At Kratos Partners, we recognize the growing need for private equity firms to consider their current holdings when assessing the impacts of ESG, particularly regarding emission-intensive assets. Despite the industry’s massive $4.2 trillion AUM, many of these assets have yet to undergo ESG due diligence. However, as LPs, consumers, and regulators increasingly demand greater transparency and accountability, private equity firms can no longer afford to ignore the potential risks and opportunities presented by ESG.

By proactively addressing material ESG matters, private equity firms can not only meet stakeholder demands but also capitalize on ESG value-adding opportunities. One effective strategy is to undertake risk based ESG materiality assessments for all assets, which will identify opportunities across all three aspects of ESG. From an environmental perspective, two primary categories of assets will likely emerge: those that are obviously emission-intensive, such as assets in the industrials or energy sectors, and those that may not be immediately apparent but still have the potential to reduce their climate footprint.