PRIVATEEQUITYSECTORSCIENCE-BASEDTARGETGUIDANCEVERSION1.0NOVEMBER2021Version1.0November2021`1PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgPrivateEquitySectorScienceBasedTargetSettingGuidanceVersion1.0TableofContentsAcknowledgements........................................................................................................................................................................31.Executivesummary..............................................................................................................................................................61.1Highlights...........................................................................................................................................................................61.2Context.................................................................................................................................................................................61.3CalltoActionandCollaboration.......................................................................................................................71.4GuidanceAudienceandObjectives.............................................................................................................81.5SummaryTargetSettingRequirements...................................................................................................82.AboutThisGuidance...............................................................................................................................................................122.1PurposeofthisGuidance....................................................................................................................................122.2GuidanceDevelopmentProcess..........................................................................................................................122.3Guidanceaudience..................................................................................................................................................132.4Project/SectorContext........................................................................................................................................142.5WhatareScience-BasedTargets?.............................................................................................................173.BusinessCaseforthePrivateEquitySectortosetSBTs.....................................................................194.SBTiTargetValidationCriteriaandRecommendationsforPEFirms.......................................224.1GHGEmissionsInventoryandTargetBoundary.............................................................................224.2MethodValidity...........................................................................................................................................................244.3EmissionsAccountingRequirements.......................................................................................................244.4TargetFormulation..................................................................................................................................................254.5TargetAmbition.........................................................................................................................................................264.6Scope3–PortfolioTargets...............................................................................................................................274.7AnnualDisclosureandImplementationReporting.......................................................................304.8RecalculationandTargetValidity................................................................................................................315.HowtosetSBTsforPEfirms.....................................................................................................................................335.1Overviewofscope1,2and3targetsettingrequirements.......................................................335.2CompileaGHGinventory...................................................................................................................................33Version1.0November2021`2PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org5.3HowtosetanSBTforscope1and2emissions...............................................................................345.4HowtosetanSBTforscope3,categories1to14..........................................................................356.HowtoSetSBTsforScope3,Category15....................................................................................................366.1OverviewofAssetClassCategorizationandTargetSettingRequirements............366.2RealEstateandElectricityGenerationPrivateEquityInvestments................................406.3PrivateEquityDirectInvestments,IncludingBuyout,GrowthCapitalandVentureCapital.................................................................................................................................................................................................436.4Credit/privateDebt.................................................................................................................................................526.5SecondariesandFundsofFunds................................................................................................................557.HowtoCommunicateSBTs.......................................................................................................................................587.1Example:FormulatingaMulti-StrategyFirm'sTargetLanguage.....................................598.HowtoTrackTargetsandDiscloseProgress...............................................................................................618.1TargetTrackingandDisclosureforRequiredAssetClass.....................................................618.2GeneralDisclosureRecommendations..................................................................................................638.3Integratedreporting...............................................................................................................................................649.HowtoAchieveTargets................................................................................................................................................659.1IntegrationofClimateChangeinGovernance.................................................................................659.2Engagement.................................................................................................................................................................6610.DiscussionandAreasofFutureWork................................................................................................................6811.Glossary.......................................................................................................................................................................................7012.References...............................................................................................................................................................................78Version1.0November2021`3PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgAcknowledgementsThisGuidancewasprincipallyauthoredbytheSBTiandAnthesisGroup,aglobalsustainabilityconsultancy,withsupportfromtheinitiativeClimatInternational(iCI)inbothroadtestingandrefiningtheGuidance.iCImembersandtheiraffiliatedfirmsarepresentedintheprojectexpertadvisorygroupandfundersgroup.PrimaryAuthorsChendanYan,WorldResourcesInstituteMylesTatlock,AnthesisGroupTimClare,AnthesisGroupJakobSchenker,AnthesisGroupHannaWestling,AnthesisGroupAbouttheInitiativeClimatInternational(iCI)iCIwasthefirstinternationalinitiativeforprivateequityfirmsaimingtoaddressclimatechange.ItwasoriginallylaunchedastheiC20(InitiativeClimat2020)in2015byagroupofFrenchprivateequityfirmstohelpachievetheParisAgreement’sobjectives–limitglobalwarmingtowellbelow2degreesCelsiusandpursuingeffortstolimitwarmingto1.5degreesCelsius.iCIisaglobalcommunityofinvestorsseekingtounderstandbetterandmanagetherisksassociatedwithclimatechange.Memberscommittosharingknowledge,tools,experienceandbestpracticeamongpeerstohelpbuildandmanagebothclimate‐alignedandclimate‐resilientportfolios.iCIissupportedbythePrinciplesforResponsibleInvestment(PRI),andisaSupportingPartnerofTheInvestorAgenda.iCIisopentoallprivateequityfirmsandinvestorstojoin.Forfurtherinformation,pleasevisitPRI’swebsitetofindoutmore.ExpertAdvisoryGroupThefollowingindividualsprovidedexpertfeedbackanddirectiononguidancedevelopment.Theydidsoinapersonalcapacity,andtheirviewsdonotnecessarilyrepresenttheviewsoftheiremployers.AdamBlack,CollerCapitalAdinahShackleton,PermiraAlvardeWolff,BregalInvestmentsCarolineLőfgren,HgChloëSanders,CVCDaisyStreatfeild,InstitutionalInvestorsGrouponClimateChangeVersion1.0November2021`4PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgDavidKorngold,BSRDawnWolfe,BerkshirePartnersDazzleBhujwala,CeresEimearPalmer,ICGEmmanuelleSerhrouchni,EcoactEvaVogt,EMKCapitalFabriceBienfait,TheEnvironmentalTechnologiesFundGraemeArdus,TritonPartnersGustavMagnusson,EQTIrinaGilfanova,SchneiderElectricJamesMandel,BlackstoneJelenaStamenkovavanRumpt,AnthosFund&AssetManagementKatherineLampen,DeloitteLLPKenPucker,TuftsUniversityMichaelCappucci,HarvardManagementCompanyMichaelLindauer,AllianzCapitalPartnersNandiniHampole,BregalInvestmentsLLPPeterDunbar,PrinciplesforResponsibleInvestmentPhilippeSinger,LeadersforClimateActionRebeccaC.Svensøy,FSNCapitalPartnersSergeYounes,InvestIndustrialStephanieHubold,AltorThomasCarlier,PAIPartnersVivianaOcchionorelli,AstorgWillEvisonandNickyCrawford,PwCWouterSnoeijers,LevineLeichtmanCapitalPartnersInaddition,wearegratefulforthegeneroussupportfromDazzleBhujwalaandNatalieQueathem,DanJacobs,andTomTaylor,forcoordinatingresponsesfromtheCeresPrivateEquityWorkinggroup,theUSGPESGworkinggroup1,aswellastheBritishPrivateEquityandVentureCapitalAssociation,whoprovidedfurtherinputtotheguidance.WewouldalsoliketothankHowardShihandCynthiaCummisatWorldResourcesInstitutefortheirreviewoftheguidance.1TheGPESGWorkingGroupisavoluntarygroupingofESGpractitionersintheUSwhocometogethertosharebestpractices,challengesfollowingtheChathamHouseRule.Version1.0November2021`5PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgProjectfundersWearegratefulforthegenerousfinancialsupportfromthefollowingorganizations:BregalInvestmentsFSNCapitalHgCapitalIntermediateCapitalGroupInvestindustrialLaudesFoundationPAIPartnersPermiraAdvisersTowerBrookFoundationTritonPartnersVersion1.0November2021`6PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org1.Executivesummary1.1Highlights●ThelatestIntergovernmentalPanelonClimateChange(IPCC)AssessmentReport6(IPCC2021)sendsaclearwarningthattheworldisontracktoreach1.5degreesCelsiusofwarmingwithinthenexttwodecades.Rapid,transformationalchangeisrequiredtolimitwarmingto1.5degreesCelsiusbytheendofthecentury.●Theprivatemarketreacheditsall-timehighlastyear,withUS$7.3trillioncloseendedassetsundermanagement(AUM)in2020(McKinsey&Company2021),andisexpectedtocontinuetogrowrapidly.Theprivateequity(PE)sectorhasasignificantcollectiveeconomicandclimateimpact–itiskeyforthesectortotakeimmediateactionstofacilitatethetransitiontoanet-zeroeconomyby2050.●Throughtheirlong-terminvestmentstrategiesandconsiderableinfluenceovertheirportfoliocompanies(PCs),PEfirmsorGeneralPartners(GPs)arewellpositionedtosupportPCsforalow-carbontransition,bysettingmid-andlong-termfirm-levelscience-basedtargets(SBTs).LimitedPartners(LPs),asinvestorsfundsmanagedbyGPs,shouldalsoleveragetheirinfluence,pushingGPstoaligntheirinvestmentstrategieswiththeParisAgreement’sambition.●ThisGuidancesupportsPEfirms’GPstosetambitiousgreenhousegas(GHG)emissionsreductiontargets(SBTs)fortheiroperations(scope1and2emissions)andfirm-levelportfolioSBTsfortheirinvestmentandlendingactivities(scope3,category15).TheGuidancerefinesexistingFinancialSectorSBTGuidance(FIGuidance)bymappingcurrentlyavailableportfoliotargetsettingmethodsandcriteriatothemostrelevantassetclassesforthePEsector.TheGuidancealsoprovidespracticalrecommendationsformethodapplicationwhichconsiderstheuniqueattributesofprivateequityincludingthenatureofthePEinvestmentcycle,thetypeofinvestment,levelofownership,influence,transformation,etc.●ThisGuidancecurrentlyfocusesonprovidingcleartargetsettingrequirementsonPEdirectinvestmentsinbuyout,growthandventurecapitalstrategies,toensurePEfirmscollectivelyaddressthismostmaterialassetclassandaccelerateGHGemissionscalculationandtargetsettingpracticesofprivatecompanies–whichwillhaveapositiveimpactonthesustainabilityintegrationofotherprivatemarketstrategiesasawhole.●Toensurerelevanceandcredibility,thisGuidancewasdevelopedincloseconsultationwithleadingsectorexpertsfromPEfirms,consultancies,andnongovernmentalorganizations(NGOs)withPEsectorexpertise.ApreviousversionwasalsopilotedbyninePEfirmsandrevisedforimprovedpracticalityanduser-friendliness.1.2ContextTheextremeeffectsofclimatechangearenolongerabstractordistantconcepts.RecentdeadlyfloodsinChinaandEurope,extremeheatinCanada,FinlandandIreland,andmassiveVersion1.0November2021`7PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgwildfiresinthewesternUnitedStatesarestrikingwarningsthattheworldmaybeacceleratingtowardsanirreversibleplanetarytippingpoint.TheIPCCAssessmentReport6(IPCC2021)isalandmarkstudydeliveringanunequivocalbodyofevidenceandthestarkestwarningtodateofrisksfromanthropogenicclimatechangetohumanity.Todecarbonizetheglobaleconomy,allactorsintherealeconomyneedtoreducetheirGHGemissionsatasufficientratetoremainalignedwiththeemissionspathwaysestablishedbyclimatescienceandinlinewiththeParisAgreement’sgoals.Havinglongfocusedonrisksclimatechangeposestotheprofitabilityandlongevityoffinancialactivities,itiscrucialforfinancialinstitutions(FIs)toshiftfocusontheirclimateimpactthroughtheirinvestmentandlendingactivities,whileleveragingtheirinfluenceintheeconomytofacilitatethetransitiontoanet-zeroeconomy.PEfirms,throughtheirlong-terminvestmentstrategiesandconsiderableinfluenceovertheirPCs,areparticularlywell-positionedtosupportPCsforalow-carbontransitionbysettingSBTs.Giventherisinginfluenceoftheprivatemarket,itiscriticallyimportantforthePEsectortotakeimmediateactiontofacilitatethetransitiontoanet-zeroeconomyby2050.ThisneedisheightenedbyPEfirms’uniquepositiontohelptransformprivatecompanieswithlowcarbonmaturity.Of17milliontotalprivateinvestablecompanies(S&PGlobal2021),anestimated0.03%ofthemreporttoCDP.Thepublicinvestablemarkethasarelativelyhighercarbonmaturity,where10.2%of41,000publicinvestablecompaniesreporttoCDP(OECD2019).2Giventhisclearopportunitytorampupclimateaction,thisGuidanceprovidescriteriaandrecommendationsforPEfirmstosetambitiousSBTsfortheiroperationsandinvestmentportfolios,consistentwiththereductionsneededtostayinlinewiththewell-below2degreesCelsiusand1.5degreesCelsiusclimatescenarios.1.3CalltoActionandCollaborationClimatechangeposesasignificant,realthreattotheglobaleconomy,societyandecosystems.Privateequityisanintegralcogintheglobaleconomicengine,facilitatingsustainedgrowthacrossindustriesandmarketsectors.Inlightofthis,thecallisclear:theglobalprivateequityindustrymustdoitspartbyleveragingtried-and-testedmethodologiestomitigatecarbonemissionsandanalyzeportfolioexposuretoclimate-relatedfinancialrisks.TheUNPrinciplesofResponsibleInvestment(UNPRI),theiCIandtheSBTibelievethattheeffectsofclimatechangewillgeneratebothrisksandopportunitiesforthecompaniesinwhichprivateequityinvestin,andrecognizethatprivateequity–withitsleversfortransformationandgrowth–hasavitalanduniqueroletoplayindrivingthetransitiontoazerocarbon,climateresilientglobaleconomy,ultimatelyachievingtheParisAgreement’sobjectiveoflimitingglobalwarmingtowell-belowtwodegreesCelsius.2Itshouldbestressedthattheinvestibleprivatemarketforprivateequityislikelymuchlowerandthusthe0.03%figureshallbeseenasacrudeestimate,aseachPEfirmwillfocusonacarved-outareaoftheinvestableprivatemarket,thustheproportionreportingtoCDPwilllikelybeatleastanorderofmagnitudegreaterthan0.03%.Version1.0November2021`8PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgTheUNPRI,iCI,andtheSBTicallupontheglobalprivateequitycommunitytointegratethisGuidanceintoitsplanstodecarbonizetherealeconomy–andasthebasisforanetzerofuture.1.4GuidanceAudienceandObjectivesToenablewideadoptionofSBTsbyPEinvestors,theScienceBasedTargetsinitiative(SBTi)developedthisGuidanceforPEfirmstosettargetsfortheiroperationsandinvestmentportfoliosalignedwiththereductionsneededtostayinlinewithwell-below2degreesCelsiusand1.5degreesCelsiusclimatescenarios.ThisGuidance’sprimaryaudiencearelistedorunlistedPEfirmsorGPsthatmanagePEdirectinvestments,privatedebt,secondaries,andfundoffunds.ThisGuidanceaimsto:●ProvidepracticalguidancetailoredtotheuniquebusinessmodelsandassetclassesofPEfirmsoncompilingaGHGinventoryanddevelopingSBTsfortheiroperationsandkeyassetclasses●EnsureconsistencyacrossPEfirms’targets●IdentifyPEfirms’commonly-facedchallengestodevelopachievabletargetsandmakerecommendationstoovercomethesecommonbarriers●Raisetheprivateequityindustry’sambitionbydefiningaswellaspromotingbestpracticeinSBTsettingwhileprovidingmethods,criteria,guidanceandtoolstoreducebarrierstoadoptionandimplementation●Provideaplatformforsector-widecollaboration,facilitatingthePEmarketshiftstotransitiontoazerocarboneconomyTheGuidanceisexpectedtobeupdatedannuallytoreflectthelatestavailableclimatescience,targetsettingmethods,andindustrybestpractices.1.5SummaryTargetSettingRequirementsInthePEsectorcontext,theGeneralPartner(GP)itselfisusuallyalimitedliabilitycompany(PEfirm)andnottheparentcompanybylegaldefinition.Astheentityarrangingthestrategyofthefunds,theGPthereforeservesasthereportingentitytoconsolidateitsGHGinventoryandsetSBTsonafirmlevel.GPsarerequiredtosettargetsontheirownscope1emissions(directemissionsfromownedorcontrolledsources)andscope2emissions(indirectemissionsfromthegenerationofpurchasedenergye.g.petrolforcompanyvehicles,orgasforheatingatoffices,andelectricityprocurementatoffices),aswellasrequiredassetclassactivitiesasdeterminedbytheSBTiVersion1.0November2021`9PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgwithintheirscope3,category15emissions3-investmentsidentifiedbythisGuidance(i.e.portfoliocompanyGHGemissions).AsshowninFigure1.1below,thisGuidancemapscurrently-availableportfoliotargetsettingmethodsfromtheSBTiFinancialSectorframeworktothemostrelevantassetclassesintheprivatemarket.Figure1.1.AssetclassesmethodmappingSource:Authors.ThestepsoutlinedinthethreefiguresbelowvisualizethethreemethodsaPEfirmcanfollowforsettingSBTs.FirmsprimarilyholdingPEdirectinvestmentswilllikelyneedtocovermostoftheirtotalinvestmentactivitiesbyportfolioSBTs.Formulti-strategyPEfirms,multiplemethodsmayneedtobeappliedtosimultaneouslysetSBTsacrossallrequiredassetclasses.3Scope3emissionsrefertoallindirectemissions,notincludedinscope2,thatoccurinthevaluechainofthereportingcompany.Someexamplesofscope3activitiesareextractionandproductionofpurchasedmaterials;transportationofpurchasedfuels;anduseofsoldproductsandservices.Version1.0November2021`10PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgFigure1.2.Step-by-stepprocesstodevelopSBTsforaPEfirm’sscope1,scope2,andscope3categories1-14andcategory15emissions(i.e.,investmentandlendingactivities).Source:Authors.Version1.0November2021`11PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgFigure1.3.SBTportfoliocoverageapproachoverviewSource:Authors.Figure1.4.TemperatureRatingApproachoverviewSource:Authors.Figure1.5.SectoraldecarbonizationapproachoverviewSource:Authors.Version1.0November2021`12PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org2.AboutThisGuidance2.1PurposeofthisGuidanceToenablemeaningfulSBTadoptionbyPEinvestors,theSBTidevelopedthisGuidanceforPEfirmstosettargetsfortheiroperationsandinvestmentportfolios,alignedwiththereductionsneededtostayinlinewithwell-below2degreesCelsiusand1.5degreesCelsiusclimatescenarios.TheGuidanceistailoredtotheuniquebusinessmodelsandassetclassesofPEfirmsandprovidespracticalnavigationforPEfirmstocompileaGHGinventoryanddevelopSBTsfortheirkeyassetclasses.ItidentifieschallengesPEfirmscommonlyfacetodevelopachievabletargetsandmakesrecommendationstoovercomethesecommonbarriers.SBTiintendstoraisetheambitionofthePEindustrybydefiningandpromotingbestpracticeinSBTsetting,providingmethods,criteria,guidanceandtoolstoreducethebarrierstoadoptionandimplementation.AglossarywithcommonlyusedtermsinthisGuidanceisavailableinChapter11.2.2GuidanceDevelopmentProcessTheGuidancewasdevelopedthroughaninclusive,transparent,andmulti-stakeholderprocesswithinputsfromvarioussources,includinga32-memberExpertAdvisoryGroup(EAG)comprisingindividualsfrommembersoftheinitiativeClimatInternational(iCI),GPs,LPs,consultancies,academia,andNGOswithexpertiseinscience-basedtargetsettingand/orvoluntaryemissionreductiontargetsettingforthePEsector.TheEAGservesinatechnicaladvisorycapacityfortheSBTiPEsectorproject,providingrequestedinput.TheGuidancewasprincipallyauthoredbytheSBTiandAnthesisGroup,aglobalsustainabilityconsultancy,withsupportfromtheiCIinbothroad-testingandrefiningtheGuidance.TheGuidancealsoreceivedfeedbackfromEnvironmental,Social,andGovernance(ESG)workinggroupsandindustryassociationsinthePEsector.Formoreinformation,pleaseconsulttheAcknowledgementssection.Theproject’skeyprojectmilestonessofar:●May-August2021:projectauthorsdevelopedtheGuidance’sfirstdraftincloseconsultationwiththeprojectEAGandtheSBTifinanceteam●August-September2021:thefirstdraftwasreleasedforabroadpublicconsultationthroughanonlinesurvey,one-on-onefeedbacksessions,andreviewsbymultiplePEESGworkinggroupsandindustryassociationsintheUSandEurope.30surveyresponseswerereceived,70%ofwhichcamefromPEfirms.Over60%oftheresponsescamefromtheUSandUK.NinePEfirmsroad-testedtheSBTportfoliocoveragemethodontheirPEdirectinvestmentsportfoliosandsubsequentlysubmittedtargetsforanSBTivalidationVersion1.0November2021`13PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org●October2021:projectauthorsconsolidatedfeedbackreceivedfrommultiplesourcesandidentifiedkeyquestionsonassetclassrequirementsandmethodapplications.Dedicateddiscussionswereheldwithsubject-matterexperts,theprojectEAG,andtheSBTifinanceteamtobestfulfillprojectgoalsandensurecoherencewiththeSBTifinancialsectorframework.Projectauthorssubsequentlyimprovedtheguidancetoincorporatekeydecisionsandrespondtofeedbackreceived●EarlyNovember2021:TheGuidancewaslaunchedduringCOP26withtheapprovalofcommittedPEfirms.AdditionalpromotionaleventswereheldtoamplifytheGuidance’sadoption2.3Guidanceaudience2.3.1OverviewofdifferenttypesofPEfirmsPEfirmsarefundmanagementbusinessesthatraisemoneyfromthirdpartiestoinvestinprivateassets.TheraisedcapitalisaccumulatedinPE‘funds’,specificvehiclesandseparatecorporatelegalentities.Theseare‘closed-endfunds’notlistedonpublicexchanges.Therefore,theyareconsideredtobeanalternativeinvestmentclass.Whilstnotlegallythefund’sparentcompany,thefundmanagers,alsoreferredtoasGeneralPartners(GPs)andaretypicallyitsfounders,setitsdirectionandmanageitsinvestmentandassets,underadvicebyaLimitedPartnerAdvisoryCommittee(LPAC)thatguidetheGPduringthelifetimeofafund.GPsmaybeprivatecompaniesor,lesscommonly,publiclylistedbusinesses.GPsmanagingPEdirectinvestments,privatedebt,secondaries,andfundoffundsarethisGuidance’smainaudience.TheGuidanceisapplicabletobothGPsthatareprivatecompaniesandthosethatarepubliclylistedbusinesses.ThisGuidanceisnotintendedforLimitedPartnerstosetSBTs.LimitedPartnersofdirectinvestments,fundoffunds,etc.,shouldrefertothemainSBTiFIGuidance.GiventheGuidance’scurrentfocusonPEdirectinvestments,PEfirmsthatinvestprimarilyinbuyout,growth,andventurecapitalstrategiescanusemethodsprovidedinthisGuidancetocoverthemajorityoftheirinvestmentactivities.Multi-strategyfirmsareabletodeveloptargetsontheirPEdirectinvestments,aswellassetoptionaltargetsandtakeactionsrecommendedbySBTionotherassetclasses(e.g.privatedebt,secondaries,andfundoffunds).Whiletheassetclass-specificcriteriaandrecommendationsprovidedinthisGuidancemayalsobeadoptedbyotherFIstosettargetsonfundsdedicatedtoPEorprivatedebt,thesetwoassetclassesareoptionalinthecurrentSBTiFinanceGuidance(SeeTable5.2intheFIGuidance).RevisionstocurrentrequirementsforotherFIsonprivateequityandprivatedebtaresubjecttoupdatesoftheSBTifinanceframework.Version1.0November2021`14PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org2.3.2GeneralPartnersvs.LimitedPartnersPrivateequityinvestorsareusuallymadeupofGeneralPartners(GPs)andLimitedPartners(LPs).TheGPprimarilyraisescapitalfromthird-partyentities–includingfamilyofficesandlargeinstitutionalinvestorssuchaspensionfunds–intoaspecificfundvehicle(the‘fund’)whichwillthenbeinvestedintocertaintypesofassetsaccordingtoaninvestmentstrategy.Thethird-partyinvestorsinthefundarereferredtoastheLPs.TherearetypicallymultipleLPorganizationsinvestedinaparticularfund–however,singleLP-fundedvehiclesdoexist.AGPisconsideredtheownerofthepartnership,activelyinvolvedinmanagementofthepartnershipandcompanydecisionmaking.GPsidentifytheassetstobeinvestedin,executethoseinvestmentsandthenmanagethemuntileventualexit.GPsoffernoliabilityprotectionsforthepartners.AnLPisaninvestorinthefund,investingcapitalinexchangeforaportionoftheprofitsofthepartnership.However,theyarenotgenerallyinvolvedindailyoperations.LPsareoftenreferredtoassilentpartners,butdowieldameaningfulinfluenceontheGPs,placingsomeconditionsontheGPinexchangefortheoriginalinvestment.ThisinfluencecanbethroughLimitedPartnerAdvisoryCommittees(LPACs)whichareformedforthepurposeofadvisingtheGPonspecificissuesduringthelifetimeofafund,includingconflictsofinterestandmaterialchangestothegoverningdocumentsofthefundwhereLPs'consentsorapprovalsarerequired.LPscanalsoincludehighnetwealthindividuals,foundations,endowmentfunds,laborunions,insurancecompaniesandotherinstitutionalinvestorssuchashedgefunds,mutualfunds,etc.Onoccasion,theLPswillmakedirect“co-investments”intospecificinvestments,andtakeadirectequityshareinthatasset(Basri2020).2.4Project/SectorContext2.4.1EconomicimpactoftheprivateequityindustryIn2020,closed-endedassetsundermanagement(AUM)acrossprivatemarkets(privateequity,privatedebtandrealassets)grewtoanall-timehighofUS$7.3trillion.Privateequity(includingbuyout,venturecapital,growthandother)grewtoUS$4.5trillionin2020,anannualized16.2%growthsince2015.Itcontinuestooutperformotherprivatemarketassetclasses,aswellaspublicmarketequivalents,innearlyallmeasures(McKinsey&Company2021).Privateequityrepresents61%oftotalprivatemarketsAUM.Withinprivateequity,buyoutaccountsfor50%,venturecapitalfor28%,growthfor17%whileotheraccountsfor5%.NorthAmericaaccountsfor51%ofthePEmarket,Europe17%,Asia28%,andtherestoftheworldfor4%(McKinsey&Company2021).Version1.0November2021`15PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgTheprivateequitymarketisexpectedtocontinueexpandingandDeloitteforecastsaformidablegrowthinprivateequityoverthenextfewyears,withglobalPEAUMreachingUS$5.8trillionby2025inabasecasescenario(DeloitteInsights2020).Expectationsofincreasedallocationstoprivatemarketsgenerally,andprivateequityspecificallyisastrongdriverofthepredictedgrowth.AvastmajorityofLPs,79%,areindicatingplanstoincreaseallocationsinprivateequityinthenextfewyears(McKinsey&Company2021).TakingEuropeasanexample,10.2millionpeoplewereemployedat23,009portfoliocompaniesattheendof2019,rangingfromstartupsandSMEstolargemultinationals.Thatequatesto4.3%ofEurope’sactiveworkforceandisonaparwiththeentirepopulationofSweden.Companiesbackedbyprivateequityadded254,157newnetjobsin2019.Thisisagrowthof5.5%onthepreviousyear,faroutstrippingtheaverageEuropeanjobgrowthof0.9%.AroundhalfamillionpeopleinEuropefoundnewworkwithprivateequitybackedcompaniesin2018and2019combined(InvestEurope2020).Whenconsideringtheeconomicimpactofprivateequity,itisimportanttolookbeyondthecumulativeAUMfigures,whicharealsoamplifiedbycapitalmarketinvolvementinthesector–thenumberofindividualbusinessesinvestedinwiththeaimofachievingsignificantgrowthmustbeconsidered.Thiscandrivejobcreationwithwidersocio-economicbenefits.ThelevelsofownershipinandthereforeinfluenceoverthosebusinessesalsohaspotentiallysignificantbenefitsintermsofpossibleGHGreductions.2.4.2Howistheprivateequitysectoraddressingclimate?Keystakeholders,suchasemployees,PCs,andLPsareincreasinglyseekingmoresustainablecorporatebehaviors.AccordingtoBain&Company(2021),agrowingsegmentoftheindustrybelievesthatinvestmentsinsustainability,socialwelfareandgoodgovernancerequireadifferentcalculus.Nearlytwo-thirdsofinvestorsreportthatEnvironmental,Social&Governance(ESG)factorswillbemoreintegraltoalternativeassetsasLPscontinuetoprioritizeESGinvesting.Inresponse,morefundmanagersnowholdESGpolicies,andanincreasingproportionaretakingmoresubstantialstepstodriveESGimpact.ResearchincreasinglysuggeststhatindividualcompaniesimprovingonESGfactorsalsotendtoprovidethemostreturntoshareholders(McKinsey&Company,2021).ClimatechangehasbeenconsideredapriorityinthebroaderESGfieldandclimateriskisbecomingmorereadilyacknowledged,andincreasinglyconsideredasamandatoryissuerequiringmonitoringandmanagementacrossallassettypes.Thishasbeendrivenbytheprivateequitysector’sincreasedrecognitionoftheimportanceandimpactofclimatechange,bothpositivelyandnegatively,onthevalueofitsinvestments.Itisnowgenerallyacceptedinthesectorthatclimatechangewillhaveaprofoundimpactonfuturemarketsandthereforeitneedstobecarefullyconsidered,bothininvestmentselection,andthemanagementofassetsonceinvested.Version1.0November2021`16PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgPrivateequityisbecomingmorecautiouswheninvestinginassetsthatcouldbeimpairedbythetransitiontoalowcarboneconomyaswellasthephysicalimpactsofclimatechange.Inversely,therehasbeenameaningfulredirectionofcapitalintoassetsthatbelievedtobenefitfromdecarbonizationorseentohavebeenspecificallyde-riskedwithtoclimateandwiderESGconcernsinmind.PrivatecapitalcontinuestobeincreasinglydirectedintoESG-focusedinvestments:nearly$400billioninprivatecapitalwasraisedfrom2015-2020,aquarterraisedin2020alone.TheseinvestmentsincludedfundsfocusedonESGthemesorfundscommittedtoESGprinciples.ESG-relatedcapitalgrewrapidlyinprivateequity,increasingbyover30%peryearfrom2015-2020.BothGPsandLPsarenowrapidlydevelopingnewcapabilitiesacrosstheindustrytoaddressclimateandwiderESGrequirements.Pre-acquisitionESGduediligenceisnowbeingfactoredintomanyfirmprocesses,replacingthemoretraditionallimitedapproachofEnvironmentalHealthandSafety(EHS)duediligencethatfocusedonliabilityissuessuchascontaminatedlandandregulatorycompliance.Climateriskassessmentsareincreasinglypartofthatduediligenceandarebecomingamandatorypartoftheownershipperiod,drivenbystakeholderrequirementsandinitiativessuchastheTaskForceforClimate-relatedFinancialDisclosures(TCFD),whichhasbecomeamandatoryrequirementofbeingasignatoryoftheUNPrinciplesofResponsibleInvestment.MoreGPsareincreasinglyaskingalltheirPCstoprepareafullGHGemissionsinventory,andsetformalemissionsreductionstargets.However,thematurityofprivatemarketsinGHGemissionsreportingremainsbroadlylowerthan(non-SME)publicmarkets,asreferencedbytheCarbonDisclosureProject(CDP)inTable2.1below.Asacrudeindication,0.03%oftheinvestableprivatemarketisreportingtoCDPonclimate,andofthesecompanies,justoverhalfarereportingscope1and2emissions,while37%haveanactivetargettoreduceemissions.Itshouldbestressedthattheinvestibleprivatemarketforprivateequityislikelymuchlower,aseachPEfirmwillfocusonacarved-outarea–theproportionwilllikelybefarhigherthan0.03%.AccordingtoBloomberg,thepublicmarketsuggeststhat4.1%oflistedcompaniesgloballyreportGHGdatapubliclyin2020–anorderofmagnitudegreaterstill.Table2.1.CarbonreportingmaturityofthepublicmarketsvsprivatemarketsParameterPubliccompaniesreportingtoCDPPrivatecompaniesreportingtoCDPCDPrespondents(total9,500+)c.4,200c.5,300No.ofglobalpublicandprivate(investable)companiesc.41,000(OECD2019)c.17,000,000(S&PGlobal2021)44Estimateofinvestableprivateuniverse,whereS&PGlobal(2021)privatemarketcoveragewasusedasaproxy.Estimatesofthetotalprivateuniversearelimitedandvarybysources.2019datafromPAN-TribalAssetManagement(2021)showthatinAustralia,UnitedStates,andUnitedKingdom,privatecompaniesoutnumberpubliccompaniesby100times,whereasfiguresinTable2.1showthattheprivateuniverseoutnumbersthepublicuniverseover400times.Version1.0November2021`17PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgParameterPubliccompaniesreportingtoCDPPrivatecompaniesreportingtoCDP%CDPcoverage10.2%0.03%Haveanactiveemissionsreductiontarget,accordingtoCDP79%37%Reportscope1emissions,accordingtoCDP97%58%Reportscope2emissions,accordingtoCDP96%48%Source:CDP(2021),(S&PGlobal2021).2.5WhatareScience-BasedTargets?2.5.1WhatistheScienceBasedTargetinitiative?TheSBTimobilizestheprivatesectortotakeurgentclimateaction.Byguidingcompaniestosetscience-basedtargets,itenablesbusinessestotackleclimatechangewhileboostingtheircompetitivenessinthetransitiontoanet-zeroeconomy.TheSBTiisacollaborationbetweenCDP,WorldResourcesInstitute(WRI),theWorldWideFundforNature(WWF),andtheUnitedNationsGlobalCompact(UNGC)andisoneoftheWeMeanBusinessCoalitioncommitments.TheinitiativedefinesandpromotesbestpracticeinSBTsetting,offersresourcesandguidancetoreducebarrierstoadoption,andindependentlyassessesandapprovescompanies’targets.2.5.2SBTsforcompaniesTargetsadoptedbycompaniestoreduceGHGemissionsareconsidered‘science-based’iftheyareinlinewithwhatthelatestclimatesciencesaysisnecessarytomeetthegoalsoftheParisAgreement—tolimitglobalwarmingtowell-below2degreesCelsiusabovepre-industriallevelsandpursueeffortstolimitwarmingto1.5degreesCelsius.Sinceitslaunchin2015,theSBTihasestablisheditselfasaleaderinthecorporateclimateactionarena.Amongcompaniesglobally,thereisagrowingmomentumforSBTsettingthroughtheSBTi.AsofNovember2021,2,123companiesand115FIshavepubliclyjoinedtheSBTi,ofwhich1,006companiesandFIshavehadtheirtargetsofficiallyapproved.SeeallcompaniesandFIstakingactionhere.FormoredetailedinformationonhowacompanycansetSBTsthroughSBTianditstargetvalidationserviceforcompanies,pleaserefertotheSBTiCorporateManual(SBTi2021).Version1.0November2021`18PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org2.5.3SBTsforSMEsRecognizingthesignificantrolesmallandmedium-sizedenterprises(SMEs)mustplayinglobalclimateaction–whileconsideringthelimitedresourcesavailabletocompaniesofthissize–theSBTihasestablishedaseparateexpeditedrouteforSMEs.SBTi’sSMErouteisrelevanttoPEfirmsinterestedinengagingPCswithfewerthan500employeestosetapprovedscope1and2emissionstargets.SBTidefinesSMEsasanon-subsidiary,independentcompanywhichemploysfewerthan500employees.BysigningtheSMETargetSettingLetter,SMEscommittoworkingtowardsachievingascope1and2targets,measuringscope3emissions,andpubliclyreportingtheirscope1and2emissionsandtargetprogressonanannualbasis.PEfirmsshoulddirectPCswithmorethan500employeestotheregularSBTivalidationroute(seesection2.5.2above).FormoreinformationonhowSMEscansettargetsthroughSBTi,pleaserefertoSection“Smallandmedium-sizedenterprises”intheSBTiCorporateManual(SBTi2021p8).2.5.4SBTsforfinancialinstitutionsFIsareavitallinkintheglobaltransitiontonet-zeroemissions.Throughlendingandinvesting,theyhavethepowertoredirectcapitaltosustainabletechnologiesandinnovativesolutionsofthefuture,andtothosedoingthemosttoprepareforanet-zeroemissionseconomy.TheSBTilaunchedtheworld’sfirstSBTsettingframeworkforFIsinOctober2020,allowingthemtoaligntheirlendingandinvestmentportfolioswiththelevelofambitionrequiredbyscience.Over110globalFIshavealreadycommittedtosettingSBTsandtheSBTiwillsupportthemusingthisnewframeworktosettargets.ThecriteriaandmethodssetoutintheFinancialSectorSBTGuidance(SBTi2021)serveasanimportantfoundationforthisGuidance.FutureupdatestotheFIGuidanceandSBTi’stargetvalidationcriteriaandrecommendationsmaytriggerrevisionstothisGuidance.Version1.0November2021`19PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org3.BusinessCaseforthePrivateEquitySectortosetSBTsPEfirmsareuniquelypositionedtoinfluenceotheractorsthroughtheirequityanddebtportfolios.TodriveParis-alignedsystemicdecarbonization,itiscriticaltoleveragesharedinfluencetoeliminateemissionsreductionbarriers.PEfirmsalsohaveafiduciaryresponsibilitytoreturnfinancialperformancetoinvestors,whichoftenincludeinstitutionalinvestorsdrivenbyfinancialperformance–asopposedtonon-financialperformancesuchasGHGemissionsreductions.PEfirms’positioninginfluencestheirinvestors’mandatesandwillbecriticaltodrivesystemicdecarbonization.ESGmanagementissuesincludingclimatechangeareincreasinglypartoftheinvestors’fiduciaryduty,becauseoftherisktolong-termperformance.PEfirmstypicallyhaveinfluenceonamoregranularlevel,aspresentedinFigure3.1below.GPshaveanoverarchinginfluenceofbothLPsandPCs,astheytypicallycontrolthefundstrategies,principlesofinvestment,whoinvests–andultimatelywhatisinvestedin.LPsactualizetheinvestmentcyclewithintheGPs’governancebychoosinginvestorsandPCstoinvestin.Incertaininstances,LPscaninfluenceGPstoaltertheirprinciples,e.g.,LPspressureGPstobecomemorealignedtotheESGagenda.Ultimately,PCsreceivetheinvestmentandhavevaryinglevelsofcontrolbasedonthedealstructureforgedbytheLP.PEfirmshavemostinfluencewithintheirprivateequitydirectinvestmentswithmajorityholds(>50%)overtheirPCs,whileminorityholds(<50%)havelessinfluenceovertheirPCs.Fundsoffundsaretypicallyatarm’slengthfromPCsandhavelessoverallinfluenceondirectinvestments,whilesecondariesarealaterstageinvestmentinthecycleandthushaveevenlessinfluence.Directlendingincredit/privatedebttypicallyhaslessinfluencethanequity,asdebtalonesimplyhasnoequityshareinthecompany.Acrossallthesefundstrategies,PEfirmsshouldstilltryandinfluenceGPs,LPsandPCstoadoptoralignwithSBTswherepossibleanddisclosearecordofengagementattemptsfortransparency.Version1.0November2021`20PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgFigure3.1.EcosystemofInfluenceSource:AuthorsPEfirmsthatsetSBTscommittoaligningtheirfundswiththegoalsoftheParisAgreement.Thiscommitment,alongwiththestrategytakentoachievethetargetswillcontributetothenet-zerotransitionandbringsubstantialbenefitstothePEfirm.Fundamentally,thebusinesscaseforprivateequitytosetSBTsisthatitwillprotectassetvalue.Businessesthatfailtodecarbonizewillbecomeincreasinglyexposedassocietyseekstodecarbonize,whetherduetorisingenergycosts,carbontaxationortheirproductsandservicesbecomingstranded.Privateequityunderstandsthatinorderforthevalueofitsexistingassetstocontinuetogrow,theymustbeshowntobede-risked.Tobeabletoraiseadditionalcapital,GPsmustshowinvestorsissuesareunderstoodandfutureinvestmenthasbeenvetted.OtherbenefitstosettingSBTsinclude:BuildingbusinessresilienceandincreasecompetitivenessPerformingscenarioanalysisandapplyingmethodstosetSBTsenablePEfirmstoaligntheirPCswiththezero-carboneconomy,identifyingopportunities,mitigatingclimaterisksandincreasingcompetitivenessbygaininginsightsintothetransformationsfacedbytheeconomicsectorstheylendtoandinvestin.Version1.0November2021`21PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgIdentifyingandcapitalizingonarangeofopportunitiesGrowinginvestordemandforincorporatingESGfactorsininvestmentprocesseswillenablebetterinvestmentdecisions,improveperformanceandreducerisk.Growinginvestmentopportunitieswillbegiventhesubstantialinvestmentneededforthelow-carbontransition,estimatedbyMcKinsey(2015)asrequiringUS$6trillionperyearto2030.DrivinginnovationAsSBTsincludealong-termvision,PEfirmscanprovideinvestmentsthatprioritizeandacceleratethelow-carbontransition.Engagingwiththeirinvestors,GPsandLPscandevelopinnovativefinancialproductsandservicesenablingPCstoreduceemissionsintherealeconomy.BuildingcredibilityandreputationComparedtotargetsinitiatedsolelybyPEfirms,SBTshavehighercredibilitywithstakeholderssincetheyarebasedonthelatestavailablescienceandvalidatedagainstasetofrobustcriteriadevelopedthroughamulti-stakeholderconsultativeprocess.PEfirmswithSBTscanserveaslower-riskoptionsforlong-terminvestorsseekingtohedgeclimate-relatedrisks.PEfirmswithSBTsalsodemonstratesustainabilityleadership,whichimprovesaPEfirm’sreputationwithallstakeholders.InfluencingandpreparingforpublicpolicyshiftsSBTshelpPEfirmsadapttochangingpoliciesandsendastrongersignaltopolicymakers,allowingtheindustrytobetterinfluencepolicydecisions.PEfirmswithSBTsaremuchbetterpositionedtorespondtofutureregulatoryadjustmentsasgovernmentsrampupclimateaction.DemonstrateleadershipWhilemetricsforPEfirmstosetSBTstargetsarenewandbestpracticeisstillevolving,thisisnoreasontodelayaction.PEfirmsthatundertakethetargetsettingprocessleadthewayandpushthemarkettowardthemostcredibleandpracticalsolutions.Version1.0November2021`22PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org4.SBTiTargetValidationCriteriaandRecommendationsforPEFirmsThischapterpresentstheSBTitargetvalidationcriteriaandrecommendationsforPEfirms5.PEfirmsshouldthoroughlyreviewtheguidancebeforetargetdevelopment.Version5oftheSBTiCorporateCriteriaandRecommendations(SBTi2021)servesasthebasisforSectionI-Vofthecriteria,whichaddressesGHGinventory,scope1and2andscope3,categories1-14targets.Basedonthecontextoftheprivateequityindustry,thisGuidancerevisedcriteriasetoutintheFIGuidancewithanasterisk‘’.InJuly2021,inresponsetoincreasingurgencyforclimateactionandthesuccessofSBTstargetstodate,theSBTiannouncedthattheminimumambitionofscope1and2targetwillbeloweredfrom“wellbelow2degreesCelsius”to“1.5degreesCelsius”abovepre-industriallevels.Thetimeframefortargetswillbeshortenedfromamaximumof15to10years,asreflectedinthelatestcriteriaversion5.Criteriaversion5.0willbeineffectfromJuly15th,2022.Wellbelow2degreesCelsius,ortargetsthatare10-15yearsintothefuture,willbeaccepteduntilJuly15th,2022.Whererelevant,PEfirmsshallfollowtheGHGProtocolCorporateStandard(2015),Scope2Guidance(2015),andCorporateValueChain(Scope3)AccountingandReportingStandard(2020)fortheiremissionsaccountingandreporting.InthecontextofthecriteriaandthisGuidance,theterm“shall”isusedtodescriberequirementsrelatedtorelevantcriteriaandaccountingguidance,whereastheterm“should”isusedtodescriberecommendations.TheSBTirecommendationsareimportantfortransparencyandbestpracticesbutarenotrequired.Unlessotherwisenoted,allcriteriaapplytoscopes1,2,and3.Criteriaarelabeledwith‘C’andrecommendationsarelabeledwith‘R’below.Theterms“shall”or“must”areusedthroughoutthisdocumenttoindicatewhatisrequiredfortargetstobeinconformancewiththisGuidance.Theterm“should”isusedtoindicatearecommendation,butnotarequirement.Theterm“may”isusedtoindicateanoptionthatispermissibleorallowable.4.1GHGEmissionsInventoryandTargetBoundary4.1.1TargetboundaryCriteriaPE-C1–Scopes:TheGPshallserveasthereportingentityconsolidatingtheGHGinventoryforitsoperations(i.e.,scope1and2)anditsinvestmentandlendingactivitieswithinitsmanagedfundsonallrelevantandrequiredassetclasses(assetoutinTable6.1),intheir5TheFIGuidancesetsoutalistoftargetvalidationcriteriaandrecommendationsthatarebroadlyrelevanttoFIs’GHGemissionsinventoryandtargetboundaries,andintroducestheconceptsoforganizationalandoperationalboundariesfromtheGHGProtocolCorporateStandard.Basedonthecontextoftheprivateequityindustry,thisGuidanceupdatedanumberofcriteriasetoutintheFIGuidance.Version1.0November2021`23PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgtargetsubmission,inaccordancewithboundarycriteria.