Despite clamoring among institutional investors, PE firms have found it challenging to integrate climate risks into their environmental, social and governance (ESG) efforts and larger business models. That paradigm is changing, however, as it becomes easier to diligence climate risks in prospective investments and implement reforms that meaningfully bolster returns. Although a thorough climate risk program has many tenets, PE firms often find it easiest to begin with concrete and actionable plans to target physical climate risks specific to their portfolio companies’ or their suppliers’ various locations. In a two-part guest series, Kirkland & Ellis attorneys Alexandra N. Farmer and Jennie Morawetz detail the rising focus in the PE industry on mitigating climate risks and how sponsors can develop a successful program to that end. This second article describes physical climate risk as the first item many PE sponsors target in their programs, along with practical tips to successfully target the issue. The first article
discussed the multiple benefits to PE firms from pursuing climate risk programs, as well as ways to avoid various problems that can arise in connection with reporting on those programs. See our two-part series on ESG factors in private fund investing: “Past, Present and Future
” (Nov. 10, 2016); and “Designing an ESG Investing Policy
” (Nov. 17, 2016).