Top Five Carbon Footprint Questions Asked by Private Market Investors, Answered


A carbon footprint is a tool for measuring the greenhouse gas (GHG) emissions for various entities including organizations, individuals, or processes. It is a picture of how many tons of CO2eq any given entity emits when in operation.

It allows firms to identify:

  1. Processes that contribute to carbon emissions
  2. The entity that is responsible or dependent
  3. Which entities emit the most GHG
  4. An action plan to reduce emissions, once identified

Measuring GHG emissions for privates markets investors is often more challenging than corporations think because the assets within their funds can be varied and exist within diverse industries. In this article, we’ll be breaking down carbon emissions and evaluating them from the lens of a privates market investor to answer the following questions:

  1. What is not a carbon footprint?
  2. What does Scope 1, 2, and 3 mean?
  3. How is GHG emissions data calculated to become decision-useful?
  4. What are the main steps for privates markets investors to complete a carbon footprint analysis?
  5. How can privates market investors use a carbon footprint to implement a climate strategy?
  6. What does a carbon footprint look like for privates market investors?

What is not a carbon footprint?

Carbon footprint should not be confused with:

  • An analysis of the different impacts of a company on water, soil, etc. This is called a life cycle analysis.
  • A direct identification of a company’s good practices. This is either a comparison of two carbon footprints or a calculation of the reduced emissions of a product/service relative to the emissions of a reference product/service.
  • An action plan to reduce its emissions. This is to be carried out after the carbon footprint analysis is complete.

What does Scope 1, 2, and 3 mean?

The measurement of GHG emissions gets more complex as you move up the scopes.

Scope 1 – Direct emissions (e.g. How much GHG does this factory create in a year? How many trucks does the company have on the road?)

Scope 2 – Indirect activities (e.g. How much electricity does it take to keep the lights on? How much fossil fuel is used to air condition a plant in Texas in August or heat a plant in Vermont in January?)

Scope 3 – Indirect activities upstream or downstream (e.g. What happens to all the paper cups my asset produced last year? What is the GHG emission for flying my sales team to an offsite?)

It is important to consider all upstream and downstream activity for which the entity is responsible, but also all the processes for which the entity is dependent, (e.g. manufacturing of products purchased by the entity, electricity consumption related to the use of products sold by the entity or their end-of-life). Consider the graphic below from Greenhouse Gas Protocol.

How is GHG emissions data calculated to become decision-useful? (THE MATH)

To move from activity data (energy consumption, quantity of purchases, etc.) to GHG emissions, you must multiply the activity data by what are called emission factors. Emissions Factors, whose unit is kgCO2eq/unit of activity (e.g. kgCO2eq/kWh, kgCO2eq/kg, etc), can be found in public or paid databases. They are calculated by scientific groups or are the result of life cycle analyses of products carried out by companies, which are gradually added to these databases.

It is important to keep in mind that the emission calculations of a carbon footprint remain estimates, because it is rarely possible to find the exact emission factor of a product (up to 80% for emission factors are related to spending on products or services), therefore it is considered a general emission factor of a product category.

sources: Reporting21

Emission factors are used to convert activity data into a single unit and the impact of all these greenhouse gases are converted to the impact of CO2, using the carbon footprint unit kgCO2eq. This means, for example, that for methane, which has the same climate impact as 25kg of CO2, one kilogram of methane emitted into the atmosphere is equal to 25 kilograms of CO2eq.

What are the main steps for private markets investors to complete a carbon footprint analysis?

  1. Definition of the parameters

The parameter definition phase should not be skipped over or undervalued. A carbon footprint only makes sense if the parameters are clearly defined. It creates the map of what will be included in the calculation and allows analysts to accurately trace the activities responsible for GHG emissions.

  1. Data collection

Once the parameters are defined, the relevant activity data points to measure them are defined (e.g. quantity of products purchased, quantity of fuel consumed, etc.) and which are available by the company (e.g. if the company does not have access to the quantities of fuel consumed, then it can collect the data distances travelled).

Because private markets investors work with various departments within a single company or asset, and then across multiple companies or assets, it is important for the investor to group data into one place with a rolled-up view of the whole fund or portfolio.

  1. Calculations and results

Once the data is collected, analysts will then identify the emission factors for each data point and multiply them by the activity data to come up with the CO2eq. Finally, the results are added together into a consolidated carbon footprint.