(i.e.,scope3category15)6.SeeFigure5.1foranillustrationofthiscriterion.TargetsshallbesubmittedattheGPlevel.TheemissionsscopesofPCs'emissionsthatmustbecoveredaredetailedinthemethod-specificcriteriaPE-C17below.PE-C2–Subsidiaries:PEfirmsshouldsubmittargetsatthegrouporparentcompanylevelforallofitssubsidiaries/funds,asthereportingentityoftheirPCs(equity)andborrowers(credit).LPsarenotsubsidiariesofGPsorconsideredtobetheprimaryreportingentityforPCsandborrowercompanies.ThePEfirms’targetmustincludeallemissionsasthereportingentityinlinewiththeemissionsboundariesassetoutinChapter5.RecommendationsandadditionalguidancePE-R1–Settingorganizationalboundaries:TheSBTirecommendsthataPEfirm'sorganizationalboundary,asdefinedbytheGHGProtocolCorporateStandard,isconsistentwiththeorganizationalboundaryusedinthefirm’sfinancialaccountingandreportingprocedures.4.1.2GHGemissionscoverageCriteriaPE-C3–Greenhousegases:Scope1and2targetsmustcoverallrelevantGHGsasrequiredbytheGHGProtocolCorporateStandard.Ifoptionaltargetsonscope3,categories1–14areset,theyshallalsocoverallrelevantGHGs.ForPEfirms’scope3,category15targets,coverageofallrelevantGHGsisrecommended,wherepossible.IfPEfirmsareunabletocoverallGHGsforscope3portfoliotargets,theyshallcoverCO2emissionsasaminimum.PE-C4–Significancethresholds:PEfirmsmayexcludeupto5%oftheirownscope1andscope2emissionscombinedintheboundaryoftheinventoryandtarget7.6TherearetwoprimaryreasonsthatSBTirecommendsthatPEfirmsaccountforPCs’emissionsinscope3category15,eveniftheyhaveoperationalorfinancialcontrolovertheirPCs.Firstly,ifaPEfirmaccountsforthescope1and2emissionsofitsPCsinitsownscope1and2,itwillhavetosettargetsusingmethodsspecifictoscope1and2emissions,ratherthanmethodsdesignedforFIs’portfoliossuchastheSBTiportfoliocoveragemethodorTemperatureRating.Secondly,PEfirmswillexperiencelargefluctuationsintheirscope1and2emissionsastheirportfolioturnoverchangeseverycoupleofyears,whichmakestargettrackingchallenging.7WherePEfirms’scope1or2emissionsaredeemedimmaterial(i.e.,under5%oftotalcombinedscope1and2emissions),PEfirmsmaysettheirSBTsolelyonthescope,coveringmorethan95%ofthetotalscope1and2emissions.PEfirmsmustcontinuetoreportonbothscopesandadjusttheirtargetsasneeded,inaccordancewiththeGHGProtocol’sprincipleofcompletenessandasperPE-C21-Mandatorytargetrecalculation.Version1.0November2021`24PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org4.2MethodValidityCriteriaPE-C5–Methodvalidity:TargetsmustbemodeledusingthelatestversionofmethodsandtoolsapprovedbytheSBTi.TargetsmodeledusingpreviousversionscanonlybesubmittedtotheSBTiforanofficialvalidationwithinsixmonthsofthepublicationoftherevisedmethodorrelevantsector-specifictools.4.3EmissionsAccountingRequirementsCriteriaPE-C6–Scope2accountingapproach:PEfirmsshalldisclosewhethertheyareusingalocation-ormarket-basedaccountingapproachaspertheGHGProtocolScope2Guidancetocalculatebaseyearemissionsandtrackperformanceagainstascience-basedtarget.GHGProtocolrequiresmeasuringandreportingscope2emissionsusingbothapproaches.However,asingleandconsistentapproachshallbeusedforsettingandtrackingprogresstowardaSBT(e.g.usingalocation-basedapproachforbothtargetsettingandprogresstracking).PE-C7–Bioenergyaccounting:CO2emissionsfromthecombustion,processinganddistributionphaseofbioenergyaswellaslanduseemissionsandremovals8associatedwithbioenergyfeedstocks,shallbereportedalongsideacompany’sGHGinventory.Furthermore,CO2emissionsfromthecombustion,processinganddistributionphaseofbioenergyaswellasthelanduseemissionsandremovalsassociatedwithbioenergyfeedstocksshallbeincludedinthetargetboundarywhensettingascience-basedtarget(inscopes1,2,and/or3,asrelevant)andwhenreportingprogressagainstthattarget.Land-relatedemissionsaccountingshallincludeCO2emissionsfromdirectlandusechange(LUC)andnon-LUCemissions,inclusiveofN2OandCH4emissionsfromlandusemanagement.IncludingemissionsassociatedwithindirectLUCisoptional.CompaniesareexpectedtoadheretoanyadditionalGHGProtocolGuidanceonbioenergyaccountingtomaintaincompliancewiththisspecificcriterion.PE-C8—Carboncredits:Theuseofcarboncreditsmustnotbecountedasemissionreductionstowardtheprogressofcompanies’near-termorlong-termscience-basedtargets.PE-C9–Avoidedemissions:AvoidedemissionsfallunderaseparateaccountingsystemfromcorporateandPEfirms’inventoriesanddonotcounttowardSBTs.8Thepositiveimpactofexceedingzeroemissionsduetobiogenicremovalsshallnotbeaccountedforinacompany’stargetformulationorasprogresstowardsSBTs.RemovalsnotdirectlyassociatedwithbioenergyfeedstockproductionwillnotcountasprogresstowardsSBTsornetemissionsinacompany’sGHGinventory.Version1.0November2021`25PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgRecommendationsandadditionalguidanceR2–Biofuelscertifications:TheSBTirecommendsthatcompaniesusingorproducingbiofuel(s)fortransportshouldsupporttheirbioenergyGHGaccountingwithrecognizedcertificationstodisclosethatthedataonland-relatedemissionsandremovalsrepresentstherelevantbiofuelfeedstockproduction.R3—Bioenergydatareporting:TheSBTirecommendsthatcompaniesreportdirectbiogenicCO2emissionsandremovalsfrombioenergyseparately.Ataminimum,emissionsandCO2removalsassociatedwithbioenergyshallbereportedasnetemissionsaccordingtoC4above–however,companiesareencouragedtoalsoreportgrossemissionsandgrossremovalsfrombioenergyfeedstocks.4.4TargetFormulation4.4.1TimeframeCriteriaPE-C10–Baseandtargetyears:Targetsmustcoveraminimumoffiveyearsandamaximumof10yearsfromthedatethetargetissubmittedtotheSBTiforvalidation9.Thechoiceofbaseyearmustbenoearlierthan2015.PE-C11–Progresstodate:Theminimumforward-lookingambitionoftargetsisconsistentwithreachingnet-zeroby2050,assumingalinearabsolutereduction,linearintensityreduction,orintensityconvergencebetweenthemostrecentyearand2050(notincreasingabsoluteemissionsorintensity).10RecommendationsandadditionalguidancePE-R4–Targetyear:Targetscoveringmorethan10yearsfromthedateofsubmissionareconsideredlong-termtargets.PEfirmsareencouragedtodevelopsuchlong-termtargetsupto2050inadditiontomid-termtargetsrequiredbyPE-C6.Long-termtargetsmustatleastbeconsistentwiththelevelofdecarbonizationrequiredtokeepglobaltemperatureincreaseto1.5degreesCelsiuscomparedtopre-industrialtemperaturestobevalidatedandrecognizedbytheSBTi.PE-R5–Consistency:ItisrecommendedthatPEfirmsusethesamebaseandtargetyearsforallnear-termtargets.9Fortargetssubmittedforanofficialvalidationinthefirsthalfof2022,thevalidtargetyearsare2026-2031inclusive.Fortargetssubmittedinthesecondhalfof2022,thevalidtargetyearsarebetween2027-2032inclusive.10Fortargetssubmittedforvalidationin2022,themostrecentinventorydatasubmittedmustbefor2019attheearliest.Historically,theSBTihasonlyallowedtwoyearspriorasvalidmostrecentyearinventories–however,duetotheCOVID-19pandemic,theSBTiwillaccept2019inventoriesin2022.Version1.0November2021`26PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org4.5TargetAmbition4.5.1Scope1and2near-termtargetsCriteriaPE-C12—Levelofambitionforscope1and2targets:Scope1andscope2targetsmustatleastbeconsistentwiththelevelofdecarbonizationrequiredtokeepglobaltemperatureincreaseto1.5degreesCelsiuscomparedtopre-industrialtemperatures.PE-C13—Absolutetargets:Absolutereductionsmustbeatleastasambitiousastheminimumoftheapprovedrangeofemissionsscenariosconsistentwiththe1.5degreesCelsiusgoal.PE-C14—Intensitytargets:Intensitytargetsforscope1andscope2emissionsareonlyeligiblewhentheyaremodelledusinganapproved1.5degreesCelsiussectorpathwayapplicabletocompanies’businessactivities.RecommendationsandadditionalguidancePE-R6–Choosinganapproach:TheSBTirecommendsusingthemostambitiousdecarbonizationscenariosthatleadtotheearliestreductionsandtheleastcumulativeemissions.4.5.2Near-termtargetsonscope3,categories1-14RecommendationsandadditionalguidancePE-R7–MeasuringemissionsandsettingtargetsforScope3,Categories1–14:ItisrecommendedforPEfirmstomeasureandsettarget(s)oncategories1–14emissionsasdefinedbytheGHGProtocolCorporateStandard.IfPEfirmssetoptionalnear-termscope3category1-14targetscoveringindividualormultiplecategories,theymustatleastbealignedwithmethodsconsistentwiththelevelofdecarbonizationrequiredtokeepglobaltemperatureincreasewell-below2degreesCelsiuscomparedtopre-industrialtemperaturestobeapprovedbytheSBTi.4.5.3Scope2RenewableelectricitytargetsCriteriaPE-C15—Renewableelectricity:Targetstoactivelysourcerenewableelectricityatarateisconsistentwith1.5degreesCelsiusscenariosareanacceptablealternativetoscope2emissionreductiontargets.TheSBTihasidentified80%renewableelectricityprocurementby2025and100%by2030asthresholds(portionofrenewableelectricityovertotalelectricityuse)forthisapproachinlinewiththerecommendationsofRE100.PEfirmsthatalreadysourceelectricityatorabovethesethresholdsshallmaintainorincreasetheiruseofrenewableelectricitytoqualify.Version1.0November2021`27PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgRecommendationsandadditionalguidancePE-R8–PurchasedHeatandSteam:Forscience-basedtargetmodelingpurposesusingtheSectoralDecarbonizationApproach(SDA)11,itisrecommendedthatPEfirmsmodelpurchasedheatandsteamrelatedemissionsasiftheywerepartoftheirdirectemissions(i.e.,scope1).PE-R9–EfficiencyConsiderationsforTargetModeling:IfPEfirmsareusingamethodthatdoesnotalreadyembedefficiencygainsforthespecificsector,market,anddecarbonizationprojectedforthepowersectorbasedona1.5degreesCelsiusscenario,itisrecommendedthatthesefactorsbeconsideredwhenmodelingelectricity-relatedscope2targets.4.6Scope3–PortfolioTargetsCriteriaPE-C16–Requirementtosettarget(s)oninvestmentandlendingactivities:AllPEfirmsshallsettargetsontheirinvestmentandlendingactivities,irrespectiveoftheshareofquantifiedscope3portfolioemissions–comparedtothetotalscope1+2+3emissionsofthePEfirm.RecommendedmethodsfordifferentassetclassesaredefinedinRequiredActivitiesandMethodsTable6.1.PE-C17–Portfoliotargetboundary:PEfirmsshallsettargetsonallrelevant‘RequiredActivities’outlinedinTable6.1followingtheminimumboundarycoveragerequirement.PE-C18.1–SectoralDecarbonizationApproachtargets12:PEfirms’targetsusingtheSDAareconsideredacceptablewhenthefollowingconditionsaremet:●Boundary:PEfirmsshallsetSDAtargetsasspecifiedintheAssetClassRequiredActivitiesandMethodsTable6.1.●Ambition:PortfolioSDAtargetsmustmeetminimumambitionindicatedbysector-specificmethodsforwell-below2degreesCelsiuspathways.1.5degreesCelsiustargetsareencouragedwheresectorpathwaysareavailable.13●Timeframe:PortfolioSDAtargetsmustcoveraminimumoffiveyearsandamaximumof10years14fromthedatethePEfirm’stargetissubmittedtotheSBTiforanofficialvalidation.PEfirmsarefurtherencouragedtodeveloplong-termtargetsinadditiontotherequiredmidtermtargets.1511TheSectoralDecarbonizationApproach(SDA)isamethodforsettingphysicalintensitytargetsthatusesconvergenceofemissionsintensity.Anintensitytargetisdefinedbyareductioninemissionsrelativetoaspecificbusinessmetric,suchascompany’sproductionoutput(e.g.,metrictonneCO2epertonneproductproduced).TheSDAassumesglobalconvergenceofkeysectors’emissionsintensityby2050.12SeeSection9.3forfurtherinformationregardingrealestateassetclass.13Atthemoment,a1.5-degreesCelsiuspathwayisonlyavailableforthepowergenerationsector.14SDAtargetssubmittedbeforeJuly15th,2022maystillhavetargetyearsthatare10-15yearsintothefuture.152050targetswillnotbevalidateduntilSBTi’snet-zerostandardforFIsisavailable.Version1.0November2021`28PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org●Scopeoftargets:ThescopeofPEfirms’targetsshallbeconsistentwiththescoperequiredbytherelevantmethod16.PE-C18.2–Portfoliocoveragetargets17:PEfirms’targetstodrivetheadoptionofscience-basedemissionsreductiontargetsbyPCsareconsideredacceptablewhenthefollowingconditionsaremet:●Boundary:PEfirmsshallsetSBTportfoliocoveragetargetsasspecifiedintheAssetClassRequiredActivitiesandMethodsTable6.1.Inpractice,thismeansSBTscoveringprivateequityshallincludePCsinallrequiredcategoriesasspecifiedinTable6.1.inthedenominatorforthecalculationofpercentageSBTcoverage,detailedbelow.Forpurposesoftargetsetting,tracking,andreporting,thePEfirmmaychoosetoexcludePCsacquired24monthsorlessandwithoutvalidatedSBTs.ThisistoreflectthenatureofthePEindustrywheretheinvesteecompanytypicallyundergoestransformationalchangepostinvestment.However,PEfirmsshouldsupportPCstosetandobtainSBTivalidationassoonaspossible,andtheSBTisuggeststhisperiodshouldnotexceed12monthsfromacquisition.●TargetLevelofAmbition:thePEfirmshallcommittohavingitsPCssetapprovedSBTssoallcurrentandfuturefunds,startingfromthebaseyearselectedbythefirm,areonalinearpathto100%SBTcoverageby2040,atthelatest.●Forexample,aPEfirmstartingwith10%SBTcompanycoveragein2020wouldneedtoincreasecoverageby4.5%peryear(90/(2040–2020)=4.5)andreachatleast32.5%(10+[5x4.5]=32.5)coverageby2025.●TargetFormulation:Inpublictargetlanguage,PEfirmsshallincludethepercentageofPCsthatwillhavetheirSBTsapprovedinthetargetyearusingtheselectedmetric.●%SBTcoverage=(𝑁𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑃𝐶𝑠𝑤𝑖𝑡ℎ𝑎𝑝𝑝𝑟𝑜𝑣𝑒𝑑𝑆𝐵𝑇𝑠×𝑠𝑒𝑙𝑒𝑐𝑡𝑒𝑑𝑚𝑒𝑡𝑟𝑖𝑐)/(𝑁𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑎𝑙𝑙𝑒𝑥𝑖𝑠𝑡𝑖𝑛𝑔𝑃𝐶𝑠×𝑠𝑒𝑙𝑒𝑐𝑡𝑒𝑑𝑚𝑒𝑡𝑟𝑖𝑐)●TargetTimeframe:ThePEfirmmustsetashort-termcoveragetargettobefulfilledwithinamaximumoffiveyearsfromthedatethefirm’stargetsaresubmittedtotheSBTiforvalidation.FulfillmentofportfoliocoveragetargetsmeansthatthePCs’SBTshavebeenapprovedbySBTi.PEfirmsarefurtherencouragedtosetalong-termcoveragetargetforwhenthePEfirm’sportfoliocoveragereaches,andmaintains,100%coverage.PEfirmsareencouragedtoachieve100%SBTportfoliocoverageearlierthan2040.●ScopeofPCTargets:PCsshallfollowthelatestSBTicriteriaforcompaniestosetscope1and2targets,aswellasscope3targetswhentheirscope3emissionsaremorethan40%oftotalscope1,2,and3emissions.IfthePChasfewerthan50016Alistofthesector-specificguidanceandrequirementsisavailableinSection9oftheSBTiTargetValidationProtocol.17Seesection9.3forfurtherinformationregardingportfoliocoverageapproach.ThiscriterionalsoappliestoSBTportfoliocoveragesetbyothertypesofFIsontheirprivateequityfunds.Version1.0November2021`29PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgemployeesandthusfallsintoSBTi’sdefinitionofSME,theyshallfollowthelatestrequirementsoutlinedintheSMEstreamlinedroute.PE-C18.3–PortfolioTemperatureRatingtargets18:PEfirms’targetstoaligntheTemperatureRatingoftheirassetclassesinlinewiththeParisAgreement’sambitionareconsideredacceptablewhenthefollowingconditionsaremet:●Boundary:PEfirmsshallsetPortfolioTemperatureRatingtargetsasspecifiedintheAssetClassRequiredActivitiesandMethods(Table6.1).●Targetlevelofambition:PEfirmsshallaligntheirportfolioscope1+2temperaturescorewithaminimumwell-below2degreesCelsiusscenarioandadditionallyaligntheirportfoliotoaminimum2degreesCelsiusscenarioforthescope1,2and3portionby2040.Alignmentwithmoreambitiousscenariossuchas1.5degreesCelsiusishighlyencouraged.Separatetargetsforscope1+2andforscope1,2and3shallbeset.19●PEfirmsshallcommittoreducingtheirPC/borrowercompanies’temperaturescoressuchthatthePEfirmisonalinearpathtothestatedgoalby2040.●Forexample,aPEfirmstartingwithscope1+2portfoliotemperaturescoreof2.9°Cin2020wouldneedtodecreaseitsportfolio(PCs/borrowercompanies)temperaturebyatleast0.0575°Cperyear([2.9°C–1.75°C]/[2040–2020])=0.0575°Candreachatleasta2.61°Cportfoliotemperaturescoreby2025.●Forexample,aPEfirmstartingwithscope1,2and3portfoliotemperaturescoreof3.2°Cin2022wouldneedtodecreaseitsportfoliotemperaturebyatleast0.06°Cperyear([3.2°C–2°C]/[2040–2020])=0.06°Candreachatleast3.02°Cportfoliotemperaturescoreby2025(SeeFigure6.3foravisualization).●Targettimeframe:Portfolioalignmentshort-termtargetsmustbefulfilledwithinamaximumoffiveyearsfromthedatethetargetsaresubmittedtotheSBTiforofficialvalidation.Along-termtargetmustalsobefulfilledby2040.PEfirmsarehighlyencouragedtoachievethetargetedportfoliotemperaturescorebefore2040.●Scopeofborrowercompanytargets:PEfirms’borrowers’targetsshallincludecoverageofscope1and2emissions,aswellasscope3emissionswhentheirscope3emissionsaremorethan40%oftotalemissions.RecommendationsandadditionalguidancePE-R10–Phaseoutofthermalcoalinvestments:Withinsixmonthsoftargetapproval,PEfirmsshouldestablishapolicytophaseoutfinancialsupporttothermalcoalacrossalltheiractivities,inlinewithafullglobalphaseoutby2030.Thisincludesimmediatelyceasingallfinancialorothersupporttothermalcoalcompanies20buildingnewinfrastructureorinvesting18Seesection6.3forfurtherinformationontheTemperatureRatingApproach.19PEfirmsareencouragedtoreducetheirscope1and2temperaturescoreto1.5degreesCelsiusandscope1,2,and3temperaturescoretowell-below2degreesCelsiusby2040,toalignwithSBTi’slatestV5corporatecriteria.20Coalcompaniesaredefinedasbusinesseswithgreaterthan5%ofrevenuesfromthermalcoalmining,explorationanddrilling,miningservices,processing,trading,transportandlogistics,equipmentmanufacturing,Version1.0November2021`30PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orginneworadditionalthermalcoalexpansion,mining,production,utilization(i.e.,combustion),retrofitting,oracquiringofcoalassets.PEfirmsshouldimplementESGscreeningtoensuretherearenofutureinvestmentsincoalcompanies,regardlessofthefundstrategy.PE-R11–Disclosureoffossilfuelinvestmentsandlending:PEfirmswithapprovedSBTsshouldannuallydisclosetheannualinvestments,directprojectfinancingandlendingtofossilfuel(oil,gas,andthermalcoal)projectsandcompanies21inU.S.dollaramountorotherrelevantcurrencies(SeePE-R12forfurtherdisclosurerecommendations).PEfirmsthatfailtophaseoutcoalinvestmentsordisclosefossilfuelinvestmentsandlendingmakethemselvessusceptibletoriskofstrandedassetsandreputationaldamage.4.7AnnualDisclosureandImplementationReporting22CriteriaPE-C19–Disclosureoftarget(s)portfoliocoverage:Atthetimeoftargetannouncementandalongsideapprovedtargets,PEfirmsshalldisclosethepercentageoftheirtotalinvestmentandlendingactivitiescoveredbyportfoliotargetsontheSBTiwebsite.ThismetricshouldrepresentthemagnitudeofPEfirms’corebusinessactivities,whichmayinvolveanycombinationofassetclassesoutlinedhere.Examplesincludetotalfinancedemissionsassociatedwithinvestmentandlendingactivities(mostrecommendedifquantified),totalinvestedcapital(ifthefirmonlyinvestsinPEdirectinvestments),andtotalassetsundermanagement(formulti-strategyfirms).FI-C20–ImplementationReporting:Whensubmittingitstarget,thePEfirmshallsubmitabriefsummaryofhowitintendstomeetitsscope3portfoliotargetstoconformwiththetemplateprovidedinthetargetsubmissionform,intendedtocreatetransparency.Itwillnotbeusedasabasisfortargetvalidation.Whenthetargetisannounced,thissummaryshallbemadepublic23.PE-C21–Trackingandreportingtargetprogress:Aftertargetapproval,theSBTirequiresannualdisclosureofscope1and2GHGemissions,disclosureofprogressagainstallapprovedscope1,2,and3targets,aswellasdisclosureofactions/strategiestakenduringtheoperationsandmaintenance(O&M)services,engineering,procurementandconstruction(EPC)services,transmissionanddistributionofcoal-firedelectricity,coaltoliquids(Ctlg)andcoaltogas(CtG).21Thisincludes:(1)Companiesthathavearevenueshareintheexploration,extraction,refining,transportationanddistribution,storage,retailing,marketing,trading,orpower,heat,orcoolingproductionfromoilandgas.PEfirmsshoulddisclosethethresholdusedtodelineateoilandgascompanies;theSBTirecommendsa5%thresholdandforthethresholdtonotexceed30%.