From 2021 to 2023, the number of private-equity–owned companies disclosing their environmental and climate impact through CDP rose 55%. Bain & Company studied 824 of those portfolio companies and found a median 5% decrease in Scope 1 emissions and a 26% drop in Scope 2 emissions over that period (see Figure 1). And these companies, which represent a cross-section of global supply chains, are translating this progress into measurable business benefits, such as greater operational efficiency, lower carbon taxes, and improved customer offerings.

Figure 1

These are strong advances, but challenges remain. Much of the steep drop in Scope 2 emissions can be attributed to grid decarbonization. As industries accelerate their electrification, the demand for clean energy will surge. This is a positive sign, but it will be difficult for electrical grids to keep pace and continue reducing emissions.

Scope 3 emissions, which are generated by suppliers and customers and are the largest category of emissions, are proving harder for this group to reduce (echoing a similar pattern among public companies). Median Scope 3 emissions for PE-owned companies rose 15% between 2021 and 2023. One factor may be that reported Scope 3 emissions commonly increase as companies become more comprehensive in their disclosures, expanding the number of categories they track and replacing initial estimates based on industry averages with more accurate data. Some companies in the infrastructure and hospitality industries, among others, have been able to reduce their Scope 3 emissions (see Figure 2).

Figure 2

The five practices of decarbonization leaders

Successful decarbonizing firms balance climate impacts with business realities. Immediate cost-saving measures such as optimizing delivery routes coexist with long-term investments in resilience and innovation. Upfront costs are accepted for the opportunity to strengthen customer relationships, enhance employee engagement, and access emerging low-carbon markets.

To better understand how PE firms and their portfolio companies can learn from these leaders and strengthen their own decarbonization capabilities, we identified five common practices among those decarbonizing most effectively.

1. Focus on both business value and climate impact.

Successful companies integrate decarbonization into their core business operating model and strategy, prioritizing initiatives that improve emissions and build financial value. They do so by launching or supporting ongoing initiatives to reduce greenhouse gas emissions, and by setting goals and tracking results.

The environmental benefits can be striking. Among the 824 companies we examined, those that implemented initiatives to reduce fugitive emissions—gases or vapors unintentionally released by industrial processes, equipment, or facilities—achieved a median reduction of 52 tons per million dollars of revenue between 2021 and 2023. That compares to a median increase of 7 tons for those without such initiatives (see Figure 3).

Figure 3

A well-executed roadmap can help companies reduce emissions, deliver measurable financial returns, generate operational savings, and enhance customer loyalty. For example, Apollo, which managed $733 billion as of September 30, 2024, has funds that hold portfolio companies in sectors such as manufacturing that have leveraged energy efficiency programs to reach their decarbonization targets earlier than expected while driving incremental EBITDA.

To support this type of investment, private companies are rapidly becoming more transparent. Ninety-five percent reported their Scope 1 emissions in 2024, and 91% reported Scope 2, a significant improvement since 2022.

2. Set science-based, absolute targets.

Companies with clear, measurable targets make the most progress. Among the top carbon reducers studied, 35% set science-based reduction targets, compared to just 16% of low performers. Companies with long-term (10 years or longer) and near-term (5- to 10-year) targets reduced more carbon emissions than companies with short-term targets of fewer than 5 years. Of the companies examined by Bain, 43% had long-term targets, 60% had near-term targets, and 21% had both. Those with absolute targets that aim to cut emissions by a fixed amount outperform those with intensity targets focused on reducing emissions relative to a business metric such as revenue per unit. Well-defined, measurable targets help companies prepare for climate transition and build business resilience.

Since 2022, there has been a qualitative improvement in targets, with 65% of private and public companies using absolute targets in 2024 and 19% combining both short- and long-term goals, up from 12% in 2022.

Among the investors focused on science-based targets is Investindustrial, a Europe-based firm with $13.8 billion of assets. Investindustrial is on track to meet its 2026 goal of having science-based targets in place at half its PE investments. By 2030, it expects all portfolio companies will have such targets. One Rock Capital Partners, a private equity firm with approximately $8 billion of cumulative capital commitments that typically focuses on middle-market “real economy” investments, does not set portfolio-wide, near-term science-based targets but helps its fund portfolio companies develop, establish, and validate their own.

Apollo’s flagship private equity strategy aims to reduce median carbon intensity over the period of ownership. The firm has a sustainability team with operational expertise that directly engages with the management teams of its funds’ portfolio companies, prioritizing returns-focused sustainability initiatives and working with portfolio companies to create value, monitor key performance indicators (KPIs), and assist with carbon accounting.

3. Assign explicit decarbonization goals to operational leaders and ensure senior-level sponsorship.

Decarbonization succeeds when operational leaders are directly accountable. From fleet managers addressing Scope 1 emissions to procurement leaders tackling upstream Scope 3 challenges, this alignment ensures that those closest to the action drive results.

