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Manish Shakdwipee

Manish Shakdwipee

Executive Director, MSCI Research

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Understanding Carbon Exposure in Private Assets

  • Since the Paris Agreement, there has been growing scrutiny on carbon emissions by public companies, but it is much tougher for investors to evaluate their exposure to carbon from privately held assets.
  • Both private and public companies exposed to regions with high carbon-emission reduction targets are similarly vulnerable to regulations and policies aimed at reducing companies’ direct emissions.
  • For investors that have private companies in their portfolio, engagement might be more practical than for investors in public companies, as the group of private emitters is more concentrated than public counterparts.

Since the 2015 Paris Agreement, there have been a growing number of climate-related transparency regulations and initiatives focused on public companies and managers of listed assets. But private companies have not received the same level of scrutiny. How can investors in private assets calculate their exposure to carbon emitters in their portfolios, and what can they do about it?

This issue has become more pressing as the proportion of private assets has increased dramatically in institutional portfolios. For example, Willis Towers Watson’s Thinking Ahead Institute found that global pension funds’ allocations to real estate, private equity and infrastructure have more than tripled over the past 20 years, increasing to more than 26% from 7%.1 But compared to the public markets, there is much less information available on how they are preparing for the transition to a low-carbon economy.

To gauge the potential climate-transition risk of private companies, we estimated Scope 1, Scope 2 and Scope 1+2 carbon emissions for a nonrandom private-company set2 using our proprietary carbon-emissions estimation model. We then compared the emissions of this set with those of public companies in the MSCI ACWI Investable Market Index (IMI).3


Private-Company Emissions Were Concentrated in Just a Few Sectors

Like emissions for public companies, emissions for private companies were clustered in three sectors: utilities, energy and materials. But the concentration in these sectors was lower for private companies, accounting for approximately 68% of total emissions, compared with approximately 82% of total emissions for public companies.4 Further, the three sectors accounted for only 12.3% of the private-company set by revenue, compared to 20.5% for the public-company set.


Sector Concentration of Carbon Emissions in Private vs. Public Companies

Data as of August 2021. The analysis is based on 9,225 public companies and 18,562 private companies. Source: MSCI ESG Research LLC, Burgiss LLC

Lower exposure to carbon-intensive sectors is a major reason for the lower overall carbon intensity5 of the private-company set (~172.8 of CO2 equivalent per USD million of revenue) compared to the public-company set (~249.1 CO2e per USD million revenue), as of August 2021.

When we adjusted our datasets to examine only areas with high carbon-emissions reduction targets,6 the difference between overall carbon intensity of private and public companies was far less, declining by 85% (see exhibit below). This means that both private and public companies are similarly vulnerable to regulations and policies aimed at reducing companies’ direct emissions. The problem then becomes one of attention: Since private companies face fewer disclosure requirements, the market has paid less attention to their emissions.


Overall Carbon Intensity of Private vs. Public Companies

Data as of August 2021. The analysis is based on 9,225 public companies and 18,562 private companies. Source: MSCI ESG Research LLC, Burgiss LLC


Carbon Emissions Were Concentrated in Fewer Private Companies

While sector concentration associated with Scope 1+2 emissions was lower for private companies than public ones, we found the opposite pattern when we examined exposure to individual companies. For instance, the top 50 emitters in the public-company set accounted for approximately 40% of carbon emissions, compared to nearly two-thirds for the private-company set (see exhibit below). This higher level of concentration of emissions among private companies may help institutional investors who pursue engagement strategies with private companies, as they would have to engage fewer private high emitters than they would with their publicly held counterparts to address a similar level of carbon emissions.


Emissions Contribution of Top Emitters

  Top 10 Emitters Top 50 Emitters Top 100 Emitters Top 150 Emitters Top 200 Emitters
Public Companies  16.4% 40.2% 54.4% 63.4% 69.6%
Private Companies 28.2% 63.6% 77.0% 82.2% 84.8%

Data as of August 2021. Source: MSCI ESG Research LLC, Burgiss LLC


What Can Investors Do?

As institutional investors recognize their exposure to carbon-emissions risk through private companies, they can think strategically about how to address them. After all, private companies are equally vulnerable to the growing number of regulations and policies aimed at reducing companies’ direct emissions.

As the first step, investors can ask portfolio companies to provide more comprehensive disclosures on the climate risk and opportunities they face. Investors could also assess the carbon footprint of their private-company portfolios and identify potential drivers of climate-transition risk in their portfolios. Carbon footprinting sets a baseline to inform future actions, which can range from reporting and engagement to decarbonization and risk management.

To date, institutional investors have been slow to act on the climate-transition risk associated with their private-company allocations.7 As allocations to private assets increase, the importance of addressing these exposures grows.



1“Global Pensions Assets Study.” Willis Towers Watson Thinking Ahead Institute, 2021. “A year of disruption in the private markets: McKinsey Global Private Markets Review 2021.” McKinsey & Co., April 2021.

2This dataset should not be seen as a representative dataset for private companies. Private-company set provided by Burgiss LLC. This dataset included actively held companies with a recent revenue figure available. As of August 2021, it comprised 18,562 companies with private investments.

3The MSCI ACWI IMI captures large-, mid- and small-cap representation across 23 developed markets and 27 emerging markets. With 9,225 constituents, as of Aug. 31, 2021, the index covers approximately 99% of the global equity investment opportunity set.

4For MSCI ACWI IMI constituents, we used Global Industry Classification Standard (GICS®) sectors. GICS is the global industry standard jointly developed by MSCI and S&P Global Market Intelligence. For the private company set, Burgiss LLC assigns an industry classification based on GICS. These are assigned according to the company’s principal business activity, which is determined using data provided by manager reporting and enriched using public disclosures.

5Overall, carbon intensity was computed as the ratio of total Scope 1+2 emissions to total revenue of all companies in the respective company sets.

6We classified countries or regions with high, medium or low carbon-emissions reduction targets based on the stringency of countries’ or regions’ carbon-emissions reduction commitments in their respective nationally determined contributions (NDCs), under the Paris Agreement. We then mapped all the companies in our private- and public-company sets to one of these three categories based on where these companies were domiciled.

7“The Changing Climate for Private Equity.” Ceres, June 3, 2021.



Further Reading

Climate-Aligned Private Asset Portfolios Construction

Climate 101: Aligning your Portfolio with a Net-Zero Economy

Measuring the Temperature of Your Portfolio

Foundations of Climate Investing: How Equity Markets Have Priced Climate Transition Risks