(2)InlinewithPE-R10,companieswithgreaterthan5%ofrevenuesfromthermalcoalmining,explorationanddrilling,miningservices,processing,trading,transportandlogistics,equipmentmanufacturing,operationsandmaintenanceservices,engineering,procurementandconstructionservices,transmissionanddistributionofcoal-firedelectricity,coaltoliquidsandcoaltogas.22SeeChapter8forfurtherinformationonreporting.23PEfirmswillhaveopportunitiestoreviewthesummarylanguagebeforetheSBTipublishesitonthewebsite.Version1.0November2021`31PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgyeartomeetscope3portfoliotargets.Ifoptionaltargetsonscope3,categories1–14aresubmittedandapprovedbytheSBTi,theirprogressshallalsobeincludedinthedisclosureofprogress.Annualdisclosureofscope3emissionsisencouragedbutnotrequired.RecommendationsandadditionalguidancePE-R12-Wheretodisclose:Therearenospecificdisclosureforscope1and2inventories,progressagainstallapprovedtargets,andactionsorstrategiestomeetscope3portfoliotargetsshouldbedisclosed,aslongastheyarepubliclyavailable.Recommendationsincludeannualreports,sustainabilityreports,TCFDdisclosures,thePEfirms’website,orCDP’sannualquestionnaire.4.8RecalculationandTargetValidityCriteriaPE-C22–Mandatorytargetrecalculation:Toensureconsistencywithmostrecentclimatescienceandbestpractices,targetsmustbereviewed,and–ifnecessary–recalculatedandrevalidatedeveryfiveyearsminimum.PEfirmswithanapprovedtargetrequiringrecalculationmustfollowthemostrecentlyapplicablecriteriaatthetimeofresubmission.Targetsshouldberecalculatedandresetasneeded,toreflectsignificantchangesthatwouldcompromisetheexistingtargets’relevanceandconsistency.PE-C23–Targetvalidity:PEfirmswithapprovedtargetsmustannouncetheirtargetpubliclyontheSBTiwebsitewithinsixmonthsoftheapprovaldate.TargetsunannouncedaftersixmonthswillhavetogothroughtheapprovalprocessagainunlessadifferentpublicationtimeframewasagreedwiththeSBTi.RecommendationsandadditionalguidancePE-R13–Triggeredtargetrecalculation:Targetsshouldberecalculatedtoreflectsignificantchangesthatwouldcompromiserelevanceandconsistencyoftheexistingtarget.Changesthatshouldtriggeratargetrecalculationinclude:●Activitiesorassetspreviouslyexcludedfrominventoryortargetboundarygrowsignificantlyorexceedallowableexclusionlimits●SignificantchangesininstitutionalstructureandactivitiesaffectingthePEfirm'stargetboundaryorambition,e.g.,acquisitions,divestitures,mergers,insourcingoroutsourcing,shiftsinproductorserviceofferings,changesinproportionofinvestmentsbyassetclasses,additionofnewproductscoveredbyavailablemethods,majorupdatesinthelatestclimatescience).Forexample,ifthePEfirmchangesstrategyorintroducesanewstrategynotalreadycoveredbyanexistingSBTimethod,ifthePEfirmhasnewtargetedsectorsthatwouldsignificantlychangetheGHGfootprintofthePEfirms’portfolio(e.g.,acarbon-intensiveenergyfundstrategy),orifthePEfirmchangesinvestmenthorizonsignificantlyshiftingthetotallengthofaverageholdtimeofaninvestmentVersion1.0November2021`32PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org●Significantchangesindatausedtocalculatethetargetssuchasdiscoveryofsignificanterrorsorseveralsignificantcumulativeerrors●OthersignificantchangestoprojectionsorassumptionsusedwithSBTsettingmethodsPE-R14–Validityoftargetprojections:Wheneverrelevant,theSBTirecommendsthatPEfirmscheckthevalidityoftarget-relatedprojectionsannually.ThePEfirmshouldnotifytheSBTiofanysignificantchanges,reportthesemajorchangespublicly,andconsideratargetrecalculation,asneeded.Version1.0November2021`33PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org5.HowtosetSBTsforPEfirms5.1Overviewofscope1,2and3targetsettingrequirementsThischapterdescribesthestepsaPEfirmmusttaketocompileitsGHGinventory,determineitsscope1and2targetambition,anddecidewhetheroptionaltargetsonscope3categories1-14willbeset.WhileaPEfirm’sScope3Category15emissionsfromitsportfoliocompaniesarelikelythemostsignificantportionofitstotalscope1,2,and3emissions,thestepsdescribedinthischapterserveasimportantfoundations.Figure5.1belowisanoverviewofSBTi’stargetsettingandGHGemissionsmeasurementrequirementsforPEfirms.Figure5.1.OverviewoftargetsettingandGHGcoveragerequirementsforPEfirms’scope1,2and3emissions.Source:Authors,adoptedfromGHGProtocolCorporateStandard.5.2CompileaGHGinventoryThefirststeptocompileaGHGinventoryisfortheparentcompanyasthereportingentity(i.e.,GP)toselectanapproachtodefineitsorganizationalboundaryandconsolidateitsGHGemissions.TheselectedconsolidationapproachmustbeappliedconsistentlythroughoutitsinstitutionalstructureandtheboundariesofSBTsmustalignwiththeorganizationalboundary.Inthecontextoftheprivateequitysector,whiletheGPitselfisusuallyalimitedliabilitycompany(PEfirm)andnottheparentcompanybylegaldefinition,itisresponsibleforallmanagementdecisionsandhasunlimitedliabilityfortheactionsofthefund(Phalippou2017).Astheentitythat’sarrangingthestrategyofthefunds,theGPshallserveasthereportingentitytoconsolidatethecorporatelevelGHGinventory(PE-C1,Chapter4above).Version1.0November2021`34PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgAfterselectinganorganizationalboundary,aPEfirmshallestablishitsoperationalboundarytodistinguishbetweendirectemissionsfromsourcesitownsorcontrols(scope1emissions)fromindirectemissions(scope2andscope3emissions).TheCorporateValueChain(Scope3)AccountingandReportingStandardcategorizesscope3emissionsinto15categories,wherecategory15(investments)coversemissionsassociatedwithequityanddebtinvestmentsinthereportingyear,notincludedinscope1and2.Insomecases,aPEfirmmayhaveoperationalorfinancialcontroloveritsinvestees,asdefinedabove.Forconsistencyandsimplification,PEfirmsshouldincludeallinvestmentandlendingactivitiesinscope3,category15inthetargetsettingprocess.GHGProtocolCorporateStandarddefinesthreeapproachesfordeterminingtheorganizationalboundariesofinstitutionalGHGinventories:operationalcontrol,financialcontrol,andequityshare.ForthepurposeofsettingSBTs,PEfirmsarerecommendedtousetheoperationalcontrolorfinancialcontrolapproach:●Operationalcontrol:Afirmhasoperationalcontrolifthefirmoroneofitssubsidiarieshasthefullauthoritytointroduceandimplementitsoperatingpoliciesattheoperation.Thiscriterionisconsistentwiththecurrentaccountingandreportingpracticeofmanycompaniesreportingonemissionsfromfacilitiesforwhichtheyholdtheoperatinglicense.Onlyexpectedinrarecircumstances,ifthefirmoroneofitssubsidiariesistheoperatorofafacility,itwillhavethefullauthoritytointroduceandimplementitsoperatingpoliciesandthushasoperationalcontrol.Undertheoperationalcontrolapproach,afirmaccountsfor100%ofemissionsfromoperationsoverwhichitoroneofitssubsidiarieshasoperationalcontrol.●Financialcontrol:Thefirmhasfinancialcontrolifthefirmhastheabilitytodirectthefinancialandoperatingpoliciesofthelatterwithaviewtogainingeconomicbenefitsfromitsactivities.Forexample,financialcontrolusuallyexistsifthefirmhastherighttothemajorityofbenefitsoftheoperation,howevertheserightsareconveyed.Similarly,afirmisconsideredtofinanciallycontrolanoperationifitretainsthemajorityrisksandrewardsofownershipoftheoperation’sassets.PleaseseeChapter3oftheGHGPCorporateStandardformoreinformationonthistopic.5.3HowtosetanSBTforscope1and2emissionsScope1and2emissionsarethestartingpointforsettingSBTs.Whilescope3emissions,inparticularcategory15(investments)arelikelythemostmaterialcategoryforPEfirms,scope1and2targetsconsistentwitha1.5degreesCelsiuspathwayataminimumarerequiredforallPEfirmsbythelatestSBTicriteriaversion5(well-below2degreesCelsiusalignedtargetsareaccepteduntilJuly15th,2022).Version1.0November2021`35PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org5.4HowtosetanSBTforscope3,categories1to14ForPEfirmstofocustheireffortsoninvestmentandlendingactivities,theSBTionlyrecommendsbutdoesnotrequiretheymeasureemissionsandsettargetsonscope3,categories1–14.Section5.5oftheFIGuidanceprovidesfurtherguidanceonthistopic.Version1.0November2021`36PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org6.HowtoSetSBTsforScope3,Category156.1OverviewofAssetClassCategorizationandTargetSettingRequirementsPrivateequityGPfirmsnowcomeinarangeofsizesfromsmallentitiesthroughtomulti-nationalbusinesseswithoverathousandstaffmembers.Originallyfocusedondirectinvestments,theyhavegrownanddiversifiedtoconsideravarietyofdifferentassettypesorclassesforinvestment.FirmswilltypicallyraiseandinvestmultiplefundsovertimeWhilemanymayremainspecializedinoneassetclass(potentiallyraisingfundsfocusedondifferentindustrialsectorsorbusinesseswithdifferinglevelsofmaturityand/orfinancialstrength),somewillmakeinvestmentsinmultipletypesofassetclasses,suchasmulti-strategyfunds.ThemosttypicalassetclassgroupingsandtherelevanttargetsettingboundaryandmethodsarepresentedinTable6.1belowandexpandeduponinSection6.2.Whilemanyofthesegroupingscanthenbesubdividedintonumerousspecificassetclasses,forthepurposesofthisGuidance,theyhavebeenbrokendowntothelevelatwhichanSBTmethodologyisconsideredtoberequired.SBTiconsideredmultiplefactorswhendeterminingthecurrenttargetboundaryandmethodrequirements.Table6.1.Assetclassrequiredactivitiesandmethods.TargetsettingrequirementLegendDescriptionRequiredShallbeincludedinthetargetboundaryifrelevantOptionalMethodsareavailablefortheseassetclasses,buttheyareoptional.Thereisnominimumcoveragerequirementonoptionalactivities,andPEfirmsmaydecidethepercentagecoverageattheirowndiscretion.AssetClassTargetBoundaryRequirementApplicableTargetSettingmethodsPrivateequitydirectinvestments1ElectricityGenerationGotosectionRequired:100%ofbaseyearactivity(kWh)Required:SDARealEstateGotosectionRequired:67%coveragebybaseyearactivityinsquaremeterRequired:SDAOtherPEdirectinvestments(beyondelectricitygenerationandrealestate)GotosectionVersion1.0November2021`37PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgAssetClassTargetBoundaryRequirementApplicableTargetSettingmethodsBuyouts,includingco-investmentsGrowthcapital≥25%ofthefullydilutedsharesofthePCANDboardseat(s)Required:100%coverageofPCsthatmeetthesharesandboardseatconditionSBTPortfoliocoverage:100%ofPCsmeetingthesharesandboardseatconditionsincludedinthe%SBTcoveragecalculationSBTirecommendsthatPEfirmsuseSBTportfoliocoveragetocovermajority-controlledPCsTemperatureRating:100%ofPCsthatmeetthesharesandboardseatconditionsincludedintheTemperatureRatingassessmentVenturecapital,includingstartups,with:->50peopleAND->€10millionannualrevenueOR€10millionbalancesheettotalAND-Inexistenceformorethan5years≥15%ofthefullydilutedsharesofthePCANDboardseat(s)Required:100%coverageofPCsthatmeetthesize,shares,yearsofexistenceandboardseatconditionSBTPortfoliocoverage:100%ofPCsmeetingthesize,shares,yearsofexistenceandboardseatconditionsincludedinthe%SBTcoveragecalculationTemperatureRating:100%ofPCsmeetingthesize,shares,yearsofexistenceandboardseatconditionincludedintheTemperatureRatingassessmentCredit/privateDebt,includinginfrastructuredebtGotosectionOptional:nominimumcoveragerequirement–PEfirmsmaycoverasmuchoftheseactivitiesastheywish2TemperatureRatingRecommendedactions:SBTirecommendsthatPEfirmsrequiresettingpublicGHGemissionsreductiontargetsasalendingconditionforcompaniesreceivingdirectlending.Thiswouldcontributedirectlytoafirm'sprogresstowardsitsTemperatureRatingtargetVersion1.0November2021`38PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgAssetClassTargetBoundaryRequirementApplicableTargetSettingmethodsSecondariesGotosectionFundofFundsGotosectionOptional:nominimumcoveragerequirement–PEfirmsmaycoverasmuchoftheseactivitiesastheywishWhilecurrentmethodsmayofferlimitedapplicability,PEfirmsareencouragedtousetheTemperatureRatingmethodorportfoliocoveragemethodtosetoptionaltargetsRecommendedactions:PEfirmsshouldengageGPstosetoptionalGPengagementtargetstobecommunicatedinthepublicsummaryofactions(findmoredetailsinTable10.1.TargetLanguageandActionSummaryTemplate).However,GPengagementtargetscannotbeformallyvalidatedbySBTiNotes:1.SBTirecognizesthatincertain‘specialsituations'’,theassetclassesinthetablemightnotdirectlyapply.Nevertheless,wherethereisequitystakeinthefirststake,themethodsshouldbeappliedtoprivatedebtasperthepercentageshareholdingsabove.2.Whilstcredit/privatedebtiscurrentlyoptional,forfutureiterations,adeepdivereviewofhowtheassetclasscouldberequiredwillbeundertaken.Source:Authors.APEfirmshallcategorizeitsinvestmentsbyassetclasstoapplyassetspecificcriteria.Forexample,ifaPEfirminPrivateequitydirectInvestmentshasmajorityequityinvestmentsinseveralmanufacturingPCs,realestateassetsandelectricitygenerationassets,thePEfirmshalladopttheportfoliocoverageapproachtocoveronlythemanufacturingPCs,theSDAtocover67%ofrealestateassetsandtheSDAtocover100%ofelectricitygenerationassets.IfaPCisaconglomeratethat’sinvolvedinbothmanufacturingandrealestateactivities,itmaybemoresuitabletocoverthePCwithintheSBTportfoliocoveragetarget,giventhemethodissector-agnostic.WhenaPEfirmhasseveraltypesofinvestmentsinanindividualPCthatfallunderamixofrequiredandoptionalcategories,thestrictertreatmentshallapplyforalloftheinvestments,albeitwithoutduplicativecoverageofthesamePCinmultipletargets.Forexample,ifaPEfirmhas40%sharesandaboardseatinanLBOinvestment(required)andalsoprovidescredit/privatedebt(optional)tothesamePC,thePEfirmshallincludethePCintheboundaryofitsSBTportfoliocoveragetargetonly.Version1.0November2021`39PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org6.1.1FactorsandconsiderationsforcurrenttargetsettingrequirementsThisprojectaimstopromoteachievewidespreadadoptionofcurrentbestpracticespresentedintheGuidance.Toenablethis,theSBTidevisedcleartargetsettingrequirementsforthelargestPEstrategiesintermsofmarketsize,andconsideredPEfirms’theoryofchangeandPCs’maturityindifferentstrategiestoensurepracticalityofapplication.PEfirms’levelofinfluencewasanimportantconsideration,asprivateequityinvestmentsarelargelyilliquidintheinvestmentcycle.ThisisdistinctfromtheFIGuidance’sprojectaudienceoftheholdingmoreliquidinvestmentsandthereforewithmoreleverstoachieveportfolioSBTsbeyondengagement,suchasportfolioshiftingordivestments.Table6.2belowshowsthattheSBTirequiresPEfirmstosettargetsonbuyout,growthcapital,andventurecapital,thethreelargeststrategieswherethereisacleartheoryofchangeandwherePCsaresufficientlymaturetoestablishapprovedSBTs(undertheSBTportfoliocoveragemethod)orpublicGHGemissionsreductiontargets(undertheTemperatureRatingmethod).Foroptionalassetclassesofcredit/privatedebt,fundoffunds,andsecondaries,thetheoryofchangeislessclear.CurrentmethodsacceptedbySBTialsoofferlimitedapplicabilityfortheseassetclasses.UnderthisversionoftheGuidance,theSBTiexpectsPEfirmsthatprimarilyholdPEdirectinvestmentstocovermostoftheirtotalinvestmentactivitiesbyportfolioSBTs.Multi-strategyfirmsareexpectedtosetSBTsontheirPEdirectinvestments,andincreasethepercentageoftheirtotalinvestmentandlendingactivitiescoveredbyportfolioSBTsovertimeifadditionalasset-classmethodsbecomeavailable.ThisensuresthatPEfirmscancollectivelycoverthemostmaterialstrategythattheyaremostwell-positionedtoacton–directinvestments–andaccelerateoverallESGgrowthinotherstrategiesbyimprovingprivatecompanies’GHGemissionscalculationsandtargetsettingpractices.Overtime,theSBTimayreviseTable6.1asmoremethodsbecomeavailableandasthelatestclimatescienceandbestpracticesevolve.PEfirmsmaysettargetstocoveradditionalassetclassesthroughtheresubmissionprocess.Table6.2.FactorsdeterminingcurrenttargetsettingrequirementsStrategyCurrentmarketsizePE’sinfluence/theoryofchangePC’smaturityCurrenttargetsettingrequirementBuyout♦♦♦♦$2,276billion♦♦♦♦ClearopportunitytoengagePCsgiven%share♦♦♦♦Usuallymature24RequiredforPCswithmorethan25%ofshareandboardseatGrowth♦♦$779billion♦♦♦♦♦♦♦Growth24UsuallymatureforLargeCapandupperMid-Cap;relativelyimmature-similartoGrowth–formid/lowerMid-CapandSmallCap,withobviousexceptionssuchasdistressedbuyout.Version1.0November2021`40PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgClearopportunitytoengagePCsgiven%shareVenturecapital♦♦♦$1,242billion♦♦♦♦Significantinfluenceoverearly-stagePCs♦♦StartupsRequiredforlaterstagestartupswithmorethan15%ofshareandboardseatPrivatedebt♦♦$883billion♦Mostopportunityatdirectlending♦♦♦♦AllstagesPrivatedebtwithequityinvestmentsthatmeetthethresholdsforbuyout/growtharerequiredOtherprivatedebtstrategiesareoptionalFundoffunds♦$381billion(2017figurefromPreqin)♦FarremovedfromPCs♦♦♦♦AllstagesOptionalSecondaries♦$87billionraisedin2020♦MostopportunityatGP-ledsecondaries♦♦♦♦AllstagesOptionalSource:McKinsey&Company,2021;Preqin,20176.2RealEstateandElectricityGenerationPrivateEquityInvestmentsThissectiondescribesdefinitionsofprivateequityinvestmentsinrealestateandelectricitygenerationassets,andtherelevantcriteriaandstepstosettargetsontheseassetsusingtheSectoralDecarbonizationApproach(SDA).TheSDAisamethodforsettingphysicalintensitytargetsthatusesconvergenceofemissionsintensity.Anintensitytargetisdefinedbyareductioninemissionsrelativetoaspecificbusinessmetric,suchasproductionoutputofthecompany(e.g.,metrictonneCO2epertonneproductproduced).TheSDAassumesglobalconvergenceofkeysectors’emissionsintensityby2050.TheSBTihasidentifiedtheSDAastherequiredmethodforthesetwoassetclassesanddevisedrelevanttargetboundaryrequirementsspecifictothemethod.ThisistoensurePEfirms’targetscoveringthesetwohigh-emittingassetclassesareconsistent,comparable,andbasedonthesamesectoralphysicalintensitymetrics.SDAtargetsareconsideredacceptablewhenPE-C18.1–SectoralDecarbonizationApproachTargetsinSection4.6aremet.FormoreinformationontheSDAmethod,pleaseseeSection5.4.1intheFIGuidance.Whererelevant,thissectionreferencesmethodapplicationinstructionsavailableintheFIGuidance.Version1.0November2021`41PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org6.2.1RealestateandelectricitygenerationprivateequityinvestmentsThetwomainformsofprivateinvestmentsintheinstitutionalrealestatemarketareprivateequityandprivatedebt.Thissectiondiscussesrealestateprivateequity–realestateprivatedebtisdiscussedinSection6.4.RealestatePEfirms,orPEfirmsinvestinginrealestateasanassetclass,deploycapitaltoacquireanddevelop(usuallycommercial)propertiestooperateandimprovethem,andthensellthemtoreceiveareturnontheirinvestment.Asprivateequityrealestaterequiresahighamountofcapital,itisoftenonlyaccessibletohigh-net-worthindividualsorinstitutionalinvestors,suchaspensionfundsandassetmanagers.Thesefundsarenottradedpublicly(Kagen,2021).Realestateequityisprimarilymajority-sharePEfirmownership.However,sometimesPEfirmsco-investinrealestatewithotherPEfirmstoreducerisk.Therefore,minorityshareinrealestateisalsopartofthePEfirmmarket.CorporateloanrealestateofferstheclosestparallelbetweenthisGuidanceandtheFIGuidance.Thedifference:thenatureoftheinvestmentislending,whereasinprivateequitythePEfirmhasdirectequityintherealestate.Theinfluenceasanequityholderistypicallygreateroverthemanagementcompanythatmakesdecisionsovertheassets’decarbonization,evenwherethereisaminorityshare,thantheinfluencealenderhasoverthesameparty.6.2.2ElectricitygenerationprivateequitydefinitionThisassetclassreferstodirectprivateequityinvestmentsincompaniesandprojectsthatparticipateinthegenerationandsalesofelectricity.GiventhescopeoftheIEAEnergyTechnologyPerspectivesscenario(2017)thatunderliestheSDAmethod,electricitytransmissionanddistribution(T&D)companiesandprojectsarenotcoveredwithinthisassetclass.Directprivateequityinvestmentsinassetsthatgenerateandsellelectricityareprimarilymajorityownedinvestments.However,sometimesthePEfirmownsaminorityshareinsuchassetsthroughco-investmentoftenasameansofreducingrisk.6.2.3SDAforrealestateprivateequityinvestmentsPEfirmsinvestingintheequityofrealestateassets,regardlessoftheequityshare,arerequiredtosettargetson67%ofbaseyearactivitybysquaremeter.PEfirmsarerequiredtousetheSDAmethod,whichprovidessector-specificpathwaysfortheenergyuseofresidentialandservicebuildings.Theembodiedemissionsofthebuildings’materialsarecurrentlynotincludedduetohighdatauncertainty.Therefore,thismethodisnotapplicabletoconstructionorrehabilitationofproperties.AdedicatedtoolisavailableformodellingSDAtargetsforcommercialrealestatebuildings.AnnexBintheFIGuidanceprovidesmoredetailsonthismethod’sapplication.Toensure67%coverage,PEfirmsshouldprioritizetheinclusionofassetsinregionswherebuildings’emissionsdataorbuildings’energy-relateddataareavailable,orwheredataqualityVersion1.0November2021`42PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgisgenerallyhigherquality.However,thisshouldnotdeterPEfirmsfromincludingassetsinregionswhereonlyproxyoraveragedataareavailable.ToapplytheSDAmethod,thePEfirmshallfirstlycalculateitsfinancedemissionsforitsrealestateportfolio.TheSBTihasidentifiedtheGlobalGHGAccountingandReportingStandardfortheFinancialIndustry(PCAF2020),developedbythePartnershipforCarbonAccountingFinancials(PCAF),asafreelyavailableapproachtomeasureasset-level–financedemissions.PCAFhasdetermined‘Outstandingloanorinvestmentamountofproperties/Propertyvaluesatthetimeofinvestment’asthefactortoattributeemissionstoaFI’sportfolio(seeAnnexBinFIGuidance).ThisattributionfactortocalculatefinancedemissionsprovidesflexibilityforPEfirmstoadopttheSDAmethod,ensuringthatthePEfirm’sequityshareinarealestateassetisproportionaltoemissionsattributedtothefirm.6.2.4SDAforelectricitygenerationprivateequityinvestmentsPEfirmsinvestingintheequityofelectricityassets,regardlessoftheequityshare25,arerequiredtosettargetson100%ofbaseyearactivitybykilowatthourusingtheSDAmethod.SBTihasidentified100%asthecoveragerequirementforelectricitygenerationassets,asacrucialstepfortransformingtheelectricitysector,criticaltoreachnet-zeroemissionsby2050.Electricitygenerationaccountsfor36%oftotalenergyrelated-emissionstoday,thelargestsourceofenergy-relatedemissions(IEA2021).InIEA’srecentlyreleasedNet-ZeroEmissionsby2050Scenario(NZE),globalelectricitydemandisprojectedtoincreaseby80%between2020and2050,whereglobalgenerationfromrenewablesourcesmusttripleby2030andgroweighttimesby2050(IEA2021).Theassetclassisalsoclosely-linkedwithPE-R10–PhaseoutofThermalCoalInvestmentsandPE-R11–DisclosureofFossilFuelInvestmentsandLending,asusingfossilfuelsinfacilitieswithoutcarboncapture,utilizationandstorage(CCUS)inelectricitygenerationmustdeclinesharplytoreachnet-zeroemissions.Forinstance,accordingtoNZE,unabatedcoal-firedgenerationmustdeclineby70%by2030andlarge-scaleoil-firedgenerationmustbephasedoutinthe2030s(IEA2021).TheSDAmethodcoverselectricitygenerationfromsourcessuchasoil,coal,naturalgas,nuclear,biomassandwaste,hydro,geothermal,wind,solarphotovoltaics(PV)andconcentratesolarpower(CSP),ocean,andhydrogen(IEA2017)26.Similartorealestateassets,PEfirmsshallfirstcalculatethefinancedemissionsofitsPEinvestmentsinelectricitygeneration.PCAFhasdeterminedOutstandingamountversusthetotalbalancesheet(i.e.,equity+debt)asthefactortoattributeprivatecompanies'emissionstoaFI’sportfolio(PCAF2020).Forelectricitygenerationprojects,theattributionfactoristheratiobetweentheinstitution’soutstandingamount(numerator)andthetotalequityanddebtofthefinanced25Pernote1ofTable6.2,ifaPEfirmhasbothequityanddebtinvestmentsinelectricitygenerationassets,theyshallincludetheseassetsintheSDAtarget,astherequirementtosettargetsonequityinvestmentstakesprecedence.26Treatmentofinvestmentsleadingtonegativeemissionsfromthepowersector,suchasbioenergywithcarboncaptureandstorage(BECCS)andcarboncaptureandstorage(CCS)arecurrentlyoutofscope.ThistopicwillberevisitedoncetheGHGProtocolremovalguidanceisdevelopedandaspartoftheSBTi’snet-zerotargetdiscussion.Version1.0November2021`43PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgproject(denominator).AtoolisavailableformodellingSDAtargetsforpowergeneration,withadditionaldetailprovidedinAnnexCoftheFIGuidance.6.3PrivateEquityDirectInvestments,IncludingBuyout,GrowthCapitalandVentureCapital6.3.1DefinitionForthepurposesofthisGuidance,thiscategoryisconsideredtoincludeequityinvestmentinbothbusiness-to-business(B2B)andbusiness-to-company(B2C)typecommercialbusinessesandinfrastructureassetswhichareoperatedbyaPEfirm.InvestmentsinrealestateprivateequityarediscussedseparatelyinSection6.2.Privateequitydirectinvestmentstypicallyinvolvemediumtolong-termfinanceprovidedtobusinessesinreturnforanequitystake.Thisismorecommoninunlistedcompanies–however,situationsarisewherealistedentityisacquiredtobecomeprivate.EachfundwillmakemultiplesuchinvestmentswiththebusinessesinvestedinreferredtoasPCs.Therelativepercentageofequityownedwillvary.Equitystakesaregenerallycategorizedintomajority(>50%equity)orminority(<50%equity)positions.Thelargertheequitystake,thegreatertheinfluencethatcanbeexertedonthebusiness.Incertaincircumstances,thisinfluencewillbeexertedthroughtheGPreceivingaboardseat.Occasionally,someGPswillpartnertoacquireastakeinabusiness,oraGPwillinviteanLPtomakeadirectinvestment(‘co-investment’).Theequitypositionsareusuallyheldforthreetofiveyears,albeitholdsofuptotenyearswilloccur.Longertermsmayoccurwheretheinvestmentisininfrastructureassets.Duringthatholdperiod,theGPwillworkwithmanagementtohelpthemachievesignificantgrowth,organically,andthroughtheacquisitionandmergerof‘bolt-on’businesses.Atexit,theGPwillsellitsstakeinthebusinessorasseteitherthroughaprivatesaleoraninitialpublicoffering(IPO).6.3.2RelevanttargetsettingboundaryAsshowninTable6.1,SBTirequiresthattheGP,orthePEfirm,usestheSBTportfoliocoveragemethodortheTemperatureRatingmethodtosettargetsonPCsinitsmanagedfundswherethefirmhasacertainpercentageofsharesandboardseat,dependingonthespecificinvestmentstrategy.ThisexcludesinvestmentsinrealestateandelectricitygenerationassetsforwhichtheSDAmethodisrequired(seeSection6.2).SBTihasdevisednuancedsharethresholdsforbuyout,growthcapital,andventurecapital,consideringPEfirm’sinfluencewithineachstrategyaswellastheportfoliocompanies'maturityandabilitytoreducetheirGHGemissions.SBTirequiresfirmsthatuseSBTportfoliocoveragetoinclude100%ofPCsthatmeetthesharesandboardseatconditioninthe%SBTcoveragecalculation.FirmsusingtheTemperatureRatingapproachmustinclude100%ofPCsmeetingthesharesandboardseatcondition(aswellassizeandageconditionforventurecapital)intheTemperatureRatingassessmentandtemperaturescorealignmenttarget.Version1.0November2021`44PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgBuyoutandgrowthcapital,with≥25%ofthefullydilutedsharesofthePCANDboardseat(s)APEfirmfulfillingthiscriteriaisconsideredtohavesufficientinfluenceoveritsPCsinbuyoutandgrowthstrategiesandshallleverageittoengageandencouragePCstomakelow-carbontransitionsthroughsettingapprovedSBTsorpublicGHGemissionsreductiontargets.27InlinewithSBTifinance’stheoryofchangethatallactorsacrossavaluechainshareinfluenceoverthedirectemissionsofeachactor-andthereforeshareresponsibilityforreducingthem-thisthresholdappliesregardlessofwhetherthePEfirmistheleadinvestor.VenturecapitalStartupcompaniesinventurestrategieswherethefirmhasmorethan15%ofthefullydilutedsharesANDboardseat(s)thatfulfillthefollowingconditionsmustbeincludedinaPEfirm’stargetboundary:●Morethan50peopleAND●Morethan€10millionannualturnoverORbalancesheetAND●Havebeeninexistencefor5yearsTheconditionsaboveareadoptedfromtheEuropeanCommission’sdefinitionofsmallcompanies(EuropeanCommission,2016)andintendtocapturelater-stagestartupsthatarebetterpositionedtosetSBTsorpublicGHGemissionsreductiontargets.6.3.3ApplicablemethodsandrecommendationsonmethodselectionTheSBTportfoliocoverageandTemperatureRatingmethodsaretwoacceptedmethodsforsettingtargetsonprivateequitydirectinvestments.AdoptionofeithermethodrequiresGPstoincludeacompany’sabilitytomitigateitsemissionsasakeyconsiderationforallfutureinvestmentdecisions.ThemaindifferenceiswhetherSBTiapprovalofPC’stargetsarerequired(i.e.TheSBTportfoliocoveragedoeswhereastheTemperatureRatingmethoddoesnot).Thissectionincludesrecommendationsonmethodselection(Section6.3.4)andasummaryofthesemethods.Section6.3.5belowprovidespracticalrecommendationsonapplyingbothmethodsconsideringaPEfirm’sinvestmentcycle.6.3.4RecommendationsonmethodselectionSBTirecommendsthatGPsprioritizeusingSBTportfoliocoveragewhereverpossible,givenitrequiresPCs’targetstobereviewedthroughSBTi’srigorous,best-practicevalidationprocess.Throughtheirdirectequityinvestments,PEfirmsarewellpositionedtoinfluenceandsupporttheirPCstoobtainapprovedSBTs.27InapreviousiterationofthisGuidance,SBTiincludedtwothresholdsforbuyoutandgrowthcapital.Forbuyout,thethresholdwas≥30%sharesandoneboardseatgiventhatminorityinvestorsinbuyoutstendtobemorepassiveandhavelimitedinfluenceoverthePCs,astheymaybeinvestingalongsideanotherleadingPEfunddrivingtheacquisitionorinasyndicatedstakeinthePCs.Forgrowthcapital,thethresholdwaslowerat≥20%sharesandoneboardseatgiventhatinvestmentsingrowthcapitalareoftenconvertiblepreferredequityinvestmentsthatgranttheinvestorsmoreshareholderrightstodrivethestrategyandoutcomesdespiteowningminorityshares.Publicconsultationoftheguidanceshowedthatclearquantitativedefinitionsforcompaniesinbuyoutandgrowthstrategiesdon’tyetexist.Tostreamlineandensureconsistencyintargetsetting,SBTimergedthesetwothresholdsinto≥25%ofthefullydilutedsharesANDboardseat(s).Version1.0November2021`45PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgInpractice,itmightbechallengingforGPstoengageeveryfirmtosetapprovedSBTs,especiallyforminority-ownedPCswherethefirmholds25~50%share,biggerPEfirms,lessmaturefirms,andcertaingeographieswhereobtainingapprovedSBTsremainscumbersome.Inthesecases,SBTisuggeststhattheTemperatureRatingmethodbeusedforminority-ownedPCsandforstartupcompaniesinventurestrategieswhereeconomicintensitytargetsthataremoreappropriateforfast-growingcompaniescanbeset.WhileSBTiestablishedthresholdsforbuyout,growth,andventurecapital,GPsareencouragedtoestablishtargetsusingoneofthetwomethodsforPCsthatfalloutsideofthethresholdsforthebuyoutandgrowthstrategiesandengagestartupcompaniesoutsideofthethresholdtomeasuretheiremissionsasanimportantstartingpointintheirclimatemitigationjourney.Figure6.1.MethodhierarchybasedonpercentageofsharesaPEfirmholdsinPCsinbuyout,growth,andventurestrategiesSource:Authors.TheSBTportfoliocoverageapproachisanengagement-basedapproachwheretheGPcommitstohavingapercentageofitsportfoliowithapprovedSBTsfiveyearsfromthetimetheGP’stargetissubmittedtoSBTiforofficialvalidation,sothatthefirmisonalinearpathtoachieve100%SBTcoverageby2040atthelatest.APEfirmwouldcommittoaminimumshort-termfive-yearcoveragetargetandisfurtherencouragedtosetanoptionallong-termcoveragetargetfortheyearthatitexpectstomeet100%SBTcoverage.Reaching100%byanearlieryear,e.g.,2030,ishighlyrecommended.PEfirms’targetstoaligntheportfoliocoverageoftheirbuyout,growthcapitalandventurecapitalwithambitionoftheParisAgreementareconsideredacceptablewhenthePE-C18.2SBTportfoliocoverageapproachcriteriaaremet(seeSection4.6).Version1.0November2021`46PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org6.3.4.1MetricstodefineSBTcoverageWhenmodelingaSBTportfoliocoveragetarget,itisimportanttodecideonametrictodefine“%SBTcoverage”.Themostrecommendedmetricisthescope1,2,and3GHGemissionsofPCs–scope3emissionsshouldbeincludedregardlessofwhetherthePC’sScope3arelessthan40%fortotalscope1,2and3GHGemissions.UsingPCs’emissionstodefineSBTcoveragehelpsprioritizehigh-emittingcompanies.BothestimatedandreportedGHGemissionsdatacanbeused.PartnershipforCarbonAccountingFinancials’datascorecardisausefulresourcetogatherPCs’emissionsdata(PCAF2020).WhileverifiedandreportedGHGemissionsofPCsispreferred,unverifiedandreportedemissions–aswellasestimatedemissionsthroughmultiplyingaveragesectoremissionsfactorandrevenue–arealsoaccepted(inorderofpriority).AhybridofdatasourcesmayalsobeusedtogatherPCs’emissions.Ifscope3emissionsarenotavailable,scope1and2emissionsofPCcanalsobeusedtodefineSBTcoverage.WhilePCs’scope1-3orscope1-2emissionsaremostrecommended,PEfirmsmightnothavethatinformationinthebaseyearormightfinditdifficulttoprojectemissionsoffutureinvestments.Forthesereasons,SBTiacceptstheuseofinvestedcapitalasanalternativeinterimmetrictodefineSBTcoverageuntilscope1,2,and3emissionsofallPCsareavailable.UsinginvestedcapitalallowsthePEfirmtobasetheircoveragetargetsonwheretheirinvestmentsaredistributed.Alongsideinvestedcapital,afirm’sco-investmentshouldbeincludedifthefirm’scombinedstakesinaPCareabovethepercentagesharesandboardseatthresholdrequiredfortherelevantstrategies.InChapter5,SBTirecommendsthePEfirmsalsodisclosetheGHGemissionsofthePCscoveredbySBTsintheirownESGannualfilingsiftheyareusingafinancialmetricforcoverage.Overtime,obtainingPCs’scope1,2,and3emissionsshouldbecomeastandardpracticeforPEfirms.Section8.1providesadditionalguidanceontrackingandreportingprogressovertheselectedmetric.Figure6.2.HierarchyofmetricstodefineSBTcoverageSource:Authors,adoptedfromPCAF’sdataqualityscorecard(PCAF2020).Version1.0November2021`47PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgTemperatureRating.AsshowninTable6.1,SBTirecommendsthatthePEfirmusestheSBTTemperatureRatingmethodasanalternativefortherequiredassetclassesbuyout,growthcapitalandventurecapital,whilstitistheprincipalmethodrecommendedfortheassetclasscredit/privatedebt.TheSBTirecognizesthatsustainability-linkedloanspresentlyofferasmallproportionofthecreditmarket–however,PEfirmsareencouragedtousetheTemperatureRatingmethodtotrackthem.Thisoffersanopportunityinthecreditspacetoincentivizecompaniestomeettheirtargetsandhelpimproveloanrates,whichinturnbenefitsthelenderfromnewmarketgrowth.TheTemperatureRatingApproachcalculatesindividualportfoliocompanies'scope1,2,and3temperaturescoresbasedontheirpublicemissionsreductiontargetsandaggregatesthemuptogenerateafirm’scurrentTemperatureRatingscore.TheTemperatureRatingApproach’sgoalisforPEfirmstoalignandsetthePC/borrowercompanies’ownscope1and2temperaturescorewithaminimumwell-below2degreesCelsiusscenario,andinadditionaligntheirPCs/borrowercompanies’toaminimum2degreesCelsiusscenarioforthePCsownscope1,2and3emissionsby2040,asshowninFigure6.3.SBTivalidationisnotrequiredforportfoliocompanies’emissionsreductiontargets.Themethodusesanopen-sourceframeworktoenablethetranslationofanyexistingGHGemissionsreductionstargetsintotemperaturescoresataPC/borrowercompanylevel:●IfthePC/borrowercompanyhasanexistingGHGreductiontarget,themethodcanbeusedtogeneratetemperaturescorestotranslatetargetambitiontoacommonintuitivemetric,temperature.●IfthePC/borrowercompanydoesnothaveanexistingGHGreductiontarget,agenerictemperaturescoreof3.2°Cisapplied.Figure6.3.LineardecreaseapproachoftheTemperatureRatingmethodSource:TheSBTiVersion1.0November2021`48PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgInitially,theTemperatureRatingApproachmayrequiremoretimetocollecttheGHGdataandtargetsfromallPCs/borrowercompaniesdefinedintheassetclassboundary.Anexampleoftheonlinetoolcanbefoundhere.TheTemperatureRatingApproachenablesPCs/borrowercompanies’ownpublicGHGemissionsreductionstargetstobescored.ThiscouldallowthePCs/borrowercompaniestogetrecognizedfasterforGHGreductionmeasuresthatimpacttherealeconomy,duetolessofaresourcestrainoneachPC/borrowercompanyformallysettingSBTs.Unliketheportfoliocoverageapproach,theTemperatureRatingApproachrequiresthePC/borrowercompanytohaveemissionsdata.Whereitisnotreadilyavailablefortheborrowercompany,alternativerobustemissionsdatashouldbeobtained,suchasdataofferedbyCDPorotherthird-partysourcesaligningemissionsestimationstotheGHGProtocol,i.e.category15‘investment-specificmethod’or‘average-datamethod’.IfthePCborrower/companydoesnothaveanexistingGHGtarget,theywillbegivenadefaulttemperaturescoreof3.2°Concealldatainputsaresatisfiedwithinthetool,i.e.,emissionsdata.Theindividualscoresforscope1,2andscope3(ifscope3emissionsaregreaterthan40%oftotalscope1,2and3)areaggregatedtoproduceanoverallscope1+2+3score.ThisiscompletedwithGHGinventorydataandtheoutputisweightedtoproducescope1+2+3scores.Theweightingalsoconsidersthecoverageofemissionsdata:thelowerthecoverage,thehigherthelikelytemperaturescorewillbe,compoundingtheneed,foreachPC/borrowercompanytoundertakearobustGHGinventory.Liketheportfoliocoverageapproach,thePEfirmshouldsetbothashort-termportfolioalignmenttargetfiveyearsfromthedatetargetsaresubmittedtotheSBTiforofficialvalidation.Along-termportfolioalignmenttargetfortheyearthePEfirmmeetstherequiredendTemperatureRatingsshouldalsobeconsidered.TheSBTistronglyencouragesPEfirmstoupambitiontosetlong-termTemperatureRatingtarget(s)priorto2040.6.3.5RecommendationsonmethodapplicationconsideringthePEinvestmentcyclePEintheinvestmentcycleislargelyilliquidasPEfirmsaresomewhatboundtotheirinvestmentswithPCsforaholdoftypicallythreetofiveyears.Therefore,toensuretheportfoliocoverageandTemperatureRatingmethodscanbeappliedpracticallyinthePElandscape,thefollowingAdditionalRecommendationshavebeenprovided.ExistingPositions.ExistingpositionsatthetimeofaPEfirm’stargetsubmissionmustbeincludedinthetargetboundary.PEfirmsshouldestablishfirm-specificfactorstodeterminewhichPCsshouldbeprioritizedforengagementefforts.BeinginamatureandinthedivestingphasealoneshouldnotprecludeafirmfromengagingaPC.ProjectingFutureSBTCoverage.Alongsidemodelingsizeandcyclesoffutureinvestmentsinfiveyears–andupuntil2040–toprojectfutureSBTcoverage,PEfirmsmustalsomakeVersion1.0November2021`49PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgassumptionsaboutthesuccessrateandtimerequiredforeachPCtoobtainSBTiapproval.Theseassumptionsdependonfirm-specificfactors.WhileonefirmmayassumethatallPCsneedthesameamountoftimetoobtainSBTiapprovals(e.g.,24months),othersmightwishtodeterminethetimeperiodspecifictoeachindividualPC.Afirmmaymodeldifferentscenarioswithlow,medium,andhighsuccessratesofobtainingSBTiapprovalandsubmittargetsbasedonthelevelofambitionitfindsappropriateandwishestopursue.Furthermore,thePEfirmshouldconsidertheprojectedchangeintheselectedmetrictodefineSBTcoverageovertime,e.g.,ifPCsGHGemissionsaretoreduceinabsoluteterms,orifusingafinancialselectedmetric,ifinvestedcapitalissettoincreaseinlinewiththePEfirms’owngrowthtrajectory(seeSection6.3formoreinformation).AcquisitionofcompanieswithapprovedSBTs.IfPEfirmsacquirePCswithexistingapprovedSBTs,thesePCsshallbeincludedinthepercentageSBTcalculation.Suchacquisitionswilldirectlycontributetowardtheachievementofportfoliocoverageapproach.ThisencouragesPEfirmstoacquirePCswithapprovedSBTsthatwillhelptheirprogresstowardtheirportfoliocoverage.WiththeongoingstrongmomentumofcompaniesjoiningSBTiandinvestorsengagingtheirinvesteesandborrowerstosetSBTs,intheoryPEfirmswillhavealargeruniverseofcompanieswithapprovedSBTstoinvestin.6.3.6Example:SettingaSBTportfoliocoveragetargetSeveralkeyfactorsshouldbeconsideredwhenapplyingtheSBTportfoliocoveragemethodtoaPEfirm.AsPEfirmsholdPCsfortypicallyfiveyears,it’simportanttoclarifytheimplicationsofincreasingSBTcoverageonanever-shiftingportfolio.AtthetimeafirmsetsanSBT,itlikelyhasexistingpositionsinPCsthatitplanstodivestfromsoon.AsPEfirmscontinuetoraisecapitalandmakenewinvestments,theirSBTcoveragemayfluctuatedependingonthetypeofcompaniesacquiredandwhethertheyintentionallyinvestincompaniesthatalreadyhaveapprovedSBTsinfuture.ThissectionpresentsanexampleofapplyingtheSBTportfoliocoveragemethodtoanillustrativePEfirm,TransitionCapitalthathasthreefundsinitsportfolio-FundA,BandCin2020:●FundAconsistsofexistingpositions.IthasbeenfullyinvestedandthefirmisstartingtoexitfromsomeofthePCs.Thefirmused‘buyandbuild’strategiesandmergedexistingPCswithnew‘bolt-ons’toachievesignificantgrowth.SomepartsoftheexistingPCsaresoldasseparateentitiesovertheyears.AllsharesinFundAaremajority(>50%)shares●FundBisraisedin2020,andthefirstinvestmentsaremadestartingfrom2020.ThefirmenvisionsasimilarstrategyforFundBasFundA.AllsharesinFundBaremajorityshares●FundCisanewventurecapitalfund,consistingofstartupswithfewerthan30employees,inexistenceforfewerthan3years.Veryfewstartupshavestartedtomeasureemissions.However,theyareexpectedtogrowastheyexpandtheirbusinessVersion1.0November2021`50PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.organdthroughthefirm’s‘buyandbuild’strategies.AllsharesinFundCareminoritysharesof15~20%In2020,TransitionCapitalwouldliketosubmititsSBTsthisyear.FollowingtheTargetTimeframecriterion,thelatesttargetyearallowedfortherequiredshort-termtargetwouldbe2025.AquickreviewofthethreefundsrevealsthatnoexistingPCshavesetSBTs.Therefore,TransitionCapitalisstartingat0%SBTcompanycoveragein2020,andwouldhavetoachieve25%SBTcoveragein2025tobeonalineartrajectoryto100%SBTcoveragein2040:●MinimumannuallinearincreaseofSBTcoverage:(100%-0%)/(2040-2020)=5%●MinimumtargetyearSBTcoverage:5%x(2025-2020)=25%SincethestartupsinFundCfalloutsideofSBTi’sminimumsizeandagethreshold(asdescribedinTable6.1),TransitionCapitaldecidedtoexcludeFundCfromitstargetcoverage,butplannedtoengageallstartupstoestablishtheirGHGemissionsasaninterimstep.TransitionCapitalhasnotyetcalculatedallofitsexistingPCs’scope1,2,and3emissions.Therefore,itselectedinvestedcapitalasthemetrictodefineSBTcoverageandexpectstoupdatetheinvestedcapitalinboththedenominatorandnumeratorof%SBTcalculationastheyfluctuatewithbolt-onsandsalesofPCs.However,followingSBTi’srecommendationinSection6.3.6ofthisGuidance,TransitionCapitalplanstoswitchtoestimatedscope1,2,and3emissionsofPCstodefine%SBTcoverageintwoyears,andreportedemissionsofPCsinfiveyears.TransitionCapitalproceedstodevisedifferentengagementstrategiesforitsthreefunds.TransitionCapitaldeterminedafewfactorstoprioritizewhichPCsshouldbethefocusofengagementandsubsequentlyidentifiedafewPCsinFundAthatitplanstoengageforsettingSBTs.ForFundB,theFirmhasstrongleverstoinfluencePCstosetSBTsastheinvestmentshavejustbeenmade.Forallfuturenewinvestmentsthefirmprojectstomakeupto2025,itplanstoincludeemissionsmeasurementandSBTsettingasarequirementinthesePCs’100-dayplan.BasedoneachPC’soverallmaturityandcurrentprogressonemissionsmeasurement,TransitionCapitalprojectedtheyearinwhichthePCsmightobtainSBTi’sapproval.TheFirmconsideredthateachPCwouldtakeonaverage12monthstohaveavalidatedSBTtoreflecttheinherentnatureofTransitionCapitalinprovidingtransformationalchangepostinvestmentwithsettingSBTshighonthepriorityagenda.Figure5.4belowshowsanexampleofTransitionCapital’smodellingofFundB.Version1.0November2021`51PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgFigure5.4.ModelingfutureSBTcoverageofTransitionCapital’sFundB(consideringPCsat12monthssinceinvestment)Source:AuthorsGiventhemetricselectedtocalculateSBTcoverage(i.e.,investedcapital),theengagementstrategy,theassumptionofthetimeperiodittakeseachPCtoobtainSBTapproval,TransitionCapitalprojectsthatitwillreach35%SBTcoveragein2025forFundAandFundB,whicharerequiredtobecoveredbyaPEfirm’stargets(seeTable6.1).Figure6.5.TransitionCapital’sannualpercentageofSBTcoveragebyinvestedcapital,comparedtoSBTi’sminimumcoveragerequirement.Source:AuthorsAfterconductingtheexerciseabove,TransitionCapitalisreadytosubmitatargetthatcommitsitselftoachieve35%SBTcoveragebyinvestedcapitalby2025,coveringFundAandBforthetimebeing.Buildingonthisexercise,italsoplanstofurtherprojectthetargetupto2030and2040