How can private markets investors use a carbon footprint to implement a climate strategy?

Once the carbon foot printing exercise is complete, firms can begin to use the data to drive their decisions. It is not enough to simply see the data without putting in place a strategy to reduce emissions.

But don’t be discouraged! A climate strategy is not an overnight process. This strategy can include a climate trajectory, which can be represented as a percentage reduction in GHG emissions that is set for 5 or 10 years, for example. This percentage can be defined using recognized methodologies such as the Science-Based Targets initiative, which allows to set a climate trajectory in line with the Paris Agreement.

What does a carbon footprint look like for private markets investors?

Let’s look at an example of a management company.

The main processes of a management company are related to its energy consumption, its purchases of services, and to expenses related to the management of the various funds (lawyer’s fees, consulting firm fees, etc.), the business travel of its employees, its rental of buildings and company vehicles, and its production of waste.

The carbon footprint of a management company must also include the carbon footprint of its investments, but it is common for investments to be excluded initially, and for their respective carbon footprints to be done in parallel before being included in the management company’s carbon footprint.

Although the mapping of emissions depends on each company, the flow map might look like this:

Mapping of the emission items of a Management Company

Sources: Reporting 21


When mapping, it is important to clearly specify the parameters considered and the exclusions that have been made, due to a lack of available data.

Once the data points have been collected and the calculations made, here is what a management company’s carbon footprint might look like:

Carbon Footprint of a Management Company

Sources: Reporting 21


Like almost all services companies, most of emissions are part of Scope 3, and are mainly linked to the purchase of services. It is important in this case to have specified in the mapping of the emission items that emissions linked to portfolio companies were excluded, because if they had been included, they would have represented the vast majority of the management company’s emissions.


The Corporate Sustainability Reporting Directive (CSRD): Another Step Towards Standardization

The Corporate Sustainability Reporting Directive (CSRD): Another Step Towards Standardization

Despite decades of growing focus on sustainability, ESG, and impact, the private sector is still flooded with instances of greenwashing – “the process of conveying a false impression or misleading information about how a company’s products are environmentally sound. Greenwashing involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.” This concept also applies to financial products, as well as social issues.

In 2018, the European Commission introduced its European Action Plan on Sustainable Finance, composed of 10 legislative workstreams meant to create standards and taxonomy to measure and communicate on sustainability.

Two major pillars affecting financial organizations came out of the European Action Plan these past years (among others):

  1. Sustainable Finance Disclosure (SFDR) and
  2. EU Green Taxonomy

These pillars require organizations to harmonize their sustainability practices, reporting and communication. Their implementation is not complete and will likely be ongoing for years to come, but the regulators have put an emphasis on their fight against greenwashing, while evaluating what has been published over the past months.

The European Action Plan also has something in store for the companies, key actors in the transition to a sustainable economy – with the Corporate Sustainability Reporting Directive (CSRD). The Plan’s objective is to align reporting practices between financial and corporate players. Indeed, the SFDR, Green Taxonomy and CSRD are closely intertwined.

Sustainability issues are thus placed at the heart of European regulations and no economic actors can ignore them. A colleague at Cority recently posted a longer explanation.

The CSRD, which will be fully implemented in, revises the former NFRD (Non-Financial Reporting Directive) and shakes up the extra-financial reporting practices of European companies and moves towards greater transparency.

This revision project is ambitious and far-reaching, targeting four times as many companies as the previous regulation. It aims to homogenize and standardize the sustainable development reports of European companies, to better guide investors, and fight greenwashing.

Progressive entry into force: 2024 for EU-based companies already subject to the NFRD (large public interest companies with > 500 employees, > 20M€ balance sheet or 40M€ turnover) : the first sustainability reporting will be published in 2025 for the 2024 fiscal year ;  2025 for large companies listed on European regulated markets and EU-based companies meeting 2 criteria > 250 employees, > 40M€ turnover > 20M€ balance sheet ; 2026 for SMEs listed on European regulated markets ; 2028 for large non-EU companies meeting the reporting thresholds > 150M€ turnover in the EU.

What's Changing

Creating consistency

This harmonization includes the use of standardized reporting standards “ESRS” (European Sustainability Reporting Standards). The first set of these ESRS standards has been proposed by EFRAG to the European Commission in November 2022.

