embed the data into our investment due diligence processes – and into client reports, supporting transparent reporting that is in line with the TCFD recommendations. More generally, it will also help us to provide better intelligence to our clients.
Specifically, the tool aims to quantify risks and opportunities across 20 infrastructure sub-sectors (accounting for 90%+ of Pantheon NAV) within two risk areas related to climate change:
The output of this is analysis is a report containing a wide range of rich and actionable data that gives our investment teams and clients unique insights into the climate risks across our portfolios (see image). In general, the physical risk ratings emphasize the growing climate threat to company operations over time, with investment opportunities in the market concentrated in areas such as renewable energy. On the transition risk side, some of the greatest risks are shown in the medium term, with opportunities developing over time in sectors such as renewables and digital infrastructure.
We have also worked with ERM to synthesize estimates of greenhouse gas emissions of our infrastructure portfolio companies where the underlying manager does not yet provide such a number, the outputs from which we will share with clients shortly.
Our next steps
This is just the beginning for our efforts in this area. Over the next year or two, we will continue to test and develop the system and the risk mapping – and, as noted above, we will integrate the data into our investment processes and client reports. This latter is critically important to meet one of the primary aims of the project, which is to elevate our reporting to the gold standard of transparency in line with the recommendations of the TCFD.
Among the data that we are able to collate and that will form part of the client reports are:
Exposure in both NAV and amount committed to transitional climate risks and opportunities, broken down by portfolio company, fund manager and sectors
Exposure in both NAV and amount committed to low, medium or high physical climate risks, broken down by portfolio company, fund manager and sector
Breakdown by NAV and number of portfolio companies according to specific climate hazards they are facing by 2030 and 2040
Beyond that, we of course want to roll this out across our private equity program. This is a far more complicated and time-consuming exercise, as these portfolios are spread over a wider array of more disparate sectors that have more complex and indirect impacts related to climate change. But now that the fundamental building blocks and principles have been established, we know what is possible and how to make it happen. We will look forward to bringing you further updates as the project develops in the coming months and years.