In November 2022, Neuberger Berman presented 11 key issues asset owners who are interested in the net zero transition should take into consideration now, as well as the significant challenges that come with solving for them across all phases of the net zero transition (see Key Considerations When Navigating the Net-Zero Transition). Although private equity is a key piece to the net zero transition puzzle, the obstacles within private equity are unique to the asset class and the best practices are still in development. At a high level, one of the drivers is limited, inconsistent ESG and climate data disclosures, which makes measurement and setting targets particularly challenging.
In this paper, we outline some of these challenges and the work NB Private Equity undertook to address them by developing tools to potentially assess climate risk and net zero alignment of a private equity portfolio.
The Net Zero transition is a marathon, and it is a collective marathon where systemic change is required. At this stage, NB Private Equity remains focused on what is within its control by encouraging greater disclosure of climate data, while developing estimation tools and methodologies to inform engagement on climate-related topics and address current gaps in the market. We acknowledge we are still in the early stages of the climate transition including investor education. Our initial work has helped us to better understand and consider how we can address questions the broader industry is facing. Ultimately, dialogue with private equity managers also grappling with similar challenges will be key and we welcome the opportunity to engage in collaborative problem-solving on this important and material topic. Our role in helping to bridge LPs and GPs to align on expectations and timelines will be critical to drive action: meet the industry where it is and encourage practical tools to help the industry improve, step by step. GPs who lead in addressing the climate transition have the opportunity to distinguish themselves among peers to LPs who have set net zero targets. We continue to focus on encouraging climate data disclosures and contribute tools and guidance to the broader private equity industry, as the real change needs to take place at the portfolio company level, and only then, can an investor possibly realize net zero alignment within a private equity portfolio. We remain committed to helping our investors who are interested in assessing the progress of private equity managers on their climate initiatives and are also committed to helping the private equity industry up the curve and to drive improvements that ultimately can create value.
The use of ESG factors could result in selling or avoiding investments that subsequently perform well or purchas
As used in this document, NB Private Markets consists of the following investment strategies that are classified as ESG-Integrated by the Neuberger Berman ESG Product Committee: Private Equity Investment Portfolios and Co-investment Platform, Private Equity Secondary Platform, Almanac ARS Funds, Private Credit Platform, Marquee, NB Insurance-Linked Strategies Platform, Renaissance, Athyrium, and NBAIM Fund-of-Funds Platform. Unless explicitly noted, the ESG integration processes described in this document apply solely to the Private Equity Investment Portfolios and Co-investment Platform and Private Equity Secondary Platform (“NB Private Equity”).
This material is intended as a broad overview of the portfolio managers’ style, philosophy and process and is subject to change without notice. Many of the-firm level processes described herein are subject to Neuberger Berman’s policies and procedures, including certain information barriers within Neuberger Berman that are designed to prevent the misuse of material information between the NB Private Markets teams and the public side investment and ESG teams.
Neuberger Berman Net Zero Matrix™ Disclaimer
In 2022, Neuberger Berman (“NB”) engaged Ortec Finance (“Ortec”) to assist in the production of the Neuberger Berman Net Zero Matrix™ powered by Ortec Finance ClimateALIGN (“the Matrix”). The resource is intended as an educational tool to engage with GPs to understand net zero alignment and decarbonization pathways with portfolio companies. The Matrix is comprised of information from Ortec and a variety of other sources. Specifically, Ortec ClimateMAPS and Ortec ClimateALIGN comprise key portions of the Matrix. Ortec ClimateMAPS seeks to capture exposure to systemic, economic and financial climate risks. Ortec ClimateALIGN purports to monitor alignment with net zero goals by 2050, based on sector and region. Ortec also contributes emissions data from public sources. Please see the Ortec Finance Disclaimer for additional information.
Please note that the Matrix relies on information provided by Ortec and other third party sources. Neither Neuberger Berman nor its affiliates make any representation or assume any responsibility as to the accuracy or completeness of such information. Please also note that the assumptions referenced above represent key components of the Matrix and any change in these assumptions may produce materially different results. It should also be noted that much of the information depends on publicly available ESG data, and the same information may not be available for private companies. As such, there should be no reliance placed on the Matrix in making any investment decision. Please see the Summary Risk Factors and Disclaimers at the end of this presentation, which are an important part of these materials. The Matrix is presented for illustrative and educational purposes only and is not intended as a promise or prediction of performance.
ORTEC FINANCE DISCLAIMER
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Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
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