These reporting standards include KPIs from recognized standards such as the he ESRS also list  the PAI (Principal Adverse Impact) indicators required by SFDR, justifying the desire to harmonize reporting standards between financial and corporate players on a European scale.

Governance and oversight

Beyond listing quantitative and qualitative information, companies will also have to describe the sustainability issues governance, review their materiality matrix as well as present their business model and associated risks. The latter will have to integrate the principle of double materiality, a concept aimed at jointly studying the impact of the sustainability factors (environmental, social, human rights…) on companies (i.e.: sustainability risks) and the impact of the company on these factors (i.e.: principal adverse impacts).

Here’s an example:

  • Imagine a shoe company starts using a new type of plastic in their sneakers. There is one type of materiality that looks at the impact of the new plastic on the company itself – can they afford to use this plastic in the long term? What is the financial impact to the stock value?
  • Double materiality looks at the impact on elements outside of the company. Does the manufacturing of the plastic harm the workers producing it? Does this plastic biodegrade? What is the company’s plan for waste management? If someone wears the sneakers for 1-2 years, how many sneakers does the company expect to end up in a landfill throughout the lifecycle of the product?

These strategic and sustainability reporting elements will have to be published in a dedicated section of the management report, which companies will have to make public on their website. This will require the inputs from all departments, involving not only the CSR departments, but also the financial, accounting (companies must publish their taxonomy-alignment in their sustainability reporting), purchasing, and human resources departments, to sustainably modify the organization and value creation of companies.

12 draft ESRS requiring companies to identify their sustainability risks, mitigation policies and practices and report data on a list of mandatory KPIs based on the most material sustainability issues for each company. These sector-agnostic standards cover the following topics: climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy, own workforce, workers in the value chain, affected communities, consumers and end-users, business conduct (beyond general requirements and disclosures). Sector-specific standards will be added in 2023 and 2024. More information here.

Subsidiaries will be exempt from reporting if they are included in the parent company’s consolidated reporting.

Reporting tools.

Companies will need to have robust internal reporting processes, as 50% of the published data (both qualitative and quantitative) will be audited.

For companies already subject to the NFRD, the main task will be to integrate the CSRD requirements (in particular, considering the principle of double materiality in their business model, monitoring new indicators etc.). For companies reaching the new CSRD thresholds, the main task will be to set up new processes to identify and mitigate sustainability risks and adverse impacts, formalize policies and initiatives, and monitor and consolidaterequired KPIs.

How we can help.

Reporting 21 can help your organization focus on the essentials. Reporting 21 already assists many corporate clients – from listed large organizations to small companies new to the exercise – with sustainability advisory and reporting software implementation.

Contact us to learn more about our customized support based on the challenges and the level of maturity of your company.

Progressive transition to the reasonable assurance required by the CSRD (50% of audited published) compared to the DPEF in France which required moderate assurance (20% of audited published data). The reliability of the data will be guaranteed by the audit committee in place in the companies (if the governance in place includes such a committee). Shareholders (5%) may request an audit by an accredited ITO. Reflection is underway to also give lawyers the possibility to audit the data.

Key Takeaways from the March 2023 PEI Responsible Investors Forum

Key Takeaways from the March 2023 PEI Responsible Investors Forum

Key Takeaways from the March 2023 PEI Responsible Investors Forum

Earlier this month, we enjoyed a quick trip to New York for the PEI Responsible Investment Forum. It was great to connect with clients and industry leaders in person! We heard from several of our clients and their peers on ESG reporting considerations, portfolio company engagement, deal team collaboration, the regulatory outlook, and societal perceptions of our industry permeating national headlines. It was exciting and inspiring!

Among the observations shared, a few themes stood out to us:

It was unanimous – ESG isn’t going anywhere.

There is no such thing as bad publicity. Garnering media attention and eliciting backlash on the national stage means that our collective awareness is being raised, bringing ESG considerations front and center. The media tend to suggest that critics abound, but for each critic there are myriad proponents. The focus on ESG is being both sharpened and amplified. The value we create is here to stay.

Standardization or customization?

