Using temperature rating for our portfolio

Private Equity
1

Hello, we are a private equity firm interested in setting SBTs and we have specific questions on using the temperature rating method for our portfolio:

  • Because we are mainly minority shareholders, the PCs that fall under SBTi’s mandatory criteria only take up a small portion of our total invested cap. We would like to go beyond SBTi’s mandatory criteria and include half of our invested cap in direct investments in the scope of the temperature rating target.
  • When we submit our targets, we will have to provide the output of the temperature rating tool which will include names of PCs and other relevant data for companies that are under your mandatory criteria + other companies we voluntarily include in our target scope.
  • Let’s say company A is a company that we voluntarily include in the target scope and we don’t manage to exit the company till the target year and they don’t manage to set any public target. Do we have to keep company A in our calculation of portfolio score year on year or do we have some flexibility in reporting on the progress of companies that we voluntarily commit to include in the target scope?
  • And for the WATS weighting option, can we use invested cap to be consistent with the PE guidance?

Thanks so much and I look forward to hearing from you!

1 Like
2

We strongly encourage FIs to go beyond the mandatory criteria so welcome your plans to do so!

In terms of target boundary, the target language must be clear what is being covered (e.g., portfolio companies in the cement sector). Once that target boundary is set, then all that falls within that boundary must remain in, even if originally optional (from the aforementioned example, all cement companies must be included in the calculation of the portfolio score).

In terms of the WATs weighting option, it should be fine to use the metric that is being used to calculate overall portfolio target boundary (e.g., invested capital for private equity investments).

1 Like
3

Thanks so much for your helpful and quick response Howard!