SME route for electricity generation assets

Private Equity
1

Hello,
I understand as a private equity firm, we must set targets for 100% of our electricity generation assets.
Could you please confirm all electricity generation assets must use the SDA method? Or would it be possible for small electricity generation companies to use the SME route?
Thank you,

2

Hello NPIE,

For PE assets not explicitly covered on the PE sector guidance, the Financial Institutions sector guidance applies.

Table 5.3 on the Fi guidance states that targets on electricity generation require the use of the SDA tool to be set.

Under the current Financial Guidance, setting targets for SME investments is considered optional.

Financial institutions interested in engaging SMEs to set SBTs and whose threshold for SMEs is higher than 500 employees (e.g., 1,000 employees) may have to direct their SME clients to the regular SBTi validation route. For more information on the SBTi’s target setting option for SMEs, please see https://sciencebasedtargets.org/resources/files/FAQs-for-SMEs.pdf.

In this case, targets on SME electricity generation investments are optional, and if included, must be calculated using the SDA methodology and the SDA tool available on the SBTi resources website.

1 Like
3

That’s very clear, thank you!

4

For clarification:

  • Investments in electricity generation (EG) assets need to be covered by SDA targets.

  • Loans to and investments in listed EG companies would need to follow the FI Guidance.

    • Listed EG companies that are SMEs (per the definition in this FAQ) may go through the SME validation route.

  • Equity investments in unlisted EG companies are required to be covered by targets if they meet the conditions listed for PE and VC investments in Table 6.1 of the PE Guidance.

    • Unlisted EG companies that are SMEs (per the definition in this FAQ) can also go through the SME validation route.

  • Debt investments in unlisted EG companies (SME or not) are currently optional.

5

Hi Howard, if the PE invests in an SME that generates electricity, could this PC be covered in the PE’s portfolio coverage target as an SME? Or would it need to have an SDA target?

6

Investments in EG assets need to be covered by SDA targets while investments in EG companies can be covered by a Portfolio Coverage target.

1 Like
7

Hi Howard - can you please confirm if EG companies that only generate renewable electricity can set a target under the SME Framework (if they also have < 500 staff)? We have some very small entities for whom a SME Framework would make much more sense. Thanks.

8

Hi Louise,

Listed and unlisted EG companies (including those that generate renewable electricity) that are SMEs (per the definition in this FAQ) should go through the SME validation route.

9

Thanks Howard - we have investments in one listed EG and four unlisted EG, all with < 500 people and all 100% renewable - should the unlisted EGs also go through the SME route?

10

Hi Louise,

Thanks for the follow up - the previous response should indeed apply to both listed and unlisted EG companies.

11

Great! That’s really clear, thanks. L