Efforts to standardize reporting for improved efficiency and scaled benefits, including benchmarks, stood at odds with interest in tailored metrics dependent on portfolio company industry or GP or LP priorities. Everyone wants the process to be easier – there are too many surveys and bespoke metrics – but not necessarily at the expense of attaining decision-useful ESG data.

Internal ESG resources remain scarce.

GPs and portfolio companies commented on the breadth and depth of data collection sought. They shed light on the herculean efforts and bandwidth (or lack thereof) required to accurately respond to data requests and effectively address action plans. LP/GP priorities and GP/portfolio company activities of greatest impact are not always aligned.

In certain cases, efforts to improve efficiency in the name of enhanced ESG performance on the part of the portfolio could result in wildly inefficient allocation of resources, not to mention placing an undue burden on a company that would rather direct those resources to more impactful activities core to their business (materiality is in the eye of the beholder).

The bottom line

LP/GP engagement with GPs/portfolio companies is fundamental to elevating ESG efforts that create real value. Connecting the team on the ground with those who consistently have a seat at the table can lead to more successful outcomes.

At Reporting 21, our team is ready to guide you through this tumultuous and exhilarating time for our industry. Our collective wealth of ESG and impact expertise can be deployed to help you tackle these and other challenges across your entire investment lifecycle.

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In a recent interview with Private Equity International, Reporting 21 senior consultants discussed ways the market has evolved in the last five years stating, “Large private markets investors feel they can no longer ignore ESG. There was still an opt-out five years ago, but now it has become essential for fundraising, with lots of questions being asked about how ESG is integrated into the investment life cycle. There is an ESG section in every fundraising deck.”

Why do private equity firms build sustainability strategies?

Why do private equity firms build sustainability strategies?

Sustainability has increasingly become a key focus for private equity firms. Having a sustainability strategy in place is not only a compliance requirement, but also a way to stay competitive in the market and attract top talent.

If your firm hasn’t yet taken the plunge into tracking and reporting its ESG data, here are a few simple reasons to get started sooner rather than later.

Compliance and Regulation

One of the main reasons for private equity firms to have a sustainability strategy is compliance. With the introduction of European regulations such as the Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainability Reporting Directive (CSRD) (applicable to portfolio companies), reporting on Environmental, Social and Governance (ESG) stakes is becoming mandatory. Having a framework in place to address these regulations can ease the task of compliance and ensure that all necessary information is readily available.

In the U.S., the lack of regulatory requirements means that it’s not necessarily mandatory for private markets investors to disclose ESG information. However, many GPs do business in Europe, have European assets in their portfolios, or employ European companies as part of their supply chain.


Another important reason is market evolution. More and more companies are implementing sustainability strategies, making it a standard and criteria for investors. By having a sustainability strategy in place, private equity firms can stay ahead of the competition and attract more investors who are interested in sustainable investments.

Investor Expectations

By demonstrating to GPs and LPs that the firm takes ESG data into account, private equity firms can answer growing expectations from shareholders who themselves are subject to ESG regulations.

Some investors are not only asking for data but also asking for portfolio company data. Even though they have invested in a fund, they don’t just want consolidated data, they want to get into the granular detail from the bottom up. There is a real hunger for data in the private markets, unlike the public markets where we now arguably have too much data.

Brand Reputation

Sustainability strategies can also lead to better employee engagement and improve an employer’s brand. By showing employees that the firm prioritizes ESG data, they may feel more committed to the company and more motivated to work towards its goals. Additionally, an improved employer’s brand may attract top talent who are interested in working for a company that cares about sustainability. This is particularly true of younger generations just entering the workforce, 90% of whom are willing to earn less money to do more meaningful work

Market Trends

Lastly, by enhancing innovation and anticipating market trends, private equity firms can stay ahead of the competition and be better positioned to capitalize on new opportunities.

Overall, having a sustainability strategy in place is becoming increasingly important for private equity firms, as it helps them to stay compliant, stay competitive, and create value for all stakeholders.

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In a recent interview with Private Equity International, Reporting 21 senior consultants discussed ways the market has evolved in the last five years stating, “Large private markets investors feel they can no longer ignore ESG. There was still an opt-out five years ago, but now it has become essential for fundraising, with lots of questions being asked about how ESG is integrated into the investment life cycle. There is an ESG section in every fundraising deck.”

