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March 29, 2010

Guide on Climate Change for Private Equity Investors Is Published
    by Robert Kropp

The Institutional Investors Group on Climate Change advises pension fund trustees to hold their private equity fund managers accountable for engaging with portfolio companies on climate change. -- The Institutional Investors Group on Climate Change (IIGCC), a forum for collaboration on climate change for European investors, has published a guide for pension fund trustees and private equity fund managers, which is designed to increase awareness of the risks and opportunities associated with climate change. The more than 50 current members of the IIGCC represent almost $5.5 trillion in assets.

As the guide states, it is clear by now that investment will be impacted by the regulatory and legislative actions that will occur to address climate change. "Policies to mitigate climate change and new technologies to address these new challenges will provide business and investment opportunities for private equity funds," according to the guide.

"Furthermore," the guide continues, "If climate change is likely to be a drag on economic growth, unless addressed, it will negatively affect the value of portfolios that invest in a cross section of assets, companies, sectors and markets."

The guide provides questions for pension fund trustees to ask their fund managers, as well as questions for fund managers to ask of portfolio companies. The four key aspects outlined in the questions address awareness, measurement, adaptation and mitigation, and opportunities.

For pension fund trustees, the guide recommends that the following questions be asked of their fund managers. Do they assess the potential impact of climate change on investments, and are they aware of emerging regulatory and policy developments? Do they monitor the management of climate change issues by portfolio companies, and report the information to the trustees? Are they taking action to hold corporate management accountable for compliance, and actively engaging with organizations that seek to raise investor awareness of climate change impacts?

The guide also asks investment advisors if they evaluate fund managers according to the managers' policies and investment criteria relating to climate change.

For fund managers, the guide recommends that they ensure that corporate directors are aware of laws and regulations relating to climate change, as well as the impact of climate change on their business. Fund managers should also ensure that companies are measuring their climate impact, and have developed policies that address risks and opportunities.

Fund managers should be aware of benchmarking of the performance of competitors by portfolio companies, whether directors have evaluated the impact of rising carbon and regulatory costs, and whether companies engage with their supply chains in climate change mitigation.

The guide concludes by stressing the importance of the proper exercise of judgment by corporate directors, as well as the development of a long-term plan for addressing climate change risks and opportunities.

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