Majority of international Limited Partners integrate climate risk considerations within their investment guidelines for private markets.
In a significant shift in strategy, the policies of the 100 largest limited partners (LPs), collectively managing $2.6 trillion in private markets, are increasingly focusing on climate risk management. This revelation comes from a report titled "Shifting Expectations - Limited Partners and Climate Financial Risk," published by Unwritten, a London-based data provider on climate risk.
Climate change is viewed as a systemic financial threat, with long-term investors such as Temasek and Cambridge University Investment Management stressing that climate risks are inseparable from fiduciary duty. However, none of the top 100 LPs have mandated membership of net zero alliances.
The report reveals that LPs want climate risk to be integrated into the investment process and expect active risk management throughout the hold period. ESG integration is predominantly achieved through the selection and appointment of new investment managers, and monitoring through the assessment of, and engagement with, existing investment managers.
Around half of survey respondents expect their managers to complete TCFD reports, a recommendation by the Financial Stability Board's Task Force on Climate-related Financial Disclosures. LPs focus on the financial risks of climate change to portfolios rather than the environmental impact of investments, a strategy known as "single materiality."
The report argues that managing climate risk is a priority over reducing emissions for many LPs. This priority is reflected in the fact that 72 require risk analysis but only 62 expect or encourage emissions goals.
Notably, the New York State Common Retirement Fund treats climate risk as an essential part of good governance through its climate KPIs. On the other hand, in the US, just over half of large LPs demand climate risk assessments, reflecting the political backlash against environmental, social, and governance (ESG) considerations. However, outside the US, 80-100% of large LPs demand climate risk assessments.
The report also highlights regional divides. For instance, the Abu Dhabi Investment Authority embeds climate assessment in due diligence, portfolio reporting, and planning. In contrast, one survey respondent for the Australian Retirement Trust stated that they explicitly assess an investment manager's maturity on two thematic topics: climate change and modern slavery.
The study shows that LPs prioritize climate risk assessment over specific emissions targets. The report suggests that these standards can help managers avoid costly mistakes, strengthen portfolio resilience, and create competitive advantage.
Despite this, investors such as the New York City Comptroller's office have doubled down, pledging not to retreat from climate action despite opposition. The PRI recently released a detailed guide on climate risks disclosures for its signatories, revealing that real asset investors show a significantly higher uptake of climate disclosures while only 22% of private equity investors disclose climate risks.
The latest report by Unwritten shows that 68 of these institutions explicitly require managers to assess climate-related financial risks, while a further four strongly encourage it. LPs expect quantitative and qualitative climate risk assessments to be reported.
Leading US-based institutions among the top 100 largest Limited Partners known for the highest climate risk considerations in their private market mandates likely include major private equity firms such as BlackRock, Blackstone, Apollo Global Management, KKR, Bain Capital, Vista Equity Partners, and Silver Lake Partners, which are recognized for integrating ESG and climate factors into investment decisions, although specific rankings or clear mandates focused exclusively on climate risk for private markets are not detailed in the provided search results.
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