.35%25%0%5%10%15%20%25%30%35%40%202020212022202320242025FundAandB:Projected%SBTcoverage(PCsat12monthssinceinvestments)Annual%SBTcoveragebyinvestedcapitalMinSBTrequirementVersion1.0November2021`52PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org6.4Credit/privateDebt6.4.1DefinitionAdebtfundcomprisesprivateequitybackedcapitalthatloansmoneytobuyersorownersofcompaniesorassets,asopposedtoacquiringequity.ForthepurposeofthisGuidance,lendersarespecialistprivatecreditfundsbutcanbefromanynon-bankprivateFIs(Preqin2021).Privatedebtisnottradedorissuedinanopenmarket.Lendingprivatedebtcanbetobothlistedorunlistedcompanies,aswellastorealassetssuchasinfrastructureandrealestate.Thereareamultitudeofprivatedebtsub-strategieseachwithdifferingandrelativerisk/returncharacteristicsassetoutinascendingorderinFigure6.6below.Figure6.6.Privatedebtsub-strategies28.Source:Authors.Acrossdebtsub-strategies,PEfirmsprovideasignificantlyhighervolumeoflendingdealstocompaniesorassetsthanthenumberofdealsmadeinPEPCs.PEfirmsthereforeofferdebtproductspre-packagedtoattractofftheshelfinterest.Ofthesecreditproducts,PEfirmsalsoprovidesyndicateddebtfromagroupoflenders.Therefore,theSBTdeploymentshouldconsiderwherethePEfirmhasmostinfluenceovertheborrowercompanyasastartingpoint,e.g.,solebilateraldirectlendingcouldoffermoreinfluencethansyndicateddebt.28TheSBTirecognizesthatmezzanineandspecialsituationsoftenhavesignificantequity,thus‘required’assetclassesandmethodsofTable6.6applyinthefirstinstance.Forinstance,ifaPEfirm’smezzaninedebthasforexample30%equityinacompany,thentheportfoliocoverageapproachwouldapplyandthedebtportionwouldnotberequiredtobecoveredbythecredit/privatedebtassetclasstemperatureratingmethod,toavoidduplicationoftargetcoverageofthesamecompany.Version1.0November2021`53PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org6.4.2Futurework,recommendedmethod,andrelevantcriteriaSBTiappreciatesthecomplexityofcredit/privatedebtandtheabilityofthelenderstoinfluenceborrowersconsistently.ItistheSBTi’sintentionthatprivatedebtwillbefurtherexploredinthenextphaseofthisGuidance,todefinewherecredit/privatedebtcouldbea‘required’assetclass.ForthetimebeingSBTiencouragesPEfirmstousetheSBTTemperatureRatingApproachtosettargetsontheoptionalassetclassofcredit/privatedebt.ThroughthelendingthatPEfirmsoffer,thereareopportunitiestoinfluenceborrowers(companiesreceivingloansfromPEfirms)inaligningwitha1.5degreesCelsiusworld.TheSBTirecommendsthatPEfirmsintheassetclasscredit/privatedebtdefinesub-strategiesfortheboundaryandsetapercentagecoverageofborrowercompaniesfromthefirstyearofadoption.PEfirmsarerecommendedtoadoptatransparencyprincipletoensuretheyearlydisclosureofcompaniesthathaveandhavenotsetTemperatureRatingtargets–aswellasthosethathaveandhavenotmettheirtargetstoreducetheirtemperaturescores.TheSBTirecognizesthatincertainyears,theborrowercompanymightnotmeettheintendedscoresandinotheryearstheymightimprovethescoressignificantlyastheinvestmentinGHGemissionsreductionisnotlinear.Directlending.PEfirmsthatprovidedirectlendingarestronglyrecommendedtoleveragetheirpositionandengagethecompany'smanagementtoinfluencetheborrowercompanytoreducetheirGHGemissions,asalendingcondition,onatrajectorytowarda1.5degreesCelsiusTemperatureRating.WhilstitisrecommendedtheborrowercompanysetsapprovedSBTs,itisnotrequiredbytheTemperatureRatingmethod-specificcriteria.Otherprivatedebtsub-strategies.Whiledirectlendinghastheclearestopportunityforinfluencethroughengagementwiththeborrowercompany,theSBTirecommendsthatPEfirmsalignothersub-strategiesofcredit/privatedebtwherethereareopportunitiestoengageandsetTemperatureRatingtargets–especiallywherethePEfirmislendingtofirmswithstrongsustainabilitycredentials,existingGHGinventoriesandtargets,orwherethePEfirmcaninfluencetheborrowercompanytoachievethese.Criteria.PEfirms’targetstoaligntheTemperatureRatingoftheircredit/privatedebtwithambitionoftheParisAgreementareconsideredacceptablewhenthePE-C18.3–PortfolioTemperatureRatingTargetscriteriaaremet.Toensurethatthemostrepresentativetemperaturescoresareproducedatthetimeofsettingtargets,forloanswherethePEfirmhasthemostinfluencetoencourageareductionoftheborrowers’GHGemissions,thefollowingAdditionalRecommendationstotheTemperatureRatingapproachhavebeenprovided.ExistingLoans.PEfirmsshouldfocusonexistingdirectlendingloanswherethereisastrongengagementinplacewiththeborrowercompany.Whilealldirectlendingiswithintherecommendedboundary,PEfirmsmaydecidethatexistingloanswherethereislesspotentialinfluence,arenotthefocusoftheengagement.Version1.0November2021`54PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgEngagementplan.ThekeytoimplementingandtrackingtargetprogresswillbethePEfirms’engagementwiththeborrowingcompanies.UsingtheTemperatureRatingmethod,PEfirmsareencouragedtosetoutengagementplanswithborrowercompaniesasaconditionofallnewdirectlendingloans,andtoalignwiththerequirementsoftheTemperatureRatingmethod,i.e.,theengagementplanshouldrequiretheborrowercompanytomeasureitsGHGemissionsaswellasdisclosetheGHGreductiontargetsandactionsbeingtaken.6.4.3Example:settingaSBTTemperatureRatingtargetconsideringinfluenceTransitionCapitaldevelopsanewdirectlendingloan.Borrowercompany‘BorrowerA’approachesTransitionCapitalforthenewdirectlendingloanwhichincludestherequirementtoalignwithTransitionCapital’sSBTrequirementviatheTemperatureRatingmethod.TransitionCapital’sloanalsorequiresBorrowerAtomeasureitsannualGHGemissionswithinayearofagreeingtotheloandealandrecommendsannuallyreportingtheirannualGHGemissionstoTransitionCapital,alongsideactionsbeingtakentoreducethem.BorrowerAagreestothedealandTransitionCapitalsupportsBorrowerAinobtainingitsGHGemissionsinventoryandGHGemissionsreductionactionplaninthefirstyearpriortotheloan.Threemonthsprior,TransitionCapitaladopteditsownSBTforthefirsttime,onitsexistingdirectlendingwiththeintentiontorolltheSBToutforallnewfuturedirectlendingloans.TransitionCapitalobtainedtheGHGdataavailableforborrowercompaniesthathadtheirownGHGemissionsreductionstargets,tousefortheTemperatureRatingscoring.UsingtheTemperatureRatingtoolandrealizingmanyborrowersdidnothaveGHGemissionsreductionstargetsoremissionsdata(80%),TransitionCapitalreachedouttoathirdpartyGHGdataprovidertoobtainrepresentativeemissionsdata.Oncedatawasreceived,TransitionCapitalrantheonlinetoolandusedtheweightedaveragetemperaturescoremethodtogenerateatemperaturescoreforScope1+2:(90,000tCO2e∗1.8°Cborrowerswithtargets)+(300,000tCO2e∗3.2°Cborrowerswithouttargets)90,000+300,000=2.88°CTheprocesswasrepeatedforScope1+2+3:(450,000tCO2e∗1.8°𝐶borrowerswithtargets)+(2,100,000tCO2e∗3.2°𝐶borrowerswithouttargets)450,000+2,100,000=2.95°CThetargetcoversscope1+2portfoliotemperaturescoreof2.88°Cin2020andsoneedstodecreaseitsportfolio(borrowercompany)temperaturebyatleast0.069°Cperyear([2.88°CVersion1.0November2021`55PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org–1.5°C]/[2040–2020]=0.069°C)andreachatleast2.54°Cportfoliotemperaturescoreby2025fora1.5degreesCelsiusalignment.Thescope1+2+3portfoliotemperaturescoreof2.95°Cin2020needstodecreaseitsportfolio(borrowercompany)temperaturebyatleast0.0475°Cperyear([2.95°C–2°C]/[2040–2020]=0.0475°C)andreachatleast2.71°Cportfoliotemperaturescoreby2025fora2degreesCelsiusalignment.Ayearlater,BorrowerAhascalculatedemissionsdata,aGHGemissionsreductiontargetandGHGemissionsreductionactions,sharingthemwithTransitionCapital.Annually,TransitionCapitalusestheTemperatureRatingscoreforallnewandexistingloansandadoptsborrowercompanydatatolowertheirscoresandimproveoverallassetclassperformance.TransitionCapitalannuallydisclosestheactionsborrowercompaniesaretakingtoreducecarbontoSBTi.Moreover,TransitionCapitalregularlyrunstheonlinetooltotrackprogresstowardthetargettemperatureasmoreborrowercompaniesmeasureandsetGHGemissionsreductionstargetsthroughouttheyear,asanearlyindicatorofprogress,orwheremoreengagementisrequiredwherepossible.6.5SecondariesandFundsofFunds6.5.1Definition6.5.1.1SecondariesAtypicalsecondaryinvestmentinvolvesthepurchaseofanexistingLPinterestinaPEfund.Itcanalsobethepurchaseofadirectlyheldownershipinterestinaprivatecompany,whichisknownasadirectsecondary.ThesetransactionsprovidesomeliquiditytoLPsthatoftenincludeFIssuchasbanks,pensionfunds,insurancecompanies,corporations,governmentbodies,andfamilyoffices.Secondaryinvestorsareatleastonestepremovedfromtheunderlyinginvesteecompanies.SincesecondaryinvestorsareseparatefromtheGP,directengagementwithPCsisoftenrestricted.Itisrareforsecondaryinvestorstomanageinvestmentsdirectly,orforemployeesofasecondaryinvestortositontheboardsofportfoliocompanies.Secondaryinvestorsalsohavelimitedinfluenceoverthetimingofexitprocessesgiventhattheytypicallyhavecomeintothefundorportfolioinvestmentsatalaterdate.However,secondaryinvestorshaveaninvestmentintheunderlyingassetsofamanager,sothereisthepotentialforgreaterinfluenceovermanagerstrategies,especiallywhentheyaremaking‘directsecondary’investments.Nevertheless,eveninthecaseofatypical‘directsecondary’,thesecondaryinvestoronlyactsasanLPinthefund.ThesecondaryinvestorwouldalsonotusuallyappointadifferentGPtomanagethenewvehicle,asthetypicalinvestmentcaseistoacquireorinvestinapoolofassets(orasingleasset)andtobacktheincumbentGPtocontinuetomanagethoseassetsVersion1.0November2021`56PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org6.5.1.2FundoffundsAfundoffundsisapooledinvestmentfundthatinvestsinothertypesoffunds.ItisoftencreatedtoprovideinvestorsmoreaccesstocertainfundtypesandthesupportnecessarytomanageinvestmentsinPE,debt,secondaries,etc.Fundoffundsinvestorsareatleastonestepremovedfromtheunderlyinginvesteecompanies,anddebt.DirectengagementwithPCsisoftenrestrictedbecauseofthisfundframework.WhenfundoffundsinvestspecificallyinPEportfolios,investorsdohaveaninvestmentintheunderlyingassetsofamanager,sothereisgreaterinfluenceovermanagerstrategies.6.5.2RecommendedActionsAssecondariesandfundoffundsareoptionalassetclassesasdeterminedbythisGuidance,PEfirmsmaydecidewhatpercentageoftheseassetclassestheywishtocover,ifatall.SBTirecommendsadoptinganyofthethreemethodsifthePEfirmhastherelevantdatatobeabletosetSBTs.6.5.2.1FundoffundsTheTemperatureRatingapproachoffersthemostflexibilityasthefundsoffunds,andmoresosecondaries,areatarm’slengthfrominfluencingPCs.TheTemperatureRatingapproachdoesnotrequirethePCtosettheirownSBT,rathertoworktowardreducingtheirtemperaturescorewithinafive-yeartimeframe.Furthermore,theonlinetoolforTemperatureRatingcanbeusedasan‘assessmenttool’tomonitorwhichPCshaverobustGHGtargetsandarereducingtheiremissions.6.5.2.2SecondariesSecondariesfirmsmayalsooptionallysetinternalGPengagementtargetstopromoteclimateinitiativesandSBTsincertaincircumstances.TheSBTirecommendsthatsecondariesfirmsstrivetoachievealineartrajectoryto100%by2035,whenthemajorityofSBTiGPshavetheoreticallysetSBTsfora2040timeline,inlinewithSBTportfoliocoveragemethodtimeline.However,suchtargetsareforinternalaspirationalpurposesandcannotbeformallyvalidatedbytheSBTi.Secondariesfirmsarefurtherrecommendedtoadopttheprinciplesbelow:PrinciplesofaGPEngagementInternalTargetforSecondariesSecondariesfirmsarerecommendedtosetatargetpercentageofGPstheyengagewithtopursueclimateinitiativesand/orsetSBTsthemselves.Theyarerecommendedtochoosetheirownunitofmeasuretohighlighttheformengagementtakesforthesecalculations.SecondariesfirmcanengageGPswiththeSBTiinmanywaysandtheyshouldclearlyattributesuccessandlessonslearnedoftheengagementinGPsadoptingaSBT:1.SetatargetpercentageofGPstheyengagewithtopursueclimateinitiativesand/orsetSBTsthemselves.Version1.0November2021`57PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org2.Ensuretheirowncarbonscreeningisforallnewinvestments.Forexample,29by:○ScreeningforhighercarbonawareGPsinaninvestmentopportunity○Screeningforhighercarbonriskassetsinaportfolioopportunity○Screeningforhighercarbonopportunity(transitionopportunities)attheassetlevelwithinaportfolioopportunity(wheregranularityispossible)○Raisingrelevantclimaterelatedquestionsatduediligence(atboththeGPandassetlevel,wherepossible)3.EngageGPswiththeSBTiagenda,likelyviaexistingESGavenues.Examplesinclude:○Promotingthesecondariesfirms’ownESGpolicyandapproach,includingonclimate○LearningaboutGP’sexistingESGpoliciesandapproachesthroughresearchandengagementdiscussions○SupportingGPstodeveloptheirownESGpolicies(whereonedoesnotexist)orenhanceexistingpolicies○PromotingorrequiringSBTswithinsideletters○SharinginformationwithunderlyingGPsonESGand/orspecificESGfactorsorissues(e.g.,climatechange,climaterisk,net-zero,SBTs)○DeliveringESGworkshopsforGPs,includingonclimate-relatedtopics○PromotingworkinggroupssuchasSBTi,CDPandtheUNPRI○MakingconnectionswithintheinvestorsownnetworkofESGexperts(includingonclimate)○Undertakingjointvisitsto“assets(whereappropriate)”andprovidingobservationsfromanESGperspective(includingonclimate)○Promotingnet-zeroandSBTsthroughbespokeengagementswithGPspostdeal(thiscouldinvolvetheSBTi)○MonitoringkeychangestoESGpracticesofunderlyingGPsincludingonclimate(e.g.,net-zerocommitments)4.Continuallyrecordandconsolidatethesuccessoftheengagementviatheestablishedengagementmetrics,e.g.,numberofGPswhohavesetSBTsduetosecondariesledclimateworkshopsandtrackthesuccessoftheinfluenceagainstthetargetset.WhenthereismorewidespreaduptakeofPCssettingSBTsinfuture,theSBTportfoliocoverageapproachcouldintheorybeadoptedbysecondariesfirmstorecognize%SBTcoverageoftheirportfolios.ThiswillbeexploredinfutureiterationsofthisGuidance.29Thebulletpointsarerecommendations,ratherthananexhaustivelistofactionstotake.Version1.0November2021`58PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org7.HowtoCommunicateSBTsWhenitcomestoreducingPEfirms’GHGemissions,transparencyisimportanttostakeholders–whichiswhytheSBTiprovidesspecificguidanceonhowPEfirmsshouldcommunicatetheirSBTsandstrategiestoachievethem.PEfirmsshouldonlymakeclaimsaboutemissionreductionsattributedtothesestrategiesorrelatedfinancialproductsiftheyhavecredibleevidencetosupporttheseclaims.ThedetailedtargetlanguagetemplateisprovidedinTable7.1andadditionalguidanceonformulatingtargetlanguageisincludedinthefinancialsectortargetsubmissionform.ItmustbefollowedbyPEfirmswhensettingtargets.Atthetimeoftargetsubmission,PEfirmsshallsubmitabriefsummaryofthestrategyandactionsthefirmwillimplementtoreachtheirSBTsandwhytheyselectedtheseactions(PE-C20–ImplementationReporting).ThissummaryshallbeprovidedbythePEfirmswiththeirtargetsubmissionandwillbepublishedalongsidethescience-basedtargets,ontheSBTiwebsiteupontargetapproval.Table7.1.TargetLanguageandActionSummaryTemplateforPEfirms.Scope1and2targetsAbsolutetarget:[PEfirmname]commitstoreduceabsolutescope1and2GHGemissions[XX]%by[targetyear]froma[baseyear]baseyear.Intensitytarget:[PEfirmname]commitstoreducescope1and2GHGemissions[XX]%per[unit]by[targetyear]froma[baseyear]baseyear.Scope3PortfolioTargets–HeadlineTarget[PEfirmname]commitstoachieveSBTsin[assetclasses]by[targetyear]froma[baseyear].[PEfirmname]’sportfoliotargetscover[XX]%ofitstotalinvestmentandlendingactivitiesby[unit]asof[date].Iftheassetclass–specifictargetshavemultipletargetyears,usethetargetyearfarthestintothefutureScope3PortfolioTargets–AssetClassTargetAssetClassMethodTargetLanguageTemplatePrivateequitydirectinvestmentsSBTPortfolioCoverage[PEfirmname]commitsthatXX%ofitsPEinvestmentsby[GHGemissionsorinvestedcapital]willhavesetscience-basedtargetsby[short-termtargetyear](optionallyiflong-termtargetsareset:and100%by[mid-orlong-termtargetyear]).IftheunitusedtodefineSBTcoverageisnotGHGemissions,itisrecommendedthatPEfirmsalsodescribecoverageinemissionstermsusingmodeledemissionsdata.RealestateprivateequityinvestmentsSectorDecarbonizationApproach(SDA)[PEfirmname]commitstoreduceitsrealestatePEinvestmentGHGemissionsXX%persquaremeterby[targetyear]froma[baseyear]baseyear.PrivatedebtFundofFundsTemperatureRating[PEfirmname]commitstoalignitsscope1+2portfoliotemperaturescorewithinthe[assetclassorsector]fromXX°Cin[baseyear]toXX°Cby[targetyear].Version1.0November2021`59PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org[PEfirmname]commitstoalignitsscope1+2+3portfoliotemperaturescorewithinthe[assetclassorsector]fromXX°Cin[baseyear]toXX°Cby[targetyear].ActionPlantoAchievePortfolioTargetsThePEfirmwillimplementthefollowingstrategyandactionstoachieveitsscope3portfoliotargets:Instructions:●Pleasebegineachbulletpointwith“PEfirmwill..”andincludenomorethanfivebulletpoints●Pleaseonlydescribeyourplannedactionstoachieveyourscope3,category15targets.Pleasedonotdescribeactionstoachievescope1and2orscope3,categories1-14'stargets.●Todemonstratefirm-levelalignmentwiththeParisAgreementbeyondassetclassescoveredbytargets,pleasealsodescribeyourcurrentandplannedactionsforuncoveredoptionalassetclasses,aswellasyourcurrentandplannedpoliciesanddisclosurearoundfossilfuelinvestments(i.e.coal,oilandgas).Forfossilfueldisclosureandphaseoutplans,PEfirmsareencouragedtoalignwithPE-R10–PhaseoutofThermalCoalInvestmentsandPE-R11–DisclosureofFossilFuelInvestmentsandLending.●IfyouwishtosetanoptionalGPengagementtargetonsecondariesinvestments,pleasedescribethetargethereasin[PEfirmname]commitsthatitsGPscoveringXX%ofinvesteesby[unit]willhavesetscience-basedtargetsby[targetyear].Source:Authors2021GiventhatcurrentmethodsdonotcoverallassetclassesrelevanttothePEsectorandthetargetboundaryrequirementremainsflexibleoncertainassetclasses,PEfirmsarerequiredtodisclosethecoverageoftheirtotalinvestmentandlendingactivitiesbySBTsinthetargetlanguage(PE-C18–DisclosureofTarget(s)PortfolioCoverage),usingametricthatisrepresentativeofthemagnitudeoftheirmainbusinessactivities.Thisdisclosurerequirementisintendedtoenhancethetransparencyandcomparabilityofportfoliotargets.7.1Example:FormulatingaMulti-StrategyFirm'sTargetLanguageTransitionCapitalisamulti-strategyPEfirm,withPEdirectinvestments,privatedebt,secondaries,andfundoffunds.FollowingthisGuidance,itdevelopedtargetsonPEdirectinvestmentsandprivatedebt.ItproceedstodeveloptargetlanguageforbothitsSBTportfolioengagementtargetforPEandTemperatureRatingtargetforprivatedebtdirectlending.Forsecondariesandfundoffunds,TransitionCapitalplanstofollowSBTi’srecommendedactionsanddevelopinternalaspirationaltargetstoengageitsGPs.Followingthetargetlanguagetemplate,TransitionCapitalproducesthefollowingtargetlanguageforitsscope1,2,and3(category15)targets:●TransitionCapitalcommitstoreduceabsolutescope1and2GHGemissions70%by2030froma2020baseyearVersion1.0November2021`60PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org●TransitionCapitalcommitstoachieveSBTsinPEdirectinvestmentsandprivatedebtassetclassesby2025froma2020baseyear.TransitionCapital’sportfoliotargetscover80%ofitstotalinvestmentandlendingactivitiesbyassetsundermanagement.Withinthistarget:-TransitionCapitalcommits35%ofitsPEinvestmentsbyinvestedcapitalwillhavesetscience-basedtargetsby2025.