Private equity firms - don't get caught out by the CRC!

Online, April 27, 2010 (Newswire.com) - According to DECC, companies majority-owned by a private equity fund will, for the purposes of the CRC, be treated as if they were subsidiaries of a parent corporation. This implies the inclusion of hundreds of private banks, equity and investment firms, covering thousands of tonnes of carbon emissions within the new UK carbon trading scheme.

Under the finalised version of the CRC Energy Efficiency Scheme, private equity firms which are parent organisations will be allowed to separate out subsidiaries that consume more than 6,000MWh of electricity a year and are large enough to qualify for the CRC Energy Efficiency Scheme in their own right.

But some private equity firms comprise a portfolio of UK companies which individually consume less than 6,000MWh of electricity but exceed the threshold when combined. That means the firm must take responsibility for complying with the scheme, reporting on the combined carbon emissions of the companies it owns each year and buying carbon allowances to cover these.

In total, private equity and venture capital is estimated to own more than 3,000 UK companies - many of them household names - employing more than a million people. Some of the larger private equity-owned companies such as chemists Alliance Boots, the AA, Thames Water and hotel chain Travelodge, are large enough to qualify for inclusion in the CRC Energy Efficiency Scheme within their own right.

Lack of awareness of the CRC Energy Efficiency Scheme within the private equity industry may threaten compliance

DECC told there is no reason to treat private equity any differently from other forms of ownership for the purposes of tackling climate change. However, lack of awareness of the CRC Energy Efficiency Scheme within the private equity industry may also threaten compliance, with only the largest houses being aware of its reporting and carbon trading obligations.

The CRC Energy Efficiency Scheme came into effect in April 2010 and requires about 5,000 of the UK's largest organisations to report each year on their carbon emissions and deliver consistent improvements in energy efficiency or risk both financial penalties and a low rating in an annual government league table.

They will have to register with the scheme administrators and monitor all of their energy use (electricity, gas and fuel) in anticipation of buying allowances in April 2011 to cover the carbon emissions from their estimated energy use from April 2011 to March 2012.

Ifti Akbar, Managing Director at Envido said: 'Some of the 'more progressive' private equity firms have begun to develop a response.'

Investec, one of the world's largest investment firms is working with Envido on developing a dedicated programme specifically designed to ensure that carbon reduction practices are hard-wired into their processes.