Private equity’s role in the transition is not limited to investing in businesses that are already sustainable. For Stephanie Hubold, Head of Sustainability at Altor Equity Partners, active ownership creates an opportunity to help companies move from “grey to green", provided climate targets are translated into the financial and operational decisions that management teams can act on.
At SuperReturn CFO/COO, Hubold discussed transition investing, science-based targets and what LPs should look for when assessing whether sustainability has genuinely become part of portfolio management.
Key takeaways
- Active ownership can allow private equity firms to support companies through the transition rather than only backing businesses already considered green.
- Climate targets need to be translated into capex, opex and financial implications to become useful to CFOs and boards.
- Accountability for delivering sustainability plans needs to extend beyond specialist sustainability teams.
- Longer private equity holding periods can allow initial transition investments to generate cost and resource savings over time.
- LPs should assess progress across a broad set of sustainability metrics rather than relying on one headline target.
From targets to transition
For Hubold, one of the most interesting developments is greater recognition of companies that are still in transition.
Private equity can play a particularly active role in that space because ownership gives investors the ability to influence how businesses change.
It’s really about bringing a company from A to B. And that means bringing them, if not from brown to green, from grey to green
Stephanie Hubold, Head of Sustainability at Altor Equity Partners
Rather than restricting capital to companies that already meet a particular sustainability threshold, the opportunity is to support businesses capable of making meaningful progress during the ownership period.
Sustainability has to make financial sense
Setting a target is only the beginning.
Hubold says Altor has invested in capability building across both investment teams and portfolio companies, while placing responsibility for progress with deal teams.
The firm tracks not only headline emissions targets but also the underlying actions required to deliver them.
One of the most important steps is translating sustainability language into terms that CFOs, management teams and boards can use.
Required emissions reductions can be broken down into individual operational levers, followed by analysis of the associated capex and opex requirements and potential top- and bottom-line effects.
That allows sustainability plans to become part of ordinary financial planning rather than a separate exercise.
That then makes sure that everyone in the room can take fact-based conscious decisions.
Stephanie Hubold, Head of Sustainability at Altor Equity Partners
What should LPs look for?
Hubold says the level of sustainability understanding among LPs has become increasingly sophisticated.
If she were assessing a manager from the LP side, she would look beyond progress against a single target.
To me it is about making broad progress against the E, S and G dimensions
Stephanie Hubold, Head of Sustainability at Altor Equity Partners
The risk of focusing on one metric is that a manager can optimise around that number while neglecting other material areas.
More meaningful evidence comes from showing that sustainability considerations are integrated into how portfolio companies are managed and into day-to-day decision-making. Pasted text
That ultimately requires something broader than a sustainability team.
It requires sustainability literacy throughout the organisation.