There’s no doubt that emissions reporting is mainstream among large publicly traded companies. However, private markets disclose emissions at a much lower rate. Recently, MSCI published an article discussing the gap between public and private reporting stating:
“Total Scope 1 and 2 emissions reporting in the private-capital markets was low when compared to the MSCI ACWI Investible Market Index (IMI), which reached 58.0% as of January 2024. Within the MSCI Private Capital Solutions’ data of over 58,000 portfolio companies in private-capital funds, only 1,312 had Scope 1 and 2 emissions reporting — a disclosure rate of just 2.2% as of 2Q 2023.”
This gap highlights the impact of proposed regulations in the US and incoming regulations in the EU. The SEC’s Climate-related Disclosures Proposal applies exclusively to public companies (although regulated companies will push information demands through their supply chains). While the EU’s Corporate Sustainability Reporting Directive (CSRD) includes some private companies, it primarily focuses on public markets. Many public companies choose to voluntarily disclose their GHG emissions in anticipation of regulatory mandates, while private markets are less regulated.
However, the era of private market emissions flying under the radar may soon be coming to an end. California’s proposed disclosure laws make no distinction between private and public companies operating in the state of California. Additionally, increased focus on Scope 3 reporting will require private companies to gather information on GHG emissions to provide their upstream supply chain partners. While disclosures among private equity may lag for the time being, they are finding themselves subject to the same pressures driving GHG emissions disclosures among public companies. Private firms should be prepared to implement the same emissions determinations and disclosure processes as regulated publicly-traded companies.
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