Vista Equity Partners: partnering with portfolio companies to measure emissions and set targets

Vista Equity Partners

• Signatory type: Private Equity Investor
• Operating region: Global
• Assets under management: $93 billion^[1]
• Practice area: Climate

Vista Equity Partners (Vista)  works with over 80 enterprise software companies across industries and end markets. We seek to integrate ESG strategies across the firm’s activities and throughout the investment lifecycle – empowering our portfolio companies to implement ESG initiatives that drive impact for their stakeholders. A core pillar of this work is reducing our companies’ greenhouse gas (GHG) emissions to limit the impacts of climate change.

Why we engage with portfolio companies on GHG emissions

As the prevalence of technology in our lives accelerates, GHG emissions related to the software sector continue to rise. Given the reach of our technology ecosystem, we believe we have an opportunity and responsibility to develop systematic solutions at scale to enable better outcomes for our stakeholders and the planet.

Since 2019, our firm has measured and offset its greenhouse gas (GHG) emissions at the management company. In 2021, we became one of the first North American private equity firms to join the Net Zero Asset Managers (NZAM) initiative. In doing so, the firm committed to reduce private equity and permanent capital portfolio company emissions by 50% by 2030, from a 2019 baseline, and emit net zero GHG emissions across the portfolio by 2050.

To reduce the climate impacts of our investments and proactively manage climate-related risks and opportunities, we first needed to understand the emissions tied to our majority-owned private equity and permanent capital portfolio. Establishing a baseline footprint enables us and our portfolio companies to set short-term reduction targets and pursue initiatives to meet our net zero commitments. Portfolio companies that measure and reduce GHG emissions can reap additional benefits including reduced operating costs, enhanced business performance and improved stakeholder engagement.

Implementing a GHG emissions measurement strategy

To drive GHG measurement, we used our existing value creation model, partnering with our private equity and permanent capital portfolio companies^[2] to implement best practices developed by Vista’s Value Creation Team, a team focused on growing enterprise software companies in the Vista ecosystem. We believe that empowering companies to own and implement best practices contributes to enduring business continuity and value creation. As a result, we pursued a bottom-up approach – partnering with each company to measure emissions across its value chain (i.e., scope 1, scope 2 and significant sources of scope 3 emissions).^[3]

On Earth Day 2021, our Executive Committee shared the firm’s progress on GHG measurement and commitment to reducing our climate impacts with portfolio company CEOs. As a next step, we asked all private equity portfolio companies to measure their 2019 GHG emissions footprint by the end of 2021.

To enable this effort, portfolio companies were provided with access to a GHG measurement platform and toolkit, including dedicated webinars, measurement software with hands-on support, and best practices for GHG measurement and reporting. We partnered with a sustainability software and service provider to aggregate company data and automate emissions calculations. This tool was embedded in the software platform our portfolio companies already use for ESG reporting and project management.

Our ESG team conducted a webinar series that outlined the business case, best practices and tools for GHG measurement and reporting. Companies also leveraged a template to streamline data collection. The efforts of our ESG team were further augmented through the EDF Climate Corps summer fellowship program. Over eight months, the ESG team and our partners engaged one-on-one with companies to facilitate the process and ensure data quality. Company progress was tracked and informed the engagement strategy.

After initial data was submitted, there was a multi-month process for quality assurance. Given that all of our portfolio companies are providers of enterprise software, the ESG team could develop intensity metrics based on the reported portfolio GHG data. These metrics were developed using actual data reported by companies. For each consumption category, outlier data was removed, and the average intensity (consumption per FTE) was calculated. The portfolio intensity metric was applied to missing data categories, using the FTE count for each company. These intensity metrics were used to develop robust, company-specific estimates for data gaps and to extrapolate to minority-controlled companies.

By the end of 2021, 100% of Vista’s majority-owned portfolio companies and five minority-controlled companies had measured their 2019 GHG emissions, establishing a baseline footprint for future reduction targets and initiatives. To maintain accountability, companies are expected to present and discuss the footprint results at the board level on an annual basis.

To enable continuity in these endeavours post-exit, historical GHG data is integrated into exit documents (e.g., IPO data room disclosures, etc.), providing transparency for future investors.

We now have a complete 2019 footprint of our majority-owned private equity and permanent capital portfolio, which will inform portfolio-level reduction targets and our engagement efforts. As part of our climate action plan, we will engage our portfolio companies to measure and offset their GHG emissions annually, set science-based GHG reduction targets, and pursue reduction initiatives in alignment with our 2030 target. Through our investment decisions and portfolio operations, we hope to continue to influence, sustain and advance ESG imperatives at scale.

Vista Portfolio Company Example: Khoros

With Vista’s support, Khoros, a leader in digital-first customer engagement software and services, measured its GHG emissions for the first time in July 2021. Khoros leveraged the software platform to submit 2019 organisational data points, including office space usage and business travel. Prior to calculating a final corporate GHG footprint for Khoros, our ESG team reviewed its submissions and shared a Data Quality Report, which provided the Khoros team with additional learning opportunities.

As a result of the effort, Khoros has a clear picture of its emissions breakdown, allowing the leadership team to understand which areas of the business drive the most GHG emissions. In early 2022, Khoros plans to work with Vista Equity Partners to set a GHG reduction target through the Science Based Targets initiative. Khoros publicly reported its 2019 footprint in its inaugural impact report. This report serves as a resource for internal and external stakeholders, including employees, customers, prospects, interview candidates, and more.