Name StepStone Group
Signatory type  Investment manager
Region of operation Global
Assets under management $67bn
Name of fund N/A
Asset class Unlisted infrastructure 
  • Electricity, gas, steam and air conditioning supply
  • Water, sewerage, waste and remediation
  • Transportation and storage
Geography US, EU, UK
Environmental objective Mitigation and adaptation
Economic activity Production of electricity (solar, wind, hydro); Retrofit of gas transmission and distribution networks; Water collection, treatment and supply; Infrastructure for low carbon transport (water transport); Service activities connected to water transportation; Service activities connected to air transportation; Distribution of gaseous fuels through mains.

TTAs a global investor and advisor across private markets - encompassing private equity, infrastructure, real estate and private debt - StepStone recognises the need for clear definitions and consistency in implementation frameworks to facilitate increased capital flow into sustainable investment opportunities. This will underpin the successful operation of the sustainable investment market and facilitate price discrimination between assets that comply with the EU Taxonomy and those that do not. The taxonomy provides a framework around which asset owners (limited partners) can build sustainable investment programs. A fully mapped taxonomy will broaden opportunities for asset owners, which in turn should drive capital scale into sectors that require funding, particularly for climate adaption.

Other aspect you would like to mention?

Our case study considered taxonomy applications for both private infrastructure co-investments and primary infrastructure fund investments, and our main recommendations are drawn from insights garnered through this study.

We have illustrated this work through presenting a specific example application of the taxonomy on a co-investment — a full-service water utility that owns water supply, treatment and distribution assets.

Taxonomy implementation

Principles, criteria, thresholds

Evaluate asset in water collection, treatment and supply sector against Climate Change Mitigation (CCM).

Our asset management team worked with company management to evaluate performance against the mitigation criteria:

The first option was to achieve an average energy consumption of 0.5 kwh/m3, or less, for billed/unbilled water supply. As the asset is operating at 0.568kwh/m3, an efficiency improvement of ~12% is required to qualify. The company advised that reducing gross energy consumption by this much cannot be achieved through operational improvements, while significant increases in capital investment allowances would require regulatory approval.

The second option was to cut average energy consumption by at least 20%, but this was not considered as the asset would qualify under option 1 before reaching this target.

The third option was to reduce the gap between actual leakage and a target value (1.5 Infrastructure Leakage Index (ILI)) by at least 20%.

The asset is operating at an ILI of 1.89 and would require a reduction of 0.08 to qualify under this option. The company appointed an advisor to benchmark leakage performance and assess whether existing commitments to reduce leakage by 15% will achieve the required ILI reduction.

Do no significant harm assessment

Evaluate asset in water collection, treatment and supply sector against Do No Significant Harm (DNSH).

The Technical Expert Group (TEG) report notes for DNSH criteria that reflect legal requirements under EU regulations, it would be reasonable for taxonomy users to assume these criteria would be met when business was conducted lawfully, unless there was evidence to the contrary.

The asset operates exclusively within the EU and we believe DNSH criteria were met, a conclusion corroborated by the implementation of key risk management standards:

  • Risk management approach is consistent with ISO31000:2018 and applies to all activities, decisions and processes.
  • Environmental governance and risk management is monitored via an ISO14001 accredited Environmental Management System that is compliant with the latest standard.

Social safeguards assessment

  • Implementation of social safeguards are assessed by management through regular monitoring and reporting and outcomes are included in board reports.
  • Implementation of policies governing human rights, fair labour practices, modern slavery, health and safety, diversity, and compensation.
  • The business employs an external advisor to review and benchmark these policies and their implementation on an annual basis.
  • The business participates in the Global Reporting Initiative (GRI) and makes annual disclosures on its business practices.

Additional comments

As water supply is energy intensive and energy consumption is highly dependent on typography and source of supply, applying a single energy usage metric across all water utilities may disadvantage assets with structurally higher energy intensity. Delivering a gross energy efficiency improvement of on average 20% would not be feasible through resource management and operating practices, unless there was a commitment to make significant new investments in, for example, energy efficient equipment or new reservoirs. Moreover, businesses would have to engage with regulators to secure funding for this type of investment and companies may not be able to set their own leakage reduction targets, as regulators often tie targets to funding allowances. Indeed, regulators that are using a Sustainable Economic Level of Leakage (SELL, or similar) approach[1] will need to focus more on sustainability, resilience and security of supply when setting leakage reduction targets and allowances.

Alignment results

Whilst the asset does not currently meet the primary CCM criteria threshold (energy efficiency), existing leakage reduction commitments may deliver improvements that align with the taxonomy. Work is ongoing to assess the business’s ability to meet the secondary leakage reduction criteria.

The business is subject to extensive legal and regulatory requirements and our initial review indicated it has appropriate governance and systems in place to ensure it meets the DNSH and minimum safeguards taxonomy requirements.

Our assessment identified that the taxonomy is well aligned with the company’s key priorities: leakage and emissions profile reductions. However, we believe the use of an absolute gross energy efficiency metric may result in unintended consequences, leaving some businesses at a disadvantage due to operational realities outside their control (typography and water resources), or conversely, providing an unfair advantage to other businesses. Moreover, focussing on gross energy usage could result in capital intensive solutions that may not deliver the required reduction. For example, regional typography may drive a structural increase in energy consumption that is outside the control of the individual asset. Alternative solutions, such as increased use of (self-generated) renewable energy could achieve similar environmental outcomes whilst delivering better value for money.

Implementing changes to achieve the taxonomy’s objectives will require co-operation from other stakeholders (regulators and customers), so management teams should prioritize engagement to secure early buy-in and support.



Challenges and solutions

1 The taxonomy sets demanding compliance thresholds that may demand significant business change and investment for many companies. There is a need to work closely with general partners and management teams to ensure governance structures, objectives, and business and capex plans are aligned with the taxonomy.
2 Support from external stakeholders may be key to unlocking taxonomy compliance, though in some cases the ability to drive change is constrained by external factors, e.g. regulatory periods. Need to foster a clear understanding of the required changes and potential solutions and establish a proactive stakeholder engagement plan to ensure early buy-in and support.
3 The taxonomy is complex and the data required to fulfil extensive requirements under mitigation criteria, DNSH and social safeguards may not be available. Need to engage with stakeholders to raise awareness of the benefits of taxonomy compliance.


Limited Partnership Agreements (LPAs) governing private market funds that are either required or selected to disclose taxonomy compliance will need to be amended to include terms in line with taxonomy regulations. This will ensure that General Partners (GPs) adequately report on compliance at a portfolio level so Limited Partnerships (LPs) meet their legal reporting requirements. We suggest that the process adopted by GPs should be validated by external assurance. Industry groups and trade associations, such as the Institutional Limited Partners Association (ILPA), have a role to play in translating the taxonomy into an industry reporting standard, supported by best practice processes and assurance requirements.

Similarly, legal documentation governing co-investments will need to include a taxonomy report to enable GPs and co-investors to discharge their legal reporting requirements. It will be critical for GPs to work with companies to ensure relevant processes and systems are funded and implemented to deliver taxonomy compliance. Given the information required by the taxonomy evaluation, it will be challenging for LPs to produce a taxonomy evaluation without the co-operation of GPs.