The most critical climate metric for companies that no one is talking about

Transitioning our planet to net zero emissions – which climate scientists tell us is necessary by 2050 to avoid the worst impacts of climate change – requires investing in the energy transition across all sectors over decades. Energy accounts for 10% of the global GDP. The IEA predicts that $100 trillion of investment will be needed for the energy transition, with more than $3.5T of annual capital investment required to achieve net zero emissions by 2050.

Many are asking what the role of investors is in confronting the climate crisis. Some investors are focused on setting net zero targets for 2050. Others are using today’s greenhouse gas (GHG) footprints to decide where to invest for tomorrow. What the world also needs –that few people are speaking about – is a way to connect these two. We need to invest capital into companies and infrastructure that are creating the critical bridge from today to tomorrow. We need to do so with both an action-oriented short-term perspective as well as a perpetual or long-term perspective over many years to make companies stronger in the face of climate risk. Investors should seek to measure not only their GHG emissions at a moment in time, but also the change in a company’s GHG under their ownership. It is investing for the future, and that is what we are seeking to do at Blackstone.

We believe the two most important metrics investors need to focus on are:

1) Change in a company’s GHG emissions over investment period, or the “GHG Delta,” and

2) Cost to abate GHG emissions

To measure progress reducing GHG emissions, it is important for investors to have a robust, measured GHG footprint of their holdings. A GHG footprint is the baseline to show progress on the GHG Delta – how companies’ GHG footprints change over the time of investment. We are investing significant resources in getting this right at Blackstone. Our portfolio includes approximately 12,000 real estate assets and over 250 portfolio companies. As the largest owner of commercial real estate globally, a rigorous carbon accounting program is central to understanding our portfolio’s GHG footprint. Our program will allow us to measure progress while also providing our investors with the data they need to measure progress against their climate commitments.

Both Embassy Office Parks REIT and Nexus Malls are great examples of our portfolio program. Embassy Office Parks is India’s first listed REIT and one of the largest office REITs in Asia by area. They recently announced a commitment to achieving net zero emissions by 2040 across their portfolio and set up a 100MW solar power plant to supply green power to our Bangalore office parks. Blackstone portfolio company Nexus Malls, one of the largest malls aggregator in India, built a solar power plant from the ground up during the pandemic. The plant is expected to reduce carbon emissions by over 8,000 tons and is expected to produce over six megawatts of solar energy, equivalent to saving close to 20 million liters of water.

At Blackstone, we have quantified our work on GHG Delta by setting a numeric target focused on actionable improvement over the short term.

We have committed to a goal of reducing carbon emissions by 15% in aggregate for all new investments where we control the energy use over the first three years of ownership – a commitment that is informed by climate science.

One easy way to decrease the GHG emissions footprint of a portfolio is to divest from the highest-emitting assets. This helps investors present a lower-GHG emitting portfolio than before divestment, but it doesn’t do nearly as much to help reduce GHG emissions as transformation does. In fact, one strategy to reduce global emissions meaningfully over time is for investors to help transform high-emitting assets over time to lower emissions. Investing in the lowest emitting companies is only one piece of the puzzle when it comes to progress on increasing portfolio resilience.

The second critical metric for investors is the cost per GHG emissions abatement. The more affordably companies can reduce GHG emissions, the more capital is left over to confront the most difficult GHG emissions to abate. Over the last decade of working with companies to reduce emissions, we have learned a lot about what works — and what doesn’t — when it comes to reducing carbon emissions across a wide variety of assets in vastly different sectors of the economy (from manufacturing to hotels to last mile logistics). Our program, which we believe is industry-leading, starts with operational efficiency via no-cost and low-cost initiatives, which are the most cost-effective ways to reduce emissions in most situations. We then work with our companies to pursue on-site renewable energy systems, high-ROI capital investments to reduce energy consumption, and lastly technology switching & electrification where feasible. We are seeking to help our companies seize opportunities with off-site renewables, RECs and offsets in the future.

At Blackstone, we are creating value through active decarbonization by focusing on GHG Delta and cost per GHG reductions. We are seizing on this to assist our companies decarbonize and become more resilient. It is investing for the future, working with companies to help the world achieve a stronger, lower-carbon future.

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Under the spotlight: Dr. Jean Rogers

Dr. Jean Rogers is a Senior Managing Director and Blackstone’s Global Head of ESG. She oversees the firm’s corporate ESG team and partners with business unit heads of ESG and asset management teams to advance ESG initiatives and integration across portfolio companies and assets. Dr. Jean Rogers was a key speaker at SuperReturn International 2022, weighing in on a panel discussion about 'The role of ESG in driving value creation'.

Prior to joining Blackstone, Dr. Rogers advised companies and asset managers on long-term ESG integration as an independent board director and C-level advisor. Dr. Rogers founded and led the Sustainability Accounting Standards Board (SASB), a non-profit dedicated to optimizing US capital markets by fostering disclosure of material sustainability information that meets investor needs and enhances public trust. Before founding SASB, Dr. Rogers worked to advance sustainable development across the US, Europe and China for more than a decade at Arup, a global engineering consultancy specializing in low-carbon infrastructure and green buildings, and Deloitte, where she worked on environmental projects in its manufacturing practice.

To hear more insights from Dr. Jean Rogers and other industry leaders, join us at SuperReturn International 2023 >>