Summary
This document is a guide that provides supplemental practical guidance on the valuation of carbon in the pre-investment context, developed by the Private Equity Sustainable Markets Initiative (PESMIT) Climate Working Group and ERM. It builds upon the 2023 Valuing Carbon in Private Markets publication and aims to assist investors in making informed investment decisions by integrating carbon considerations into their due diligence processes. The guide outlines a materiality-based approach to carbon valuation, emphasizing the importance of assessing material risks and value creation opportunities early in the investment lifecycle. It includes components such as regulated carbon costs, internal carbon costs, and indirect carbon impacts, detailing how these elements can influence cash flows and overall enterprise value. The document also presents a framework for deal teams to evaluate the materiality of carbon impacts and adjust their financial models accordingly, ensuring that carbon valuation is a key part of the investment memorandum.