Top 5 PE ESG Priorities for 2023

Top 5 PE ESG Priorities in 2023

On January 10, 2023, Private Equity Wire hosted a webinar, Top 5 PE ESG Priorities in 2023: How should GPs define, recalibrate and improve ESG policies over the next 12 months, with the following panelists:

Here are the five key takeaways from the discussion.

1. Regulation is the bare minimum

Regional regulations are incredibly important – but they aren’t what’s driving the surge in ESG data collection. The Securities and Exchange Commission (SEC) is expected to publish new ESG rules in March 2023, but, according to the panelists, private markets investors need to think about ESG reporting whether or not there is government regulation.

Sanaz Raczynski

“We don’t [measure ESG] just because regulation is asking for it, it’s also the supply chain partners of our portfolio companies – we’re mid-market. A lot of these larger corporations have requirements of their own. We’re not going to change our process just because a regulation is not going to go a certain way or if the SEC proposal changes significantly in March when it’s finalized. Our process and data collection is going to stay because it’s future proofing the business and we’ve started reporting on this data to the supply chain and the customers.”

2. Decision usefulness

Not so long ago, there was virtually no universal way to track ESG key performance indicators with individual companies scrambling to understand materiality and data collection. Now, the infrastructure is there, but firms struggle to decide what data to collect with different stakeholders requiring different metrics.

Anne Matusewicz, CAIA

“Only collect “decision useful” information. We work with clients and they want to ask a ton of questions to their portfolio companies. Step back – what is most relevant? Think about materiality, but also understand, how are you going to use this data? How are you making sure it’s consistent?

And when we think about linking up questions that are already asked eight different ways, how can we make that consistent, both for how the portfolio companies are responding and how all the GPs are analyzing that data?”

“Reporting is not the purpose, it is the output of your strategy. “

Heidi DuBois

3. From ESG to impact

What is ESG? ESG data collection is a start. What you do with the data is what’s important and this is where LP requirements are headed. Having an ESG policy at your firm is tablestakes.

Heidi DuBois

“You can capture the ‘what’ today – Yes, I have a policy. Yes, it has these components to it. Often in meetings about ESG you’ll hear questions about ‘how.’ What are you doing on the ground to implement this? … You can sign up to an initiative but being actively engaged is the proof in the pudding.”

4. Standardizing the standards for portfolio companies

Sometimes companies have poor ESG practices, which then involves education and developing a plan for improvement. If ESG risk mitigation is not possible, investors are not afraid to walk away.

Sanaz Raczynski

“Our goal is to ensure “non-financial” factors are included in the valuation process and they’re not overlooked. If we’re looking at company that is scoring poorly on ESG, that’s okay, we’ll make the acquisition and I have a plan to improve ESG performance and the cost of what it takes to make that improvement should be accounted for (in valuation). And there are places where I’ll say it’s production is something we can’t mitigate so we walk away from [the acquisition].

5. Translating ESG into value

Adoption of ESG best practices is a combination of education, governance, and value creation. Start with low-hanging fruit – for example, can a company save money on energy costs and improve ESG metrics at the same time? At the end of the day, private markets investors want to create value and see their investments flourish so it’s about proving the value of ESG rather than an exercise in checking-the-box.

Heidi DuBois

“It goes back to governance – like most things do. Portfolio companies, in my view, should be going to their boards with their plan at the beginning of the year. Mid-year, how it’s going, what the unexpected roadblocks are, where they’re making inroads. And then an end of the year assessment. That is a function of the boards paying attention and having that expectation from management.” 

What's next for ESG in private markets?

“From a thematic perspective, climate is going to continue to drive the agenda as well as representation in the workforce.”

Sanaz Raczynski

Heidi DuBois

“There are a lot of bad things happening in the world, but there are a lot of good things happening, too. I think it’s an amazing time to be alive and be in business. If you step way, way back, we’ve had an industrial revolution, a digital revolution that’s continuing, maybe we’re having some sort of low carbon revolution. If that trajectory continues, whole new businesses will be created.”

Mike Bridge

“For those waiting for a convergence of frameworks and clear standards, you can’t wait. You just need to get started.”

“We’ll see an understanding of where you stack up as GP, where do your portfolio companies stack up? An increase in understanding of benchmarking and what is a relevant comparison.”

Anne Matusewicz, CAIA

Watch the full discussion