High-level sponsorship is still needed, however. Most of One Rock’s portfolio companies tie approximately 10% of C-Suite bonuses to sustainability performance, typically including one climate-related metric, as a way of emphasizing the importance of this work.

Having an empowered chief sustainability officer (CSO) with deep expertise pays particular dividends. Among the companies Bain studied, those with CSOs overseeing decarbonization outperformed the companies that had more traditional roles, such as CEOs or CFOs, overseeing these efforts. In 2024, 93% of private companies reported having a management-level position dedicated to environmental issues—up from 89% in 2022—reflecting a more structured approach to climate governance.

4. Collaborate across supply chains on Scope 3 emissions.

In 2024, 68% of private companies reported their Scope 3 emissions, up from 49% in 2022. Deep partnerships with suppliers and customers are critical to addressing these emissions. Companies that invest in such collaboration consistently achieve greater emission reductions than their peers, even in challenging industries such as retail and manufacturing. Among manufacturers in the top quartile of Scope 3 emissions reduction, 92% are working with suppliers to abate emissions. Seventy-six percent of top-quartile retailers and 84% of top-quartile manufacturers are actively engaged with customers on the topic.

At Jadex, a manufacturer and material sciences company owned by One Rock funds, buyers and sales teams are trained on sustainable sourcing, training that advances over time to cover topics like full lifecycle analysis of specific raw materials. This expertise helps buyers work with suppliers to reduce emissions while building business value through sustainable product innovation and price premiums. One example is Jadex’s home-compostable disposable cutlery, which was priced higher than virgin plastic alternatives when introduced.

5. Integrate climate-related risk into a holistic risk management process. 

Climate risks—from reputational damage to physical disruptions—are company specific but increasingly significant for all businesses. Incorporating climate considerations into risk assessments can unlock climate-related financial and operational benefits while mitigating potential losses. Consider the case of Constantia Flexibles, one of the world’s largest producers of flexible packaging and a One Rock fund holding. The company conducts physical climate risk assessments and invests in precautionary protective measures. For instance, Constantia engineered and built a protective floodwall between one of its manufacturing plants and a nearby river. In October 2024, the floodwall helped defend the plant during a significant flood, minimizing the impact on Constantia’s operations and customers.

Next steps

For PE firms and portfolio companies hoping to accelerate decarbonization, these three “no-regret” actions are a good place to start:

1. Assess current performance. Establish a carbon footprint baseline and then make formal disclosures of your climate goals, results, and risks, illuminating areas for improvement. This builds trust with stakeholders, including investors and customers. CDP can help fund managers meet compliance requirements of limited partners, and portfolio companies can meet compliance requirements and customer needs through standardized disclosures. For some leaders, this can help unlock financing benefits and preferred supplier partnerships.
2. Map a decarbonization pathway. Set clear targets and prioritize initiatives based on business value. Use tools such as the Private Markets Decarbonization Roadmap (PMDR) to chart your path, strategize, prioritize, and track both financial and decarbonization progress .
3. Communicate with one another and with external stakeholders. PE firms need to closely engage with portfolio companies because they are the ones effecting change. For both investors and portfolio companies, it’s important to highlight decarbonization achievements and any associated financial benefits to differentiate from competitors and strengthen exit strategies. Investindustrial uses the PMDR to disclose publicly its assets’ decarbonization evolution, helping leaders align on decarbonization strategy priorities; ensuring investment teams agree on strategy implementation; and keeping stakeholders, including investors, informed, all while highlighting a competitive advantage.

A strategic imperative for private equity

We are in a dynamic moment. Yet one thing remains clear: Long-term decarbonization is an important value driver in PE portfolios, and leaders are finding ways to ensure strong business outcomes. Although some initiatives will never be ROI positive and others will offer only temporary returns, it is still possible to turn today’s carbon challenges into opportunities. By effectively managing trade-offs, organizations can build financial value and resilience, positioning themselves for the transition to a low-carbon economy.

The authors would like to thank Mégane Muehlestein, Simone Canu, Helen Gasche, and Lauren Karzen for their contributions to this article.

About CDP

CDP is a global non-profit that runs the world’s only independent environmental disclosure system. As the founder of environmental reporting, we believe in transparency and the power of data to drive change. Partnering with leaders in enterprise, capital, policy and science, we surface the information needed to enable Earth-positive decisions. We helped more than 24,800 companies and 1,100 cities, states and regions disclose their environmental impacts in 2024. Financial institutions with more than a quarter of the world’s institutional assets use CDP data to help inform investment and lending decisions. Aligned with the ISSB’s climate standard, IFRS S2, as its foundational baseline, CDP integrates best-practice reporting standards and frameworks in one place. Our team is truly global, united by our shared desire to build a world where people, planet and profit are truly balanced. Visit CDP.net or follow us @CDP to find out more.