Climate change
Climate change is one of the most pressing issues faced globally and there is an urgent need for action to both mitigate further warming and adapt to the changes already underway. The latest Intergovernmental Panel on Climate Change (IPCC) report warns of irreversible climate change impacts “as natural and human systems are pushed beyond their ability to adapt” and that “climate resilience pathways are progressively constrained by every increment of warming, in particular beyond 1.5°C”. Concerns continued to heighten around COP27 in November 2022 with the Global Carbon Budget report’s warning of a 50/50 chance of 1.5°C overshoot by 20308.
As a software and services investor, Hg has a responsibility to encourage and support its portfolio companies to set carbon reduction targets and align to Net Zero. Not only is this both necessary for Hg to meet its own targets, but we believe that by better understanding and managing the emerging risks and opportunities that arise from climate change we can enhance our investment decisions and increase efficiency across our investments.
8. University of Exeter’s Global Systems Institute, Global Carbon Budget, Nov 2022
Portfolio carbon footprint
Hg is committed to cutting carbon emissions across our portfolio in line with the SBTi PE standard with the ultimate goal to achieve Net Zero by 2050. We have conducted a carbon footprinting exercise of our portfolio companies by collecting scope 1, 2 and 3 emissions data, in line with the GHG protocol for three years now.
In 2022, we introduced a new carbon reporting platform and offered more hands-on support to portfolio companies to calculate their emissions. As in previous years, we have shared carbon footprint dashboards back with portfolio companies, which indicate their carbon emissions intensity compared to the rest of the portfolio.
To further improve the accuracy of scope 3 accounting for software companies, Hg is co-leading an iCI working group to develop a guidance document for scope 3 GHG accounting in the software and services sector.
The document aims to support software companies to account for, and calculate, material scope 3 emissions categories. It provides an overview of current state of disclosures, commitments, and initiatives of software companies globally, highlighting what best practice looks like across the sector.
By supporting our portfolio companies to calculate their carbon footprints, we hope to enable them to think more strategically about how to mitigate climate-related risks and identify opportunities for reducing their carbon emissions. It will also better position them to comply with current and future GHG reporting requirements and improve credibility and reputation among stakeholders, potentially increasing profitability and benefiting from cost savings through operational efficiency measures.
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Chris Kindt
Head of Portfolio Value Creation, Hg
“Over the last year we have continued to focus our efforts on understanding and addressing the impact of our portfolio companies on climate change. In 2022/23 we have been focused on improving the data quality of our portfolio company’s carbon footprints, to allow us to rely less on assumptions and estimations. Our ESG team has provided hands-on support throughout the process and is encouraging our portfolio companies to set Science-Based carbon reduction targets and take actions to reduce emissions. We recognise that this not only helps future proof business in low carbon economy but drives resource efficiency and cost savings.”
Portfolio companies using cloud service providers with carbon reduction targets
Portfolio companies with green initiatives
Portfolio companies with carbon reduction initiatives
Renewable energy sourced across portfolio companies
*Excluding portfolio companies not relying on the cloud Numbers as of Dec 2022