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Carlyle’s net-zero pledge sets standard for US firms

More pledges are likely to come after Carlyle became the first high-profile US private markets firm to formalize an emissions plan aligned with a net-zero target.

Carlyle pledged on Tuesday to achieve net-zero greenhouse gas emission across the private equity firm’s investments by 2050.

The commitment is the first among the US’s publicly traded PE mega-firms, and it comes as all sectors of the global economy face pressure from governments and investors to make business changes accounting for climate change.

In addition to the net-zero target for investments, Carlyle set near-term targets for majority-owned companies in the firm’s private equity, power and energy portfolios to be covered by Paris Agreement-aligned climate goals for Scope 1 and 2 emissions by 2025. For future investments afterwards, majority-owned portfolio companies must reach the same goal within two years.

Kewsong Lee, Carlyle’s chief executive, described the firm’s emissions reduction strategy as “investing, rather than divesting”, considering the time needed to decarbonize a company’s operations typically takes longer than a private capital managers standard hold period.

“Not only does this strategy have a higher carbon reduction potential, but it is also a key to making companies more competitive in a decarbonizing world,” Lee said in a statement.

Although Carlyle, which manages around $300 billion in assets, isn’t alone among US private equity firms that have recently committed to reducing emissions, the firm is the largest so far to make a net-zero pledge.

Apollo Global Management is “in the midst of developing an enterprise-wide climate strategy”, Dave Stangis, the firm’s chief sustainability officer, told affiliate publication New Private Markets, adding that a net-zero framework would complement ongoing efforts to work with portfolio companies to reduce emissions.

Blackstone, which has committed to a 15 percent emissions reduction target for its portfolio companies, is “focused on active decarbonization and resilience”, according to a spokesperson. The firm is also looking at net-zero commitments it can make for its portfolio. Last month, Blackstone also announced a sustainability-focused credit platform and plans to invest $100 billion over the next decade in the energy transition

A spokesperson for KKR pointed to recent climate-related industry pledges the firm has made including to the Initiative Climat International, an investor group studying ways to manage risks associated with climate change. The spokesperson said KKR is “continuing to actively evaluate future public commitments related to net zero pledges”.

TPG is “rapidly decreasing” its fossil fuel exposure to zero, according to a spokesperson for the firm, adding that TPG “expects to make continued progress to that goal in short order” while continuing to deploy the $8 billion raised for Rise Climate Fund launched last year.

Private equity firms across global markets received further guidance this week from the Institutional Investors Group on Climate Change, which launched a new framework for LPs and GPs to align their portfolios to net-zero emissions by 2050.

While Carlyle is the first of its large, listed US peers to set a net-zero target, elsewhere in the private equity industry – notably in Europe – a group of managers is a little further along on their emissions reductions plans. Seven firms have received approval for their emissions reduction targets by the Science Based Target initiative.

Beyond environmental commitments, Carlyle has recently sought to take a leadership position for ESG initiatives among private markets investors. Last week, the firm announced that the data-sharing initiative launched with the California Public Employees Retirement System now counts more than 100 pledges from institutional investors and capital managers.

Carlyle and CalPERS co-founded the ESG Data Convergence Project last September to create a “long-term mechanism for improving comparative reporting” of ESG data, according to a statement. The initiative is collecting data related to six ESG metrics including GHG emissions, renewable energy, board diversity, work-related injuries, net new hires and employee engagement.