Task Force on Climate Related Financial Disclosures

Bregal Investments endorses the Task Force on Climate-related Financial Disclosures (“TCFD”) and has implemented in line with the recommendations since 2021, as part of our commitment to the Net Zero Asset Managers initiative.

To continually improve its programmatic integration of climate risk, Bregal engaged with a third party in 2023 to define a roadmap and ambition level along the four pillars of the TCFD. Since 2023, Bregal has continued to implement its high priority roadmap items and disclose against progress. This content outlines the group’s (referred to as the “platform”) approach towards the identification of climate-related impacts, risks, and opportunities and its integration into Bregal’s governance, strategy, risk management, and metrics and targets process, following the four pillars of TCFD. 

1. Governance

Bregal’s approach to governing climate-related risks and opportunities is a core part of the platform’s ESG and responsible investment strategy and is integral to the way in which Bregal oversees, assesses, and manages all relevant matters related to Responsible Investing. Across our strategies, Bregal’s Responsible Investing team collaborates closely with Bregal’s investment managers to ensure integration of ESG into investment processes and value creation plans. Progress against set targets and sustainable value creation is ultimately driven by our portfolio company management as well as the General Partners (“GPs”) we’ve invested with via Bregal Private Equity Partners.

The Investment Committee is responsible for incorporating ESG considerations, including climate, into investment decisions. The Head of Responsible Investing actively participates in the Investment Committee meetings to provide direct input on ESG matters that are relevant to investment decision making and investment management and holds primary responsibility for reporting any climate-related issues to the IC.

During diligence, Bregal screens all investments against ESG metrics, including climate- and nature-related risks and opportunities, and performs deeper evaluations where higher relevant risk exists. Post-investment, Bregal’s Responsible Investing team engages directly with portfolio companies to facilitate ESG and carbon data collection, set KPIs, define value creation levers, and near and medium-term roadmaps. Bregal’s Responsible Investment team, in collaboration with deal teams, reviews progress on an annual basis and investment teams hold discussions with portfolio companies at least annually to discuss progress on ESG targets. The Board of Directors of each portfolio company is responsible for monitoring their own ESG performance and progress.

Bregal has developed a three-year roadmap that will help the firm better manage climate-related impacts, risks, and opportunities. These include developing clear roles and responsibilities for climate change and delivering training on climate change to IC and deal teams.

2. Strategy

The cornerstone of Bregal’s climate strategy is the commitment to align our own operational and financed emissions with a 1.5-degree Celsius pathway by 2030 and net zero by 2050. We strive to manage and invest in our portfolio so that companies mitigate exposure to climate-related risks and are well positioned to succeed in the transition to a net zero economy. Bregal’s Climate and Nature Action Plan, defines our approach to managing climate-related risks and opportunities via five pillars: 1) Reducing our GP and portfolio greenhouse gas emissions, 2) Investing to achieve portfolio-level emissions reductions, 3) Measuring climate and nature risk, 4) Investing in climate and nature solutions, and 5) Engaging industry on climate and nature.

As part of our commitment to measuring climate and nature risk, Bregal conducted a qualitative scenario-based climate risk and opportunity assessment (focused on physical and transition risk and opportunities) aligned with the TCFD recommendations. Climate-related risks and opportunities were identified at a sector and geographical level, considering their development over the short-, mid- and long-term using climate indicator data under different scenarios.

As Bregal’s portfolio has an outsized industry representation in the software, commercial, and professional services sectors, and strong geographical presence in the United States and Europe, the analysis applies this context to the risk and opportunity evaluation.

Time horizons were set in alignment with our existing commitments and are defined as:

• Baseline: Present
• Short term: 2030
• Medium term: 2040
• Long term: 2050

Below are examples of identified climate-related opportunities and risks, spanning from short term to mid/long term as the time horizons are different for different Bregal funds investment and ownership periods.

