Preqin ESG Solutions 40 Carbon Greenhouse gas emissions (GHG) are the main driver of climate change. Sixty-昀椀ve percent of global GHG emissions is attributed7 metrics to carbon dioxide, generated by industrial processes and combustion of fossil fuels. The Task Force for Climate Related Financial Disclosures8 (TCFD) identi昀椀es several transition-related risks associated with carbon emissions. These include energy price shock, a decline in the value of stranded assets, breach of environmental regulations, and reputational risk. Transition- related risks vary depending on scenarios for policy and technology changes. According to the TCFD’s classi昀椀cation, the physical related risks linked to carbon emissions encompass extreme weather, asset destruction, and the aftermath of involuntary migrations. If not properly managed, both transition- related risks and physical related risks will lead to compliance, regulatory and reporting costs. By focusing on carbon emissions data for private companies, you’ll be able to build Net Zero investment strategies that are robust. The calculation of a carbon emissions proxy for each portfolio company starts with four elements: employee count data; a relationship between employee count and carbon emissions; the industry in which the company operates; and the location of its headquarters. On average, carbon emissions grow with the size of a company, as measured by the number of employees9. The employee count data we use for private companies comes from a third- party provider that has run a large-scale web-crawling operation for the past decade. The original sources of these data are government 昀椀lings, online professional pro昀椀les, resumes, and job postings. Our provider leverages these sources to cross- check its data for inaccuracies and inconsistencies, using cutting-edge statistical methods to eliminate sampling biases or reporting delays. We assume a private company’s carbon emissions are proportional to the number of employees – and that this proportion is the same as that extracted from public company data. Although this can be a conservative assumption in some cases, it works well for the majority of the sample. Disclosure, Insight, Action (CDP) provides the public company data on employee numbers and voluntarily Scope 1 and Scope 2 CO2 carbon emissions disclosures. 7 The Intergovernmental Panel on Climate Change (IPCC), 2014; the full report is available here. ↗ Back to Contents