Why Major Private Equity Firms Managing Billions Are Looking to the Sky

Review of Extreme Weather Preparedness in M&A Due Diligence
Government ESG Disclosure Plan Reflects 'Climate Risk'
"Climate Is a Matter of Survival, Not Just Ethics" in Investment

When the global private equity (PE) firm EQT considered acquiring a waste management company in Korea in 2024, the first thing it did was look up at the sky, even before examining the company’s financial statements. This was to assess how exposed the company's operations were to natural disasters. Due diligence revealed risks from heavy snow and typhoons, and as a preventive measure, funds for roof reinforcement were set aside as a separate component in the acquisition structure. In effect, the weather changed the price tag of the deal.

Heatwaves, torrential rains, and unpredictable weather are emerging as core investment factors for the PE industry. As climate change increases the frequency of natural disasters, elements such as higher insurance premiums and business interruption losses for portfolio companies have begun to affect returns. Intensifying ESG (Environmental, Social, Governance) regulations in various countries are also demanding a more sophisticated investment calculus.

According to a recent Bloomberg analysis of sustainability reports from the world’s 12 leading alternative investment managers, references to physical climate risk in these reports nearly doubled in just one year. Since 2024, EQT has collected climate data from more than 23,000 infrastructure assets, while Carlyle has established a framework that incorporates the impact of extreme weather on asset values into its valuation system. Businesses selling “climate maps” to private equity firms have also emerged. Jupiter Intelligence, a climate analytics firm whose major clients include Carlyle, reportedly charges hundreds of thousands of dollars annually for its analyses. Boston Consulting Group (BCG) projects that the climate forecasting and risk assessment market will double to about $1.3 billion by 2030.

Climate Disclosure to Become Mandatory in Korea by 2028... "Climate Is a Matter of Survival, Not Just Ethics"

Climate change is expected to become a core investment factor in Korea as well. According to the "Sustainability (ESG) Disclosure System Institutionalization Plan" finalized by the government and ruling party on July 8, from 2028, KOSPI-listed companies with consolidated assets of at least 10 trillion won will be required to disclose climate-related risks and opportunities, their financial impacts, and greenhouse gas emissions in their business reports. Of all ESG topics, climate disclosure—where international standards are already established—will be made mandatory first, while other environmental, social, and governance information will be disclosed at the company's discretion. In 2029, the scope will expand to companies with assets of at least 5 trillion won, bringing more than 3,000 companies (including subsidiaries) into the fold, and starting in 2030, third-party verification will also become mandatory.

The final plan is significantly more stringent than the February draft (which targeted companies with assets of at least 30 trillion won and required disclosures only via the stock exchange). The heightened volatility in energy prices due to the Middle East conflict has elevated climate and energy risk management to a core corporate strategy task. In addition, during public consultations, global investors stressed that the disclosure scope should be broadened and incorporated into business reports alongside financial statements. The government and ruling party reflected these views in the final policy. They stated, "ESG, including climate, is now recognized not merely as a matter of corporate ethics, but as a matter of survival."

Domestic PE Firms: "Quantitative Assessment of Physical Risks Is Still Rare"... Major Investors Tighten Standards

While this plan directly targets listed companies, its impact is expected to extend to the unlisted and private equity markets as well. Once a PE firm lists a portfolio company, disclosure and verification obligations follow; if it is sold to a conglomerate, the acquired company becomes part of the acquirer’s consolidated disclosure scope. Because the emissions and climate risks of an acquired company become the acquirer’s own disclosure items, assets lacking organized data may see their prices reduced during due diligence.

Korean PE firms hold a large number of assets directly exposed to these repercussions. Waste management businesses, such as the one examined by EQT, are prime examples. With numerous outdoor facilities like landfills and incineration plants, these businesses are highly sensitive to physical risks like heavy snow and typhoons. Additionally, they generate significant greenhouse gas emissions from landfill (methane) and incineration processes, making the new disclosure regime particularly burdensome for the sector. In 2024, the IMM consortium acquired Ecobit, Korea’s leading landfill operator, for 2.7 trillion won, and Affirma Capital is set to acquire CEK for about 400 billion won in 2025, reflecting active investment in the sector. An industry source noted, “Across the industry, there is a broad consensus that the importance of ESG is an undeniable trend, with some firms even operating dedicated ESG teams, so it would be difficult to say that Korea lags far behind global standards. However, quantitative assessment of physical risks like heatwaves and typhoons during due diligence, as seen abroad, is still uncommon here.”

However, as the standards of major institutional investors continue to evolve, changes across the industry are inevitable. In its 2024 work plan submitted to the National Assembly, the National Pension Service announced that it would further strengthen the stewardship code (the principle of fiduciary responsibility) and establish an "ESG integration strategy" across alternative assets such as infrastructure, real estate, and private equity. The latest government and ruling party plan also emphasized the role of the National Pension Service. It includes measures to publicly disclose whether asset managers consider ESG in their operations during stewardship code reviews, and to grant an "ESG tag" to managers who actively reflect ESG factors in their investment strategies. In essence, climate-related standards of the largest limited partner (LP) in the PE market are now being incorporated into the evaluation criteria for general partners (GPs) as well.

This content was produced with the assistance of AI translation services.