The Future of private equity (FPE)
The Goal
To assist asset owner collaboration with General Partners to catalyze funding and management that demonstrates meaningful progress towards sustainable transitions within Private Equity.
The Need
The recent exponential growth of Private Equity backed the United States’ rise to become to the world’s largest oil and gas producing nation and provide funding to infrastructure investments that support this expansion.
Private Equity’s bets on fossil fuels created complicated risk/return expectations for asset owners and carved out channels for additional traditional energy funds which take advantage of present day geopolitics that has put rapid decarbonization efforts to the side more often than is wise from a climate perspective.
At the same time, there are many disparate efforts to move Private Equity towards adopting ESG principles, collect ESG data from private companies, and commit to many varying Net Zero initiatives - but the transformation of this critical asset class is happening much too slowly to responsibly address climate change.
There is an urgent need to examine and define how Private Equity can be rapidly transformed by 2025 in order to leverage its strengths to fill the funding gaps currently preventing companies and technologies that are critical for mitigating the climate crisis from reaching necessary scale.
Without this transformation, Private Equity in its current form is a roadblock to necessary progress.
The Solution
The Future of Private Equity: 2025 (PE2025) is the vehicle for exploring and defining what this asset class must look like by 2025, a path to get there, and actionable results. PE2025 will set minimum standards as a way to operationalize not only environmental benchmarks and targets, but also ensure that workers and communities are treated with respect and enhance corporate governance and stakeholder engagement.
This transformation can come about through General Partners and Limited Partners in active dialogue about the unique window of opportunity for private equity between 2025 and 2030, including:
- Coordinating and considering existing, yet disparate, efforts within the private equity ecosystem around scalable just transitions and sustainable technologies and businesses
- Commitments around disclosure for both investment and credit funds
- Transparency around accounting and identities of buyers and sellers of assets
- Mark-to-market based on a climate constrained future
- Firms incentivized towards making more sustainable investments
- Asset owners establishing collective minimum standards for investment and increasing allocations specifically to sustainable finance
This future is possible because LPs do not want to inherit significant financial and reputational risk that could also be devastating to the hundreds of millions of people whose pensions are currently relying upon ongoing returns otherwise anticipated from private equity funds.
The Objectives
The Objectives of PE2025 will be to:
- Create a roadmap for action by Private Equity firms and their asset owner partners that will provide a framework for just, sustainable, private investing activities that can scale solutions to the climate crisis, ramp up circular economies, and reduce related food and water insecurity.
- Obtain commitments from LPs and GPs to shape the framework, help gather commitments among their peers, and implement the framework within their firms.
- Create and publish case studies of new actions by pension funds and other asset owners in our various networks, including new action and commitments by their private equity firm partners that are making change happen. Publishing case studies of success by mid-2025 would allow for a full push during fall events that year such as Climate Week, COP, etc. and in parallel by other NGOs and interested stakeholders along the way.