Investors in privately held companies are facing new pressure from institutional investors on environmental standards, particularly related to climate. Their individual investors are increasingly interested in holding their portfolios to some kind of “green” standard, often referred to as sustainable or responsible.
An investor’s motivation can range from climate activism to managing infrastructure risk in the event of extreme weather, and many things in between. Just last week, Moody’s announced a “framework to assess carbon risk” including policy vulnerability. As a result, of these drivers, the institutional investors are passing those expectations on to their portfolio companies, including oil and gas private equity firms. The private equity companies are going to pass them along to you.
Today, you will most often hear these efforts described in the short hand “ESG” for “environmental, social, governance.”
The first volley comes as a checklist or interview process. The investing world has not settled on a common name, approach, or scope — so companies often must respond to queries in different forms. An entire consulting world has sprung up to both assess companies and help them improve their score, often using a one-size-fits-all checklist approach.
For oil and gas, the trend began first in western Europe, trickled into Canadian oil and gas, and is now coming to an investor in you. Some more sophisticated investment entities began tracking the carbon intensity of their investment portfolio a few years ago. Although their approaches are confidential, you can get a feel for this kind of assessment following Adam Brandt’s work at Stanford.