Decarbonisation in the private-equity (PE) sector is gaining in importance, with the number of PE-owned companies disclosing their climate impact rising by 55%, new research from Bain & Company and CDP has found.
As part of a study of 824 of these portfolio companies, Bain found a median 5% decrease in Scope 1 emissions and a 26% drop in Scope 2 emissions between 2021 and 2023. However, median Scope 3 emissions for PE-owned companies rose 15% in the same period.
‘Successful decarbonising firms balance climate impacts with business realities,’ Bain & Company said. ‘Immediate cost-saving measures such as optimising delivery routes coexist with long-term investments in resilience and innovation. Up-front costs are accepted for the opportunity to strengthen customer relationships, enhance employee engagement, and access emerging low-carbon markets.’
Bain has outlined five key actions that PE firms and their portfolio companies can take to drive decarbonisation efforts effectively:
1. Align business value with climate impact
Successful companies integrate decarbonisation into their business strategy by prioritising initiatives that simultaneously reduce emissions and create financial value. This includes setting goals, tracking progress, and launching targeted initiatives to lower greenhouse gas emissions.
‘Among the 824 companies we examined, those that implemented initiatives to reduce fugitive emissions—gases or vapours unintentionally released by industrial processes, equipment, or facilities—achieved a median reduction of 52 tonnes per million dollars of revenue between 2021 and 2023,’ Bain noted. ‘That compares to a median increase of 7 tonnes for those without such initiatives’.
2. Set science-based, absolute targets
Establishing clear, measurable emissions-reduction targets can improve accountability and progress. According to Bain, companies with long-term (10+ years) and near-term (5-10 years) targets tend to achieve more significant reductions.
‘Of the companies examined by Bain, 43% had long-term targets, 60% had near-term targets, and 21% had both,’ it noted. ‘Those with absolute targets that aim to cut emissions by a fixed amount outperformed those with intensity targets focused on reducing emissions relative to a business metric such as revenue per unit.’
3. Assign decarbonisation goals to operational leaders
Decarbonisation efforts succeed when operational leaders are directly accountable, according to Bain, with this alignment ensuring that those closest to the action drive results.
‘Having an empowered chief sustainability officer (CSO) with deep expertise pays particular dividends,’ says Bain. ‘Among the companies Bain studied, those with CSOs overseeing decarbonisation outperformed the companies that had more traditional roles, such as CEOs or CFOs, overseeing these efforts.’
4. Collaborate across supply chains on Scope 3 emissions
Reducing Scope 3 emissions requires ‘deep partnerships’ with suppliers and customers, Bain noted, adding that companies that actively engage with the various actors along their supply chain on emissions reduction tend to outperform their peers.
‘Among manufacturers in the top quartile of Scope 3 emissions reduction, 92% are working with suppliers to abate emissions,’ it added. ‘Seventy-six percent of top-quartile retailers and 84% of top-quartile manufacturers are actively engaged with customers on the topic.’
5. Integrate climate risk into risk management
Climate risks, ranging from reputational damage to physical disruptions, should be incorporated into a company’s overall risk management strategy, with Bain highlighting the example of Constantia Flexibles, which engineered and built a protective floodwall close to one of its manufacturing plant. This proved a valuable defensive measure during a significant flood in October 2024.
‘Incorporating climate considerations into risk assessments can unlock climate-related financial and operational benefits while mitigating potential losses,’ said Bain. Read more here.
