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. Hg has a responsibility to encourage and support its portfolio companies to set carbon reduction targets and align to a Net Zero future. Not only is this both necessary for Hg to meet its own science-based targets, but we believe that by better understanding and managing the emerging risks and opportunities that arise from climate change we can also increase efficiency and resilience across our portfolio.
Science-based targets
The Science Based Targets initiative (SBTi) is considered a robust method for businesses to reduce emissions in their activities and investments, with over 4,700 companies and financial institutions taking action, of which about 35 are PE firms. It is based on the principle that emissions must be halved by 2030 (Hg’s FY31) and drop to Net Zero by 2050, to not exceed 1.5°C and avoid catastrophic impacts of climate change.
In 2021, Hg was one of the first PE firms globally to road test SBTi’s PE standard and have our carbon reduction targets approved by the SBTi. We have committed to reduce our own scope 1 and 2 emissions, as well as set a portfolio coverage target.
As of March 2024, eight Hg portfolio companies had committed to setting SBTs. In FY24, we will focus our efforts to support even further portfolio companies to do the same.
reduction in our direct emissions (scope 1 and 2) by FY31
of portfolio companies to have set SBTs by FY27
of portfolio companies to have adopted SBTs by at least FY41
*Hg's fiscal year runs from April-March
Firm-level carbon forint
We publicly report on our carbon footprint in line with the GHG Protocol and, since 2019, we have compensated for scope 1, 2 and 3 emissions. Please see our latest carbon footprint report, published on our website, for more details on our firm-level footprint and the projects we support. Although not the largest scope of emissions, but one that we have more control of, we continue to reduce our scope 2 emissions by moving our offices to renewable energy.
As scope 3 emissions from business travel makes up the majority of our carbon footprint, over 90%, Hg’s Sustainability policy and Travel policy requires employees to be mindful of their environmental impact when traveling. However, we also recognise that we are relying on building strong, trusting, relationships with our investors, teams, prospective and existing portfolio companies, which often requires business travel. To the extent possible, we recommend the use of virtual meeting platforms, but if travel is essential, employees are asked to consider low-emission transport methods where possible.
Recognising that air travel is unavoidable in some cases, employees are advised to consider the number of people required in attendance and fly economy class particularly for short-haul flights.
Portfolio carbon footprint
To support our companies in understanding their impact on climate change, we are collecting scope 1, 2 and 3 emissions data, in line with the GHG protocol and share carbon footprint dashboards indicating each business’ carbon intensity and how this compares to the rest of the portfolio. In 2024 (collecting 2023 data), we supported about 50% of our portfolio companies in calculating their footprints too, the remaining part of our portfolio using external parties to conduct their footprints.
We find that one driver for higher emissions across our portfolio is if a business has company cars, which is typically more common for our service businesses. To further support our businesses in increasing the accuracy of their scope 3 emissions, Hg co-lead an iCI working group to develop a Scope 3 GHG accounting guidance for the software and services sector. This is a comprehensive guide to help businesses understand their scope 3 emissions.
Carbon reduction toolkit
Setting targets and reducing emissions should not be at a cost to businesses but should lead to cost and competitive benefits in the long term as energy and fuel consumption decrease and customers are becoming increasingly demanding.
To support our portfolio companies in setting science based targets and develop a credible path to get there, we have launched a carbon reduction toolkit which covers all possible decarbonisation actions relevant for software and service companies.
"We continue to focus on understanding and addressing the impact of our portfolio companies on climate change recognising that we all have a role to play in addressing this global challenge. We continue to be committed to reaching our SBTi targets across the portfolio and are engaging with our businesses to make this happen. We recognise that this not only helps future proof businesses in low carbon economy but drives resource efficiency and cost savings".
Nic Humphries
Senior Partner, Hg