Climate physical and transition risks: Physical risks identified within Bregal’s portfolio are extreme heat, extreme cold, wildfires, and water stress & drought. The potential financial impacts relate to increased operational expenses from temperature regulation, revenue losses from business interruption or lower productivity, increased capex due to physical damage from weather events, and/or cooling costs to maintain optimal indoor temperatures within health and safety protocols. As the majority of Bregal’s portfolio companies are not heavily reliant on production facilities or extensive physical operations, and offices spaces tend to be leased, this risk is considered low.

Transition risks include impacts related to the global movement towards a low-carbon future, inclusive but not limited to changing consumer preferences, increasing regulation on sustainability disclosures, and technological advancements in the green transition. Given Bregal’s geographical footprint in the USA and Europe and the influx in regulation requiring companies to disclose carbon impact, targets, and resiliency plans, Bregal recognizes the importance of proactive management to avoid the potential for stranded asset risk and/or non-compliance with regulation leading to operational costs or reputational damage.

Climate-related opportunities: As articulated in the Climate and Nature Action Plan, Bregal also sees significant business opportunity in the management of climate risk and the green transition. Based on our sector focus and geographical presence, two key opportunities are in the energy transition and low-carbon service offerings. Transitioning our companies to low-emission profile sources of energy, either by investing in on-site generation or by direct renewable procurement, presents an opportunity to lower operational expenses and increase resiliency. Additionally, the increasing demand for low-emission goods and services is an opportunity where decarbonization increases competitiveness and revenue generation. As such, Bregal is engaging with its portfolio companies to identify potential sustainability[1]focused solutions particularly in the B2B context. Bregal supports our companies in pursuing decarbonization investments via the Sustainable Development Financing program.

3. Risk Management

Bregal’s approach to ESG and climate-related risk management is embedded throughout the investment cycle through Bregal’s responsible investing approach. During due diligence, for investments that are identified as having potential high-risk exposure, external consultants are engaged to assess physical- and transition[1]related risks and opportunities. Post-close, the Responsible Investing team will engage in an annual ESG review alongside management teams to determine company-specific relevant climate-related risks and opportunities.

Our primary levers for climate risk management and value creation include:

1. Climate risk assessment during diligence assisted by the AXA Altitude platform, with roadmaps defined and discussed with management to mitigate any high risks;
2. Measuring carbon emissions across Scope 1, 2, and 3;
3. Defining and implementing carbon reduction actions in line with the SBTi;
4. Crafting decarbonization roadmaps and aligning climate strategies with industry leading frameworks;
5. Financing transformative decarbonization initiatives at select portfolio companies via the Sustainable Development Financing program with financial and carbon outcomes; and
6. Deploying a range of Fund-specific initiatives, such as sustainability-linked financing, climate-related shareholder agreements, and/or climate-related compensation.

To further strengthen climate-risk identification processes, Bregal recently enlisted a third-party climate risk assessment tool – AXA Altitude – to use during diligence and post-investment to understand scenario-based asset-level risk exposure. In 2024, Bregal strengthened its implementation of AXA Altitude by embedding it into its portfolio engagement. For companies engaged on ESG performance in 2024, Bregal raised asset-level climate risks and opportunities with management to ensure mitigation strategies are underway.

4. Metrics and targets

Bregal is a signatory of the Net Zero Asset Managers (“NZAM”) initiative and is committed to achieve net zero greenhouse gas emissions by 2050 or sooner. In addition, we have approved near-term science-based targets for our operations and our portfolio.

Our operational target: Reduce 50% of Scope 1 and 2 emissions by 2030 from a 2019 baseline.

Our portfolio coverage target:

1. Ensure 40% of our portfolio companies will have set science-based targets by 2025.
2. Ensure 100% of our portfolio companies have set science-based targets by 2030 from a 2021 base year.

To achieve its targets, Bregal supports the assessment of carbon footprint across Scopes 1, 2, and relevant Scope 3 categories on a yearly basis – both for its own operations and within its portfolio – and measures its portfolio net zero alignment using the PMDR framework.