-TransitionCapitalcommitstoalignitsscope1and2portfoliotemperaturescorewithinitsdirectlendingportfoliofrom2.88°Cin2020to2.54°Cby2025-TransitionCapitalalsocommitstoalignitsscope1,2and3portfoliotemperaturescorewithinitsdirectlendingfrom2.95°Cin2020to2.71°Cby2025Forasummaryofitsstrategiestoachieveitsscope3portfoliotargets,TransitionCapitaldevelopedthefollowingbulletpointsonitsassetclasses:●ForitsPEdirectinvestments,TransitionCapitalplanstorequirenewportfoliocompaniestomeasuretheirGHGemissionsandsetSBTswithintwoyearsofacquisition.Foritsborrowersinitsdirectlendingportfolio,TransitionCapitalplanstorequireallnewborrowercompaniestomeasuretheirGHGemissionsandreporttheirGHGemissionsreductionstoTransitionCapitalforannualdisclosureprogressofTemperatureRatingscores●Fortheoptionalassetclassofsecondariesandfundoffunds,TransitionCapital–throughitssecondariesstrategy–commitstoprovidingbespokeengagementwith100%ofGPsonpromotingSBTsandtheiruptakeby2035●Throughitsfundsoffundsstrategy,TransitionCapitalcommitstoprovidebespokeengagementwith100%ofGPswithmanagementstrategiesonpromotingSBTsandtheiruptakeby2035Version1.0November2021`61PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org8.HowtoTrackTargetsandDiscloseProgressOnceSBTsareapproved,thePEfirmisrequiredtotrackprogresstowardtheSBTannually(PE-C20–TrackingandReportingTargetProgress)anddiscloseprogressleveragedoveritsinvestments.ThePEfirmmaydecidewheretodiscloseitstargetprogress,andexamplesincludeannualreports,thefirm'swebsite,andCDP(PE-R12–WheretoDisclose).PEfirmsshallchooseafixedpointintime,suchasthelastdayofitsfiscalyear(e.g.,June30orDecember31)toconsistentlyreportprogressonanannualbasis.ThischapterprovidesrecommendationsontargettrackinganddisclosurespecifictoassetclassesandmethodsdescribedinChapter6.TheSBTihasdevelopedtargettrackinganddisclosureguidancetoenhancetransparencyaroundprogressagainstapprovedtargets,aswellasactionstakenonassetclassesnotcurrentlycoveredbytargets.8.1TargetTrackingandDisclosureforRequiredAssetClass8.1.1TrackingandreportingtargetprogressforPEinvestmentsSBTirecommendsthefollowinginformationtobeincludedinaPEfirm’sannualreportingforitsSBTportfoliocoveragetargetonPEinvestments.ItisanopportunityforPEfirmstoreportnewacquisitions,exits,aswellasprovidetransparencyaroundSBTcoveragecalculationapproach:AnnualSBTcoverage.Inannualtargettrackingandreporting,thePEfirmisrequiredtosetafixeddayoftheyeartoreportitsSBTpercentagecoverage,i.e.,thereportingdayoflineartrajectoryto100%coverage.SBTiappreciatesthatforecastingcoverageoftheselectedmetricouttothefive-yearshort-termtargethasinherentuncertaintyforPEfirms,astheirportfoliocouldsignificantlydifferfromtheprojection.Therefore,PEfirmsmayupdatethenumeratoranddenominatorastheirselectedmetricfluctuatesovertime,e.g.,reductioninannualemissions,increaseininvestedcapitalthroughbolt-onacquisitions.Despitethefluctuationsintheselectedmetric,PEfirmsareexpectedtoachievetheoriginaltargetambitionsetoutbytheirapprovedtargets.Firmsshoulddiscloseanyexclusionsfromtheportfoliocoveragetargetboundary(e.g.,lessthan12monthsor24months)anddisclose%SBTcoveragewithallPCsconsideredifthereisanyexclusion.30Numberofnewacquisitions.NewPCacquisitionsandsignificantacquisitionswithinaPCsuchasamerger.PercentageofnewacquisitionswithapprovedSBTs.ToprovidetransparencyonwhetherthefirmisstrategicallybuyingcompanieswithexistingSBTs.30ThisisintendedtoprovideadditionaltransparencyaroundPEfirms'progressagainsttheirSBTportfoliocoveragetargetandhelptheSBTievaluatetheneedtoreducethelengthoftheperiodduringwhichPCscanbeexcludedasthecarbonmaturityofprivatecompaniesevolveinthefuture.Version1.0November2021`62PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgDisclosureofengagement.AnnualreportingundertheSBTcommitmentshouldincludedisclosureofstrategicengagementwiththePEfirm'sportfolio,toshowwheretheengagementhasbeentargetedandwhatinfluencethePEfirmwasabletohaveoveritsinvestments.PEfirmsshouldtargetthebiggestemitterswithstrategicengagementanddisclosethereasonswherethefirm'sinfluencehasandhasnotgainedtraction,includingthereasonswhy.DisclosureofPEdirectinvestmentsnotcoveredbytargets.PEfirmsarerecommendedtoannuallydisclosewheretheyhaveencouragedSBTsettingforallnewPCacquisitionsbeyondtheirtargetboundary(e.g.,aminorityholdingrowthequitywith10%ofshare).Furthermore,ifthePChasnotadoptedanSBTtheyshouldstatewhyandexplainwhatelsethePCisdoingtoreduceGHGs,specifyinginformationonthenatureoftheirindustry,growthprojectionsandplannedGHGmitigationmeasures.ForrecommendationsonreportingprogressagainstTemperatureRatingtargets,pleaserefertoSection6.1.2oftheFIGuidance.8.1.2TrackingandReportingTargetProgressforRealEstateandElectricityGenerationAssetsSBTirecommendsthefollowinginformationtobeincludedinaPEfirm’sannualreportingforitsSDAtargetsonrealestateandelectricitygenerationprivateequityinvestments:ProgressagainstSDAtargets.IftheSDAmethodisused,PEfirmsshouldfollowthePCAFstandardandtrackanddiscloseemissionsintensityofitsassetsintherelevantemissionsintensitymetric(e.g.,kgCO2perm2,kgCO2perkWh)onanannualbasis,alongwiththepercentageofoutstandinginvestmentvalueforthisassetclass(PCAF2020).PEfirmsshalldetermineapointintimeinagivenyearwheretheemissionsintensityoftheassetclassismeasuredandusethatconsistentlythroughoutthetargetperiod.Percentageofportfolio(s)coveredbytargets.Afterensuringthatrelevanttargetcoveragerequirementsaremetatthetargetsubmissionstage,PEfirmsshouldcontinuetoreporttheextenttowhichSDAtargetscovertheapplicablesectorportfoliobytherelevantactivityunit(e.g.,percentageofsquaremeterorkWhcovered)onanannualbasis.Inventoryrebaselining.GiventhenatureofaPEfirm’sinvestmentcycle,rebaseliningofassetclasslevelfinancedemissionsmaybecomenecessarywhenPCsareacquiredordivested.ThisisespeciallyrelevantasSDAisbasedonreductionofemissionsintensityanddivestingfromhigh-emittingassetsmayleadafirmtoartificiallyloweritsportfolioemissionsintensityiftheinventoryisnotproperlyrecalculated.InlinewiththeGHGProtocolScope3StandardandthePCAFStandard,PEfirmsshallestablishabaselinerecalculationpolicytodefineunderwhichcircumstancesarecalculationof(baseyear)financedemissionsisnecessary.Aspartofthisbaseyearemissionsrecalculationpolicy,PEfirmsshallalsoestablishanddisclosethesignificancethresholdthattriggersbaseyearemissionsrecalculations(WRIandWBCSD2011).Pleaserefertopage36and37oftheGHGProtocolCorporateStandardforguidancearoundbaseyearemissionsrecalculationforacquisitionanddivestment(WRIandWBCSD2004).Version1.0November2021`63PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org8.2GeneralDisclosureRecommendationsMorebroadly,PEfirmsareencouragedtodiscloseactionstakentowardsengagingPCswithinandbeyondthescopeoftheirSBTs.Theyarealsoencouragedtodisclosetheirtargetprogressoncomplementaryreportingplatforms.8.2.1DisclosureofengagementPEfirmsarerecommendedtodisclosestrategicengagementwithrelevantactorsintheapplicableassetclasses,suchasPCs,borrowers,realestatemanagementandelectricitygenerationassets.PEfirmsshouldtargetthebiggestemittingcompaniesorassets,whilealsostrivingtodevisedecarbonizationinvestmentplansforallassetscoveredandnotcoveredbyanSBT.Furthermore,iftheassethasnotadoptedGHGemissionsreductionplansoranSBT,theyshouldstatewhyandexplainwhatelsetheassetisdoingtoreduceGHGs(viathemanagementcompany),specifyinginformationonthenatureoftheirindustry,growthprojectionsandplannedGHGmitigationmeasures.Giventhatseveralassetclassesareoptionalorhavepartialcoveragerequirements,SBTirecommendsPEfirmsrefertoTable8.1intheirannualreportingforanyassetsnotcoveredbytargets.Table8.1.RecommendationsonmetricsforannualdisclosureforassetsuncoveredbytargetsAssetClassTargetBoundaryRequirementDisclosureRequirementsPrivateequitydirectinvestmentsRealEstateRequired:67%coveragebybaseyearactivityinsquaremeterExplainwhattherealestateassetsbeyondthe67%thresholdaredoingwithGHGmeasurementandreductionOtherPEdirectinvestments(beyondelectricitygenerationandrealestate)Buyouts,includingco-investmentsGrowthcapitalRequired:100%coverageofPCsthatmeetthesharesandboardseatconditionExplainwhatPCsnotcoveredbytargetsaredoingwithGHGmeasurementandreductionVenturecapitalRequired:100%coverageofPCsthatmeetthesize,shares,andboardseatcondition%CoverageofSBTsExplainwhatPCsnotcoveredbytargetsaredoingwithGHGmeasurementandreductionVersion1.0November2021`64PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgAssetClassTargetBoundaryRequirementDisclosureRequirementsCredit/privatedebt,includinginfrastructuredebtOptional:nominimumcoveragerequirement%CoverageofSBTs.ExplainwhatdirectlendingborrowerswithoutSBTsaredoingwithGHGmeasurementandreductionSecondariesFundofFundsOptional:nominimumcoveragerequirement%CoverageofengagementwithrelevantGPs,LPsandPCsSource:Authors.8.3IntegratedreportingPEfirmsarerecommendedtoannuallydiscloseinlinewithcomplimentarycarbonreportingchannels,includingTCFD,CDP,theGlobalReportingInitiative(GRI),theGlobalESGBenchmarkforRealAssets(GRESB),etc.Disclosureshouldscaletheclimateexposureforadditionaltransparency,whereaPEfirm’sassetclassesdonothaverequiredmethodsandattempttotacklewherethePCispotentiallygrowingabsoluteemissionstherein.PEfirmsshoulddisclosewhichcompaniestheyareengagingwith,whattheirspecificdemandsare,andpublishanassessmentoftheengagementresultatleastannually.ThiswillincreasepressureonthePEindustry,drivingdeeperandfasterchanges,shiningalightbehindcloseddoorstohelpshifthigh-carboncompaniesbusinessmodelsatthepaceandscalerequiredbytheParisAgreement.DependingonthePEfirm,climateactions’publicdisclosureshouldcovertheadoptionofclimate-relatedpoliciesforcompanies,theintegrationofthepolicyinmandatestoinvestmentmanagersandotherserviceproviders,aregularassessmentofengagementimpact,supporttorelevantshareholderresolutions,anddivestmentdecisionsifengagementisnotdeemedrelevant–ordoesnotdeliverwithinsettimeframes.Bymakingkeyclimate-relateddecisionsandactivitiespublic,PEfirmswillsignificantlyamplifytheirimpact.Giventheclimateurgency,the‘signalingeffect’iscriticaltoraiseawarenesstowardspeerPEfirms,companies,serviceproviders,policymakers,andotherstakeholders.Itemphasizestheimportanceoftheissueandhelpsaccelerateeffortsbytheabovementionedstakeholders.Version1.0November2021`65PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org9.HowtoAchieveTargetsTherearenumerousstepsPEfirmscantaketoachievetheirportfolioSBTs.ThissectionbuildsontheSBTi’scriteriaandrecommendationsfortargetsettingandreporting,furtherrecommendinghowPEfirmscanfullyintegrateclimatechangeintheirorganizationandservices,achievingtargetswhichwillleadtoGHGreductionintherealeconomy.9.1IntegrationofClimateChangeinGovernancePEfirmsshouldintegrateclimatechangeacrosstheirfirm.Thiscanincludethefollowing:●Adoptionofclimate-relatedinvestmentprinciples.TheseshouldrecognizethatportfolioalignmentwiththeParisAgreementwillcontributetoinvestinginthebestinterestsofPEfirms’investors.WherePEfirmshaveinstitutionalinvestorswithafiduciarydutythatdoesnotincludenon-financialperformancesuchascarbon,thePEfirmshouldhighlightorseektomandatetheprinciplesofGHGemissionsreductionasafiduciaryduty.●Establishmentofaclimategovernancestructure.PEfirmsshouldmakeportfolioalignmentwiththeParisAgreementaboardpriority–includingexplicitattributionofthisresponsibilitywithintheboard.Governancestructuresshouldbeputinplacetoensurepropersupportandimplementationofthepolicy,includingincentiveschemes,resourcecommitment,capacitybuilding,andinvolvementofbeneficiariesorclients.ThisintegrationshouldbeinlinewiththeTCFDgovernancerecommendations.●Integrationofclimatechangeintheinvestmentand/orlendingpolicy.PEfirmsshouldadoptaninvestmentand/orlendingpolicythatreflectsandalignswiththeirclimate-relatedinvestmentprinciplestoalltheirfunds.DependingonthePEfirm'sfundstrategies,thiscanincludeinvestment/lendingtargets,strategicassetallocation,engagementobjectives,selection/screeningcriteriaandincentivesforserviceprovidersbasedonclimateperformance,aswellasperformancemeasurementandreporting.●Adjustmentofstrategicassetallocationtoharnessclimate-relatedopportunities.PEfirmsshouldconsiderclimaterisksandopportunitiesinstrategicassetallocation,includingincreasingtheirexposureovertheinvestmentcyclewherefeasibletoalternativeassetclassesthataremorelikelytohaveadirectpositiveclimateimpactontherealeconomy-suchasPCs(renewableandenergyefficiencycompanies),infrastructure(e.g.,gridsandrenewableenergyandrealestate(highlyenergy-efficientandresilientbuildings).●Adoptionofadditionalsector-specificpolicies.PEfirmsshouldextendtheirinvestmentpolicytosectorsandtechnologiesthatposeclimate-relatedrisksorofferparticularopportunities.Theseinclude:○SectorswhereGHG-intensivecompanieshaveasignificantpotentialtoofferalternativesolutionsandthereforereducetheiremissionse.g.,powerutilities,industrialsectors(steel,cement,chemicals),andtheautomotivesectorVersion1.0November2021`66PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org○Sectorsdeemedtoshrinkandultimatelydisappearwiththeenergytransition(e.g.,coal,oil,andgas),wheresomecompaniesstillhavethepotentialtomakeatimelyshifttootherbusinessmodels.SectorpoliciesshoulddefinecriteriaallowingthePEfirmtoidentifytowhatextentthecompaniesinitsfundareableandwillingtoaligntheirbusinessmodelwiththeParisAgreement,setoutastrategyastohowthePEfirmwillurgecompaniestoadopt1.5degreesCelsiustransitionplansthroughactiveownership,andwhencompaniesareunableorunwillingtotransitioninatimelymanner,identifyatwhichpointexposurereduction/divestmentisdesirable.●Developmentofmethodsortoolsenablingclimateactionimpactmeasurement.Currently,thereisinsufficientclarityaboutwhichPEfirms’actionsleadtoGHGemissionsintherealeconomy.PEfirmsshouldengagewithrelevantserviceproviderstodeveloptoolsallowingthemtobuildabetterunderstandingoftheimpactoftheiractionsonGHGemissionsandadjusttheirstrategiesaccordingtothesefindings.9.2EngagementGeneratingimpactintherealeconomyrequiresallrelevantstakeholderstomoveatthesametime.Therefore,PEfirmsshouldleveragetheinfluencetheyhaveovercompaniesandpolicymakers.Toensuretheenvironmenttheyoperateinissupportiveofclimateaction,PEfirmsshouldcollaboratewiththeirpeerPEfirmstolearn,sharebestpractice,and,mostimportantly,increaseengagementactivitieswithPCsandpolicymakers.TheyshouldparticipateinanddrivecoalitionspromotingthealignmentofportfolioswiththeParisAgreement,suchastheiCIGroup.9.2.1CompanyEngagementPEfirmsshoulddevelopanengagementstrategytoachieveParisAgreementalignmentoftheirPCs,assets,andborrowers,throughtheadoptionandpublicationoftime-bound1.5degreesCelsiustransitionplanswiththefollowingelements:●AcommitmenttoalignbusinessmodelswiththeParisAgreementand,moreconcretely,atimeboundclimatescience–basedtransitiontargetbuiltonforward-lookingclimatescenarioanalysis,e.g.,aSBTPortfolioCoveragetargetforapplicablefundswhereallPCsintheboundaryofthesetargetssetapprovedSBTsby2040●TargetdisclosureandtransitionplansforalignmentwithTCFDrecommendations.Suchinformationshouldbepublishedinmainstreamfinancialreports(integratedreporting)●Capitalmanagementplanstoendcapitalexpenditurefornewhigh-carbonprojectswherethePEfirmhasmajoritycontroloverPCsandincreasecapitalexpenditureforlow-carbonprojectswithacleartimelinefortheclosureofexistinghighcarbonassets●AcommitmenttoreviewandratchetuptargetsandtransitionplansinlightoftheevolvingclimatescienceVersion1.0November2021`67PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org●ApubliccommitmenttosupportpoliciesaimingtoreduceemissionsinlinewiththeParisAgreement,betransparentaboutlobbyingactivitiesandrelatedexpenditures,andexitthirdpartyorganizations(e.g.,businessandtradeassociations)promotingpoliciesthatposearisktotheachievementoftheParisAgreementGiventheurgencyoftacklingclimatechange,PEfirmsshouldhaveplansinplacetoensurePCsaresupportedtomeettheirtargets.Forexample,withcredit/privatedebt,thismeanssupportingborrowerstomeasuretheirGHGemissionsandrequiringthemtodisclosetheiractionstoreducecarbonyearonyear,helpinglowertheirTemperatureRatingscoreandimprovethePEfirm’scarbonperformance.9.2.2PolicyengagementPEfirmsshouldengagewithpolicymakersinfavoroftheproperimplementationoftheParisAgreement–asthebestpathwaytomitigatetheirclimate-relatedrisks,maximizetheirpositivecontributiontoclimategoals,protectthelong-termvalueoftheirassets,andinvestinthebestinterestofinvestors.Whenengagingwithpolicymakers,PEfirmsshouldaskabout:●Climatepolicies,energypoliciesandregulationsalignedwithParisAgreementanditsembeddedclimatetargets●AdequateclimateandwiderESGcorporatedisclosurepoliciesandregulationstoensurerelevantclimateandESGdatabecomeavailabletoinvestors●Financialpoliciesandregulationsdrivingbetterunderstandingofclimate-relatedrisksandopportunitiesforPEfirms,throughtheassessmentofclimateandwiderESGrisksforinvestorsandtheirmitigation,withtheultimategoalofportfolioalignmentwiththeParisAgreementVersion1.0November2021`68PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org10.DiscussionandAreasofFutureWorkTheSBTirecognizesanumberofareaswherefuturediscussionsandworkcouldbenefitthenextiterationofthisGuidance.GiventhecondensedtimelinefromMay2021toCOP26inNovember2021,theGuidancehasprioritizedfocusonthelargestassetclassesbyrepresentativecloseendedAUM,namelyprivateequitydirectinvestments.ThisGuidancehasfocusedlessoncredit/privatedebt,whichrepresentsasmallershareofAUM,inpartduetheinherentcomplexnatureofitsassetclass.Furthermore,thisGuidanceisanextensionoftheFIGuidanceanddoesnotoffernewmethodsbeyondthosethreemethodswithintheSBTiFIframework,namelySDA,portfoliocoverageandTemperatureRating.ThisprojectwasnotsetouttodevelopadditionalmethodstoassistwithSBTsetting,beyondtheexistingtoolsavailable.European,UKandUSstakeholdersweremostrepresentedintheconsultationprocessofthisGuidance.AdditionalconsultationswithotherregionswouldstrengthenfutureiterationsofthisGuidancetoenableadoptiononaglobalscale.TheguidancesupportsPEfirmstosetinterimscience-basedtargets–furtherguidanceisneededforPEformstosetportfolionet-zerotargets.TheSBTifinancialsectorteamiscurrentlydevelopingafoundationspapersettingoutkeyprinciplesforFIs’portfolionet-zerotargetsandwilldeveloptargetsettingcriteriafornet-zeroportfoliotargetsin2022.ThisprocessshouldbringclaritytoPEfirmswishingtoaligntheirportfolioswithnet-zero–however,furtherclarificationmaybeneededtosuitthePEcontext.TheSBTiproposethefollowingareasfordiscussionandworkforfutureiterationsofthisGuidance:●Credit/privatedebt○Explorehowtheexistingmethodscouldbe‘required’forthecredit/privatedebtassetclass,bydefininganappropriateboundarytoprivatedebtsub-strategies,andworkingthroughhowthemethodscanbeapplied○EnsurethereisrepresentationfromanewlyformedprivatedebtExpertAdvisoryGroup,includingthelargestprivatedebtproviderswithinthismarket,aswellasallotherkeystakeholders,e.g.,regulators,NGOs,academics,etc.○Theprivatedebtprovidersshouldroad-testtheproposedcriteria,boundaries,andmethodstoensureSBTsareambitiousintheiralignmentwiththescienceandalsopragmaticforsettingSBTstoshifttheindustrytowardazero-carboneconomy●Road-testtheTemperatureRatingapproach○Alongwithanyroad-testingoftheTemperatureRatingapproachwithinthecredit/privatedebtEAG,themethodshouldalsoberoad-testedacrossallapplicableassetclassesVersion1.0November2021`69PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org○Thefeedbackfrombothsetsofroad-testingshouldhelpformulatehowthisGuidance,andtheassetclassesherein,alignwiththepracticalstepsoftheTemperatureRatingmethod,andprovideanyadditionalsupporttohelpPEfirmssuccessfullyadoptthemethod●Portfoliocoveragetoolfortargetdevelopmentandtracking○ThereisanopportunityfortheSBTitodevelopatool(onlineorworkbook-based)tohelpPEfirmscalculateportfoliocoveragetargetsrelativetotheirfundsandgrowthtrajectories○ThetoolcouldprovideasimplestepbystepguidetohelpconsistencyamongstPEfirmswhosubmittargetsusingthemethod,guidingeachPEfirmtowardtherecommendedapproach,e.g.,usingGHGemissionsastheselectedmetric,ensuringPEfirmsPCsareaccountedforafter12monthspost-investment,etc.○Thetoolcouldultimatelybealignedinsettingbothashort-termtarget(presentlyrequired)andpotentiallyalong-termtargetforwhentheSBTinet-zerocriteriaforFIsareavailable.●Venturecapital○GiventhatventurecapitalfirmswerenotwellrepresentedintheprojectEAG,SBTihastakentheconservativeapproachofrequiringlater-stagestartupstobecoveredbytargets,withtheassumptionthatthesestartupsarebetterpositionedtoestablishGHGinventoriesandtargets.DependingontheadoptionoftheGuidancebyventurecapitalfirmsormulti-strategyfirmswithventurecapitalfunds,SBTimayreviseitsrequirementsonventurecapitalinfutureiterationsofthisGuidanceorrefertoalternativetargetsettingframeworksthatmaybemoresuitableforaventurecapitalcontext●PEindustryaccountingpractice○ThisGuidanceprovidesnew,PE-specificrecommendationstocompilefirm-levelGHGinventories.SBTiaimstoensurethereiscooperationbetweenthisGuidanceandotherfinancialindustryaccountingstandards,suchasPCAF,toensureclarityandconsistencyofinventoryaccountingpracticesamongPEfirmsVersion1.0November2021`70PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org11.GlossaryTable11.1providesalistofthetermsusedwithinPrivateEquitySectorScienceBasedTargetSettingGuidance(thisGuidance).Table11.1:GlossaryTermDefinitionAbsolutetargetAtargetdefinedbyreductioninabsoluteemissionsovertimee.g.,reduceGHGemissions50%by2030froma2020baseyear.AssetsAresource,suchasland,buildings,equipment,ownedbyacompanyandusedtoproduceincomeforit(Cambridge2021).Third-partyfunds,individualbusinesses,realestateorinfrastructureassetsorfinancialproducts,suchasloans,investedinbyPEFunds.AssetclassAgroupoffinancialassetsorinstrumentsthathavesimilarfinancialcharacteristics(SBTi2021).Attributionshare/attributionfactorShareoftotalGHGemissionsoftheborrowerorinvesteethatareallocatedtotheloanorinvestments(PCAF2020).AvoidedemissionsEmissionreductionsproducedbythefinancedprojectversuswhatwouldhavebeenemittedintheabsenceoftheproject(counterfactualbaselineemissions).AvoidedemissionsarenotincludedinSBTs(SBTi2021).BiogenicCO2eemissionsEmissionsfromastationarysourcedirectlyresultingfromthecombustionordecompositionofbiologicallybasedmaterialsotherthanfossilfuels(SBTi2021).BorrowerThecompanytowhomcapitalisloanedaspartofcreditorprivatedebtloans.BuyoutInabuyoutinvestment,theinvestoroftenhascompleteormajorityownershipandcontrolofthecompany.Unlikeleveragedbuyouts(LBO),buyoutscanalsohaveaminoritystakeofthecompanybeingpurchased.