By Abdulla Zaid, MSCI

Emissions disclosures in private capital were skewed toward high-NAV, high-emitting companies.
Reported emissions accounted for nearly a quarter of the estimated financed emissions in private debt and over half of the financed emissions in utilities.
Private-capital investors need to be aware of climate-related risks and the substantial gulf in emissions reporting by region, with North America lagging significantly. This makes regulatory changes to enhance emissions disclosures from carbon-intensive companies all the more urgent.

For private-capital investors, low emissions disclosures, regional disparities due to differences in regulation and skewed sectoral reporting make for a difficult landscape in which to assess the emissions and climate-related risks of their portfolios. With private investments set to play a major role in the transition toward net-zero, in this blog post we assess the state of emissions reporting in private markets relative to public markets and identify the reporting disparities across asset classes, regions and sectors.

Private markets staying private about emissions

Total Scope 1 and 2 emissions reporting in the private-capital markets was low when compared to the MSCI ACWI Investible Market Index (IMI), which reached 58.0% as of January 2024.[1] Within the MSCI Private Capital Solutions’ data of over 58,000 portfolio companies in private-capital funds, only 1,312[2] had Scope 1 and 2 emissions reporting[3] — a disclosure rate of just 2.2% as of 2Q 2023. The reporting rate dropped to 1.7% after applying a number of filters and mapping the emissions data to the Burgiss Manager Universe (BMU).[4] Those companies with reported emissions accounted for 4.5% of the net asset value (NAV) and 9.8% of the estimated financed emissions[5] across private equity and private debt in the BMU, demonstrating some disclosure skew toward high-NAV, high-emitting companies.

Private equity and private debt showed similar rates of emissions disclosures at 4.5% and 4.3% of NAV, respectively. Yet, private debt’s emissions disclosures were skewed much more heavily toward high-emitting companies. Nearly a quarter of private debt’s calculated financed emissions were based on reported figures, compared to only 6% in private equity. As illustrated in the exhibit below, within private debt nearly 44% of distressed debt’s calculated financed emissions were based on reported data, concentrated in only 8.6% of NAV, demonstrating further disclosure skew toward high-emitting companies.

Reported emissions are not created equal

Carbon data as of Q2 2023; BMU data as of Q3 2023. Analysis is based on an aggregated investment valuation of nearly USD 4 trillion. The exhibit shows the NAV and financed-emissions weights of the portfolio companies with reported emissions data (1.7% of BMU, by count) across asset classes. Source: MSCI Private Capital Solutions, MSCI ESG Research

Disclosure was highest in utilities

The percentage of reported emissions was highest in carbon-intensive sectors, such as utilities and energy.[6] Over half of the private-capital financed emissions in utilities came from companies with reported emissions, concentrated in 25% of NAV.

Carbon-intensive sectors dominated reported emissions

While transparency is important overall, there may be further calls for carbon-intensive companies to disclose their emissions from investors, as they look to align with net-zero or assess their exposure to transition risk. Globally, carbon-pricing schemes have been on the rise and may result in higher costs and squeezed profitability margins for high-emitting companies. Emissions disclosures may increasingly be needed in private-capital portfolios to precisely assess climate risk as economies transition to net zero.

Emissions reporting was lowest in North America

Only 3% of the North American private-assets market by NAV had reported emissions, compared to 8.2% and 5.8% in Europe and Asia, respectively. The disclosure gap among regions nearly doubled when considering the share of financed emissions that was based on reported figures: 6.3% in North America, compared to 16.0% and 12.2% in Europe and Asia, respectively, as shown in the exhibit below.

Emissions reporting by region

In recent years, there have been new developments in climate regulations that may impact reporting in the U.S. and globally. For example, in March 2022, the Securities and Exchange Commission (SEC) proposed new requirements for U.S.-listed companies to disclose information on climate-related risks.[7] If adopted, the proposal may require U.S.-listed GPs to report their portfolios’ emissions footprint, including private companies. Our research estimated that ~11% of global privately held capital may be affected by this proposed rule. In addition, investor-led initiatives such as the ESG Integrated Disclosure Project (IDP)[8] have emerged to encourage more consistent private-market disclosures and facilitate material comparison across asset classes.

Guiding engagement pathways

Although emissions reporting in private capital was low, companies in carbon-intensive sectors have led the way. Further increases in emissions disclosures may help investors looking to channel private capital toward companies with innovative climate solutions in the traditionally high-emitting sectors. Disclosing private assets’ carbon footprint may be critical in supporting more-informed risk management and engagement decisions, especially as private investments become more integral to the net-zero transition.

Related content:

MSCI Private Company Data Connect

Private Assets Can’t Hide from SEC’s Proposed Climate Rule

Climate-Transition Risk Part 3: Are Private-Asset Managers Ready?

Lost and (Not) Found: Carbon Migration Out of US Public Markets

[1] Reporting data for 2021.

[2] In addition to private companies, this dataset may include public companies that received investments from private funds or private companies which went public and have not been exited yet.

[3] Most of the emissions reporting comes from the general partners (GPs), although there are some cases of company-reported emissions. Companies with no reported data receive carbon-intensity estimates from MSCI ESG Research: Carbon Footprinting for Private Equity and Debt

[4] To calculate financed emissions, this analysis excluded portfolio companies that had reported emissions without reported enterprise value including cash (EVIC). Additionally, we only examined portfolio companies in private equity and private debt funds. After mapping the reported emissions data to the BMU, out of over 44,000 portfolio companies, 741 had emissions and EVIC reporting.

[5] Carbon-intensity and financed-emissions estimates are only available for companies within the MSCI Private Capital Solutions’ data. Therefore, properties, natural resource investments and infrastructure assets generally do not have available estimates yet. The aggregate investment valuation of the underlying data is nearly USD 4 trillion, corresponding to ~88% of private equity and private debt’s total NAV in the BMU or ~94% of private equity and ~58% of private debt. BMU data as of Q3 2023; reported and estimated emissions data as of Q2 2023.

[6] Sector definitions according to the Global Industry Classification Standard (GICS®). GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.

[7] “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors.” SEC, March 21, 2022.

[8] “ESG Integrated Disclosure Project (ESG IDP).” ESG IDP, 2023.

Pulling Back the Curtain on Emissions Reporting in Private Markets