Climate Resilience Emerges as Private Equity Strategy

Improving physical climate resilience across portfolio companies can help protect earnings, expand EBITDA and support stronger exit outcomes as traditional buyout strategies become less effective, according to the findings.

Operational disruption caused by climate-related events is becoming a financial risk for investors. Unwritten has estimated that unplanned downtime costs the world’s 500 largest companies almost $1.4tn each year.

The researchers have identified six operational areas where firms can improve financial performance while reducing climate-related risks. These include carrying out site-level risk assessments to improve insurance terms, reducing operational downtime through targeted adaptation measures, strengthening ESG reporting to help companies meet customer procurement requirements, improving supply chain resilience through diversified sourcing, using climate data to access more favourable sustainability-linked financing, and demonstrating climate resilience during vendor due diligence to support higher exit valuations.

Climate adaptation strategies could contribute to a 6-7% uplift in exit multiples by providing buyers with greater confidence in the long-term resilience of portfolio companies, according to the findings.

cScientific Climate Ratings launches sovereign climate risk framework

Many firms struggle to turn climate risk assessments into operational improvements because traditional fund-level analyses often lack the detail needed by portfolio company management teams. Differences in operational maturity, resource constraints and limited site-specific data have also slowed implementation.

To address these challenges, the firm has introduced a decentralised operating model through its cloud-based Unwritten Workspaces platform. The system aims to give portfolio companies access to site-level climate risk assessments. It includes assessments covering 18 physical climate hazards, AI-generated adaptation recommendations and automated data collection to accelerate the development of mitigation plans.

The report cited private equity firms Hg and Oakley Capital as examples of investors using ongoing climate risk assessments to monitor portfolio companies and support operational resilience planning.

“Our customers are increasingly engaging their deal teams and value creation colleagues in discussions about preventative investments that safeguard portfolio company revenues. Strengthening operational resilience to climate risks belongs firmly in the value creation plan” said Phillip Marks, CEO of Unwritten.

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