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How Private Capital Can Lead the Way on Climate Action

24 Mar 2022

By Elizabeth Lewis and Jamie Mandel (Blackstone)

We know that prioritizing climate makes companies stronger and more resilient. We believe private market investors that partner closely with companies to transform them have a crucial role to play in the transition to a lower-carbon world. Our ability to work directly with management teams means we can support deeper change and generate greater value for our portfolio companies.

At Blackstone, we combine the unique advantages of private-market investment with our long-term perspective to create value for our investors and help companies implement changes needed to drive value through decarbonization. Our climate strategy involves four key parts: measuring climate risk, mitigating climate impact, investing in climate solutions, and engaging company stakeholders.

Measuring climate risk

We are deploying a physical risk assessment for our large real estate footprint, and we plan to expand this to other holdings over time. We are also starting to evaluate and manage transition risk into our investment process. As part of this, we are deploying a carbon footprint program for our investments where we have majority ownership and board control that will focus on building the capability for companies to measure and report on their emissions, and we have partnered with our portfolio companies Sphera and RE Tech Advisors, part of the Legence platform, to help us conduct this footprint.

The Value of mitigating climate change

We committed in 2021 to a target of reducing emissions by 15%, in aggregate, across all new investments where we control the energy use over the first three years of our ownership. We have built a platform to help our companies reduce emissions rapidly and create value for the company. We perform an emissions reduction assessment for all in-scope companies that includes energy efficiency and renewable energy options. If a portfolio company has longer-term climate goals, we support them as they work towards those goals. We have built a series of tools and partnerships that help our companies realize positive value quickly from these efforts.

Our aim for generating value is to be climate-smart investors and to build climate-aware companies. This requires us to recognize and plan for mitigation costs that might occur during our hold period and to build critical capabilities within the company so that it is positioned for a successful exit.

Investing in climate solutions

Experts estimate that reaching net zero emissions worldwide will require greater than $3.5 trillion in annual capital investments. At Blackstone, we are eager to play a part in strengthening the global economy by financing decarbonization. Since 2019, the firm has committed over $15 billion in investments that we believe are consistent with the broader energy transition.

These investments span sectors and industries: we have backed DESOTEC, a water, air and soil filtration specialist whose fleet of 2,700 mobile filters is one of the largest in Europe. We also worked for over a decade to develop a proposal with TDI to build the Champlain Hudson Power Express, a 339-mile renewable energy transmission project that will deliver 1,250 MW of clean energy to New York City by 2025. This is enough to power over 1M homes and decrease CO2 emissions by an estimated average of 3.9M metric tons per year, which is equivalent to removing 44% of cars from the city. This project is a testament to what investors with a long-term horizon can achieve. Our ability to invest patient capital at scale makes us the partner of choice for investors seeking to unlock long-term value. Across its businesses, Blackstone sees an opportunity to invest an estimated $100 billion in energy transition and climate change solutions projects over the next decade.

Engaging company stakeholders

We believe transparency is critical for our investors and other key stakeholders. Our investors need transparency on critical climate data and we are focused on enabling them to track progress towards their own climate commitments. Reporting can keep us focused and help us drive towards action. Similarly, we seek to help our companies engage their customers, supply chain, and future investors on climate to make them more resilient and can support growth.

Blackstone takes great pride in our progress thus far – but we also know that the work is far from complete. Scientists agree we have less than 10 years to limit emissions if we want to avoid the worst consequences of climate change. At Blackstone, we are responding by executing with immediate action that strengthens our companies and creates value for our investors.

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