How long has Downing been investing in private markets, and how has that evolved over the years?
Downing is quite an opportunistic business. We started investing in renewables 10 years ago, as they were booming at the time. It was the same for real estate six or seven years ago, and private equity before that. Three quarters of our assets are invested in private markets and 25% is in listed equities and stockpicking fund managers.
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Even within those there’s a focus on small companies, which operate more like private markets. For example, a private equity-backed company with five to 10 people that has only just listed. They are typically small companies either listed or privately held, and focused on renewable energy and real estate.
Are private markets an area where ESG opportunities are more abundant than they are in the listed market?
Yes, they are. Look at renewables – there are definitely more ESG opportunities there. Last year at COP28, when there was a lot of talk about nationally determined contributions (NDCs), the UK said it wanted to reduce its emissions by 68%. That’s going to be through renewable power – wind, solar etc.
The EU committed to 55% emissions reduction and there is also the International Energy Agency saying the future is solar. There are billions of dollars being invested in solar and the capacity keeps increasing. It’s the number one investment.
Can you share some success stories?
Let’s look at private equity within private markets, because there is a huge positive in that if you own the company, you can influence them. If you own half a percent or 1% of a listed company they don’t care, whereas if you own 90-95% whatever you ask for they’re going to do.
Successes there are through encouraging companies to report on emissions. The UK, as mentioned, wants to reduce its emissions so companies will need to reduce their emissions as well, as the starting point is always data. What’s your carbon footprint? A lot of private equity companies have no idea what their carbon footprint is. They ask us ‘what are you talking about?’. We explain it’s your Scope 1 and 2 emissions, your greenhouse gas protocol. Because we’re the majority equity investor we can then ask them to provide their utility bills, as we have a platform that calculates greenhouse gas emissions.
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When we have their baseline – let’s say it is a carehome operator or special needs school in the southwest of England and their building emits 1,000 tons of carbon – that’s your start point. That’s our partial success as we now have the footprint and something to improve on and reduce over time.
We can then talk about green capex and making the building more efficient. What materials are you using? Instead of knocking a building down, can you keep the steel and the structure? All that reduces the emissions. Say they have reduced from 1,000 tons to 500 tons, whatever they’re left with can be removed from the atmosphere by planting trees or buying carbon offsets – that’s how you get to net-zero carbon. We are setting them on the path to 2030.
Read the full article in PA Future’s October 2024 digital magazine.