(Preqin2021).CapitalmarketstrategiesCapitalmarketsdescribeanyexchangemarketplacewherefinancialsecuritiesandassetsareboughtandsold.InthePEcontext,thismoreroutinelyrelatestotradinginliquidcreditassets.Version1.0November2021`71PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgCarbonaccountingoffinancialportfoliosTheannualaccountinganddisclosureofGHGemissionsassociatedwithloansandinvestmentsatafixedpointintimeinlinewithfinancialaccountingperiods.Thisisalsocalled‘portfoliocarbonaccounting’(SBTi2021).ClimateimpactInthecontextofthisframework,climateimpactreferstotheGHGemissionsthatoccurasaresultoffinancingofloansandinvestments(SBTi2021).Climate-relatedrisksFinancialriskassociatedwithclimate-relatedinvestmentsandactivities,includingcarbonassetortransitionrisk,physicalrisk,andlegalrisk(SBTi2021).CO2-equivalent(CO2e)TheamountofCO2thatwouldcausethesameintegratedradiativeforcing(ameasureofclimatechangedrivers’strength)overagiventimehorizonasanemittedamountofanotherGHG(ormixtureofGHGs).Asthescienceadvances,conversionfactorsvarybasedontheunderlyingassumptions(SBTi2021).ConsolidationapproachReferstohowanorganizationsetsboundariesforcorporateGHGaccounting.Threeconsolidationapproachesincludeequityapproach,financialcontrolandoperationalcontrolasperTheCorporateValueChain(Scope3)AccountingandReportingStandard(WRIandWBCS2011).ConvertiblepreferredequityinvestmentsCorporatehybridsecuritiesaninvestorcanchoosetoturnintoacertainnumberofsharesofthecompany'scommonstockafterapredeterminedtimespanoronaspecificdate(Investopedia2021).Credit/privatedebtPrivatecredit,orprivatedebt,isthecapitalinvestmenttoacquirethedebtofcompanies(asopposedtoacquiringequity).Privatedebtincludessub-strategiesmentionedinTable6.2ofthisGuidance:directlending,distresseddebt,infrastructuredebt,mezzaninedebt,realestatedebt,specialsituations,venturedebt.Privatedebtcoversloanfinancei.e.,whenmoneyislenttoacompanytofundongoingoperationsortheimprovementofinfrastructure.Privatedebtisnottradedorissuedinanopenmarket.Privatedebtcanbeloanedtobothlistedorunlistedcompanies,aswelltorealassetssuchasinfrastructureandrealestate.ForthepurposeofthisGuidance,lendersarespecialistprivatecreditfundsbutcanbefromanynon-bankprivateFIs(Preqin2021).Version1.0November2021`72PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgDebt-to-equityratioAlsocalledthe‘debt-equityratio’,‘riskratio’,or‘gearing’,thedebt-to-equityratioisaleverageratiothatcalculatestheweightoftotaldebtandfinancialliabilitiesagainsttotalshareholders’equity.Unlikethedebt-assetsratiowhichusestotalassetsasadenominator,thedebt-to-equityratiousestotalequity.Thisratiohighlightshowacompany’scapitalstructureistiltedtowardseitherdebtorequityfinancing(CorporateFinanceInstitute2021).DirectemissionsEmissionsfromsourcesownedorcontrolledbythereportingentity(SBTi2021).DistresseddebtDebtnormallyinvolvingsecuritiespurchasesinthesecondarymarket–ratherthanneworiginationofdebtorstructuredequity(Pitchbook2021).DoublecountingOccurswhenasingleGHGemissionreductionorremoval,achievedthroughamechanismissuingunits,iscountedmorethanoncetowardattainingmitigationorfinancialpledgesforthepurposeofmitigatingclimatechangewithinoneormultipleorganizations(SBTi2021).EmissionsintensitymetricEmissionsperaspecificunit,forexample:tCO2e/$millioninvested,tCO2e/MWh,tCO2e/tonproduced,tCO2e/$millioncompanyrevenue(SBTi2021).EmissionsremovalTheactionofremovingGHGemissionsfromtheatmosphereandstoringthroughvariousmeans,e.g.,soils,trees,undergroundreservoirs,rocks,theocean,aswellasproductslikeconcreteandcarbonfiber(SBTi2021).EmissionScopesTheGHGProtocolCorporateStandardclassifiesanorganization’sGHGemissionsintothreescopes.Scope1emissionsaredirectemissionsfromownedorcontrolledsources.Scope2emissionsareindirectemissionsfromthegenerationofpurchasedenergy.Scope3emissionsareallothernon-scope2indirectemissionsthatoccurinthevaluechainofthereportingorganization,includingbothupstreamanddownstreamemissions–andinthecontextofthisGuidance,emissionsinCategory15associatedwithPEfirms’investmentandlendingactivitiesarealsoincluded(SBTi2021).EnterpriseValueIncludingCash(EVIC)Themarketcapitalizationsumofordinarysharesatfiscalyearend,themarketcapitalizationofpreferredsharesatfiscalyear-end,andthebookvaluesoftotaldebtandminorities’interests.Toavoidthepossibilityofnegativeenterprisevaluesandconsideringthatcashasanimportantfinancingsourceformanycompanies,shouldcarryitsfairVersion1.0November2021`73PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgshareofemissions,nodeductionsofcashorcashequivalentsaremade(SBTi2021).FinancedemissionsAbsoluteemissionsthatbanksandinvestorsfinancethroughloansandinvestments.Thesecanbecalculatedanddisclosedatanassetclasslevel(SBTi2021).Financialinstitutions(FIs)TheSBTidefinesFIsascompanieswhosebusinessinvolvesthedealingoffinancialandmonetarytransactions,includingdeposits,loans,investments,andcurrencyexchanges.If5%ormoreofacompany’srevenueorassetscomesfromtheaboveactivities,theyareconsideredtobeFIs.DevelopmentFIsarecurrentlyoutofscope(SBTi2021).FundoffundsAPEfundwhichinvestsinfunds,asopposedtodirectlyintoportfoliocompanies.Fundsoffundsarefrequentlyalsoactiveparticipantsinthesecondarymarket(Guy,2010).FullydilutedsharesAcompany’stotalnumberofcommonsharesthatwillbeoutstandingandpotentiallytransferableafterallpossiblesourcesofconversion,suchasconvertiblebondsandemployeestockoptions,areexercised(Investopedia2021).GeneralPartner(GP)PEfundmanagementfirmsareoftenknownasGPssincemostPEfundstaketheformoflimitedpartnerships.ThesearerequiredbylawtohaveaGPthatisresponsiblefortheoperationofthelimitedpartnership.GPcanrefertothemanagemententityortoindividualpartnerswithinsuchentities.GPsraisecapitalfromthird-partyinvestors,intoaspecificfundwhichwillthenbeinvestedintocertaintypesofassetsaccordingtoaninvestmentstrategy.GPsthusidentifytheassetstobeinvestedin,executethoseinvestments,andthenmanagethemuntileventualexit(Guy,2010).Greenhousegas(GHG)emissionsThesevengasescoveredbytheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)–carbondioxide(CO2),methane(CH4),nitrousoxide(N2O),hydrofluorocarbons(HFCs),perfluorocarbons(PFCs),sulfurhexafluoride(SF6),andnitrogentrifluoride(NF3)(SBTi2021).GHGProtocolComprehensiveglobalstandardizedframeworkstomeasureandmanageGHGemissionsfromprivateandpublicsectoroperations,valuechains,andmitigationactions.TheGHGProtocolsuppliestheworld'smostwidelyusedGHGaccountingstandards.TheCorporateAccountingandReportingStandardprovidestheaccountingplatformforvirtuallyeverycorporateGHGreportingprogramintheworld(SBTi2021).Version1.0November2021`74PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgGHGaccountingTechniquesfortrackingGHGemissionsresultingfromacompany’soperations.TwoprimaryapproachesarecorporateaccountingthroughanannualGHGinventory–whichinvolvesfinancedemissionsaspartoftheaccounting–andprojectaccountingthroughestimatingnetemissionreductionsorincreasesfromindividualprojectsoractivitiesrelativetoabaselinescenario(SBTi2021).GrowthcapitalAlsoknownasgrowthequityorexpansioncapital,thisisatypeof–oftenminority–PEinvestmentinrelativelymaturecompanieslookingforprimarycapitaltoexpandandimproveoperationsorenternewmarketstoacceleratebusinessgrowth.Growthcapitalisseparatefromventurecapital(InvestmentCouncil2021).IndirectemissionsEmissionsthatareaconsequenceoftheactivitiesofthereportingentitybutoccuratsourcesownedorcontrolledbyanotherentity(SBTi2021).InfrastructureprivateequityInvestingintheequityofinfrastructureassetstogainownershipandcontrol.TherearededicatedinfrastructurePEfirms–however,plentyofpensions,largebanks,sovereignwealthfunds,andotherentitiesalsomake‘equityinvestmentsininfrastructure’(Mergers&Acquisitions2021).InfrastructuredebtLikeprivatedebt,infrastructuredebtisnottradedorissuedinanopenmarket.Privateinfrastructuredebtcanbeloanedtobothlistedandunlistedcompanies.Infrastructuredebtfundsinvestindebtlinkeddirectlytoprojectsandtocorporateentitiesdependentonthedebtstrategy.Infrastructuredebtfundstargetprojectfinance–however,thereisnosingledefinitionamonginvestorsofwhatconstitutesinfrastructure.Asaresult,sectorandriskexposuresoffundsdiffer(CambridgeAssociates2018).InvestmentToinvestistoallocatemoney/capitalwiththeexpectationofapositivebenefitorprofitablereturnsinthefuture,typicallyasinterest,income,orappreciationinvalue(Investopedia2021).LenderThefirmlendingcapitaltotheborrowerviacreditorprivatedebtloans.Leveragedbuyouts(LBO)APEfund’sacquisitionofaportfoliocompany(PC)usingrelativelysignificantlevelsofdebtfinancetomeetthecostofacquisition.AnLBOusuallyseesthebuyertakeamajoritystakeandgaincontrolofthePC.LimitedPartner(LP)InvestorsinPEfundsarealsoknownasLPs,sincemostPEfundstaketheformofLimitedPartnerships(Guy,2010).Version1.0November2021`75PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgListedequityandbondsAllcorporatebondswithoutknownuseofproceedsandalllistedequityinvestmentsonthebalancesheetand/oractivelymanagedbytheFI(SBTi2021).MezzaninedebtSubordinateddebtrepaidafterseniordebtorsarerepaidinfull.Mezzaninedebtisoftenusedinbuyoutsandthuscanincludeembeddedequityinstruments(Pitchbook2021).Multi-strategyfundsMulti-strategyfundsengageinavarietyofinvestmentstrategies(EurekaHedge2021).ParisAgreementAdoptedwithintheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)inDecember2015,theParisAgreementcommitsallparticipatingcountriestolimitglobaltemperaturerisetowell-below2degreesCelsiusabovepreindustriallevelsandpursueeffortstolimitwarmingto1.5degreesCelsius,tobetteradapttoandincreaseeffortstowardstacklingclimatechange(SBTi2021).PortfolioCompany(PC)APCisacompanyorentityinvestedinbyaGP/PEfund(CorporateFinanceInstitute2021).PrivateequityThesharecapitalofunlistedcompanies–however,thetermismorecommonlyusedtorefertothePEfundmanagementindustry,whichistheraisingandinvestmentoffundsconsistingprincipallyofthird-partyinstitutionalcapitalintothesharecapitalofunlistedcompanies.APEfund,distinctfromaventurecapitalfund,willtypicallytakelargeminority(30%+)ormajorityequitypositionsinrelativelymaturecompanies.PrivateequitydirectinvestmentMediumtolong-termfinanceprovidedinreturnforanequitystakeinunlistedcompanies.Deployedthroughstrategiessuchasbuyouts.Aswellasinvestmentinmorematurecompanies,PEdirectinvestmentscanbebrokendownintogrowthcapitalandventurecapital,forlessmatureand/orsmallerbusinesses(BVCA2021).Privateequity(PE)firmAPEfundmanagementfirm.AlongsidePEfundmanager,PEfirm,andGP,thesearetermsthatarecommonlyusedinterchangeably,andalsoreferredtoasthereportingentity.ProjectfinanceOn-balancesheetloanorequitywithknownuseofproceedsatthelevelofeconomicactivity,e.g.,withininfrastructure,theconstructionofagas-firedpowerplant,awindorsolarproject,orenergyefficiencyprojects(Finansdanmark2021).Version1.0November2021`76PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgReportingentity(i.e.,GP)ForthepurposeofthisGuidance,theGPservesasthereportingentityconsolidatingtheGHGinventoryforitsoperations(i.e.,scope1and2)anditsinvestmentandlendingactivitieswithinitsmanagedfunds(i.e.,scope3category15),andsubmitsthetargets.ThereportingentityisnotattheLPlevel.RealEstatePropertyconsistingoflandandresourcesattachedtoit.InthecontextofthisGuidance,realestatereferstoserviceandresidentialbuildings(Investopedia2021).RealestatedebtThemostcommonrealestatedebtstrategyisdirectlendingforrealestateacquisitions.Thisincludesbuyingandsellingsecuritizedrealestateloansinthesecondarymarket(Pitchbook2021).ScenarioanalysisAprocessofanalyzingfutureeventsbyconsideringalternativepossibleoutcomes(SBTi2021).Science-basedreductiontargets(SBTs)TargetsadoptedbycompaniestoreduceGHGemissionsareconsidered“science-based”iftheyareinlinewithwhatthelatestclimatesciencesaysisnecessarytomeetthegoalsoftheParisAgreement–tolimitglobalwarmingto1.5degreesCelsiusabovepre-industriallevelsandpursueeffortstolimitwarmingwell-below2degreesCelsius(SBTi2021).Scope1emissionsEmissionsfromoperationsthatareownedorcontrolledbythereportingcompany(SBTi2021).Scope2emissionsEmissionsfromthegenerationofpurchasedoracquiredelectricity,steam,heating,orcoolingconsumedbythereportingcompany(SBTi2021).Scope3emissionsAllindirectemissions(notincludedinscope2)thatoccurinthevaluechainofthereportingcompany,includingbothupstreamanddownstreamemissions(SBTi2021).Scope3emissionsareaconsequenceofcompanyactivitiesbutoccurfromsourcesnotownedorcontrolledbyit.Examplesofscope3activitiesincludeextractionandproductionofpurchasedmaterials,transportationofpurchasedfuels,andusingsoldproductsandservices.Version1.0November2021`77PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgScope3,category15(investment)emissionsThiscategoryincludesscope3emissionsassociatedwiththereportingcompany’sloansandinvestmentsinthereportingyear,notalreadyincludedinscope1orscope2(SBTi2021).Forcategory15,theGHGProtocolCorporateStandardonlyrequirestheinclusionofcorporatedebtholdingswithknownuseofproceeds.ThisGuidancegoesbeyondthisrequirementandthusexpandstheminimumboundaryofcategory15.PEfirmsshallfollowemissionsmeasurementrequirementsintherelevantassetclassmethodsandmeasureemissionsofdebtinvestmentswithoutknownuseofproceeds,whereapplicable.SecondaryAsecondaryinterestisanownershippositioninanexistingfundwhichmayormaynotbefullyinvestedbuthasnotbeenfullyexitedandwoundup.Suchinterestsareusuallytransferable,subjecttocertainconditions,andasecondarymarkethasgrownuptocaterforsuchtransactions,anumberofspecialistfirmshavingbeensetupforthepurpose(Guy,2010).SequesteredemissionsAtmosphericCO2emissionscapturedandstoredinsolidorliquidform,therebyremovingtheirharmfulglobalwarmingeffect(SBTi2021).Sector-specificmetricsEnergyorcarbonintensitymetricsthatuseaphysicalunitdenominatorandareapplicabletoaspecificsector.ExamplesincludekgCO2/MWh(power),MWh/m2(realestate),etc.(SBTi2021).Smallandmedium-sizedenterprises(SMEs)TheSBTiprovidesastreamlinedtargetvalidationrouteforSMEs,whereanSMEisdefinedasanon-subsidiary,independentcompanywithfewerthan500employees.PEfirmsshouldthusdirectinvesteeswithmorethan500employeestotheregularSBTivalidationroute.SpecialsituationsDebtorstructuredequityinvestmentsmadewiththeintentofgainingcontrolofacompany–generally,oneinfinancialdistress(Pitchbook2021).TotalbalancesheetvalueThesumoftotalequityandliabilities,equaltothecompany’stotalassets(OpenRiskManual2021).VenturecapitalProfessionalminorityinvestmentsinsmallandmicrocompanies,wherenosingleprofessionalinvestorownsmorethan50%.VenturedebtDebtfinancingextendedtocompanieswithventurecapitalbacking.Forentrepreneurs,venturedebtservestoextendtherunwaytoexitwithoutfurtherdilutingownership(Pitchbook2021).Version1.0November2021`78PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.org12.ReferencesBain&Company.2021.GlobalPrivateEquityReport.https://www.bain.com/globalassets/noindex/2021/bain_report_2021-global-private-equity-report.pdf.Basri,Nadine.2020.TheDifferenceBetweentheThreeTypesofPartnerships.https://theincorporators.com/blogs/news/the-three-types-of-partnerships.BritishPrivateEquityandVentureCapitalAssociation.2021.PrivateEquityExplained.https://www.bvca.co.uk/Our-Industry/Private-Equity.CambridgeDictionary.2021.CapitalAsset.https://dictionary.cambridge.org/dictionary/english/capital-asset.CambridgeAssociates.2018.InfrastructureDebtUnderstandingtheOpportunity.https://www.cambridgeassociates.com/wp-content/uploads/2018/08/Infrastructure-Debt-%E2%80%93-Understanding-the-Opportunity.pdf.CarbonDisclosureProject.2021.Dataandinsights.https://www.cdp.net/en/dataCommissionDelegatedRegulation(EU).2020.EuropeanCommission.https://ec.europa.eu/transparency/regdoc/rep/3/2020/EN/C-2020-4757-F1-EN-MAIN-PART-1.PDF.CorporateFinanceInstitute.2021.DebtEquityRatio.https://corporatefinanceinstitute.com/resources/knowledge/finance/debt-to-equity-ratio-formula/.CorporateFinanceInstitute.2021.PortfolioCompany.https://corporatefinanceinstitute.com/resources/knowledge/strategy/portfolio-company/.DeloitteInsights.2020.TheGrowingPrivateEquityMarket.https://www2.deloitte.com/us/en/insights/industry/financial-services/private-equity-industry-forecast.html.ECUserguidetotheSMEDefinition“KLPGoesCoalFree.”2020.KLP-English.https://www.klp.no/en/press-room/klpgoes-coal-free.EurekHedge.2021.Multi-StrategyHedgeFunds.https://www.eurekahedge.com/Research/News/1048/Multi-Strategy-Hedge-Funds-Strategy-Outline.Finansdanmark.2021.FrameworkforFinancedEmissionsAccounting.https://finansdanmark.dk/media/47060/fida_financedemissionsaccounting-rgbsingles.pdf.Guy,Fraser-Sampson.2010.PrivateEquityasanAssetClass,Secondedition.Version1.0November2021`79PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orghttps://books.google.co.uk/books/about/Private_Equity_as_an_Asset_Class.html?id=Ss0U745ivOAC&redir_esc=y.InternationalEnergyAgency.2017.EnergyTechnologyPerspectives.https://www.iea.org/reports/energy-technology-perspectives-2017InternationalEnergyAgency.2021.NetZeroby2050.https://www.iea.org/reports/net-zero-by-2050.IntergovernmentalPanelonClimateChange.2021.AssessmentReport6.https://www.ipcc.ch/report/ar6/wg1/Investopedia.2020.RealEstatevsRealProperty:What’stheDifference?https://www.investopedia.com/ask/answers/100214/what-difference-between-real-estate-and-real-property.asp.InvestmentCouncil.2021.IndustryGlossary.https://www.investmentcouncil.org/industry-glossary/.Investopedia.2021.FullyDilutedShares.https://www.investopedia.com/terms/f/fullydilutedshares.asp.Investopedia.2021.Investment.https://www.investopedia.com/terms/i/investment.aspInvestopedia.2021.LeveragedBuyout(LBO).https://www.investopedia.com/terms/l/leveragedbuyout.asp.Investopedia.2021.PassiveMinorityInterests.https://www.investopedia.com/terms/m/minorityinterest.asp.Investopedia.2021.PrivateEquityRealEstate.https://www.investopedia.com/terms/p/private-equity-real-estate.asp.Investopedia.2021.TheDifferenceBetweenaCapitalMarketandtheStockMarket.https://www.investopedia.com/ask/answers/021615/whats-difference-between-capital-market-and-stock-market.asp.Investopedia.2021.UnderstandingConvertiblePreferredShares.ps://www.investopedia.com/articles/stocks/05/052705.asp.NATIXIS.2018.“ESRSectorPolicyApplicabletoOil&GasIndustry.”https://www.natixis.com/natixis/upload/docs/application/pdf/2018-11/natixis_esr_sector_policy__oil__gas.pdf.MergersandAcquisitions.2021.InfrastructurePrivateEquity.https://www.mergersandinquisitions.com/infrastructure-private-equity.Version1.0November2021`80PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgMcKinsey&Company.2016.FinancingChange:Howtomobilizeprivate-sectorfinancingforsustainableinfrastructure.http://2015.newclimateeconomy.report/wpcontent/uploads/2016/01/Financing_change_How_to_mobilize_private-sector_financing_for_sustainable-_infrastructure.pdf.McKinsey&Company.2021.AYearofDisruptioninthePrivateMarkets.https://www.mckinsey.com/~/media/mckinsey/industries/private%20equity%20and%20principal%20investors/our%20insights/mckinseys%20private%20markets%20annual%20review/2021/mckinsey-global-private-markets-review-2021-v3.pdf.OpenRiskManual.2021.TotalBalanceSheetValue.https://www.openriskmanual.org/wiki/Total_Balance_Sheet_Value.OrganizationforEconomicCo-operationandDevelopment.2019.Whoaretheownersoftheworld’slistedcompaniesandwhyshouldwecare?https://www.oecd.org/corporate/who-are-the-owners-of-the-worlds-listed-companies-and-why-should-we-care.htm.Pan-TribalAssetManagement.2021.CPD:Thecaseforlistedprivateequity–Part1–Listedversusprivatecompanies.https://www.adviservoice.com.au/2021/08/cpd-the-case-for-listed-private-equity-part-1-listed-versus-private-companies/PartnershipforCarbonAccountingFinancials.2020.TheGlobalGHGAccountingandReportingStandardfortheFinancialIndustry.https://ghgprotocol.org/sites/default/files/standards/The%20Global%20GHG%20Accounting%20and%20Reporting%20Standard%20for%20the%20Financial%20Industry_0.pdf.Phalippou,Ludovic.2017.PrivateEquityLaidBare.https://books.google.co.uk/books/about/Private_Equity_Laid_Bare.html?id=ojm0swEACAAJ&redir_esc=yPitchbook.2021.Whatisprivatedebt?https://pitchbook.com/blog/what-is-private-debt.Preqin.2021.PrivateEquity.https://www.preqin.com/academy/lesson-4-asset-class-101s/private-equity-venture-capital/privateequity.Preqin.2021.WhyInvestinPrivateDebt.https://www.preqin.com/academy/lesson-4-asset-class-101s/private-debt.RobecoInstitutionalAssetManagementB.V.2020.“ExclusionPolicyRobeco:RobecoInstitutionalAssetManagement.”https://www.robeco.com/docm/docu-exclusion-policy-and-list.pdf.S&PGlobal.2021.PrivateCompanyData.https://www.spglobal.com/marketintelligence/en/documents/private-company-data.pdf.Version1.0November2021`81PrivateEquitySectorScienceBasedTargetSettingGuidancesciencebasedtargets.org@ScienceTargets/science-based-targetsinfo@sciencebasedtargets.orgScienceBasedTargetsinitiative.2021.FrequentlyAskedQuestions.https://sciencebasedtargets.org/faqs.ScienceBasedTargetinitiative.2021.FinancialSectorScience-BasedTargetsGuidance.https://sciencebasedtargets.org/resources/files/Financial-Sector-Science-Based-Targets-Guidance-Pilot-Version.pdf.ScienceBasedTargetInitiative.2021.SBTiCorporateManual.https://sciencebasedtargets.org/resources/files/SBTi-Corporate-Manual-v1.1.pdf.ScienceBasedTargetinitiative.2021.SBTiCriteriaandRecommendations(Version4.2).https://sciencebasedtargets.org/resources/files/SBTi-criteria.pdf.ScienceBasedTargetInitiative.2021.SBTiCriteriaandRecommendations(Version5).https://sciencebasedtargets.org/resources/files/SBTi-criteria.pdfWikipedia.2021.Investment.https://en.wikipedia.org/wiki/InvestmentWikipedia.2021.PortfolioCompany.https://en.wikipedia.org/wiki/Portfolio_company.WorldResourcesInstitute.2015.GHGProtocolScope2Guidance.https://ghgprotocol.org/sites/default/files/ghgp/standards/Scope%202%20Guidance_Final_0.pdf.WorldResourcesInstituteandWorldBusinessCouncilforSustainableDevelopment.2011.CorporateValueChain(Scope3)AccountingandReportingStandard.https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-Accounting-Reporing-Standard_041613_2.pdf.WorldResourcesInstituteandWorldBusinessCouncilforSustainableDevelopment.2004.TheGreenhouseGasProtocol,ACorporateAccountingandReportingStandard,SecondEdition.https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf.