Climate continued to be the number one sustainability concern this year. This was evident in both the sophistication of investors’ understanding of how climate risk should be addressed across their portfolios, and also in the flow of private markets capital to climate-focused funds.
In terms of ESG, it became clear that private markets as a whole was lagging behind public markets when it came to providing LPs with emissions data. For example, Border to Coast, a £38.4 billion ($46.6 billion; €44.7 billion) UK pension pool, told us in October that, while it now has a roadmap for how it will reach its net zero 2050 target, this does not cover private markets, because of a lack of reliable and comparable emissions data. Enacting decarbonization plans without even estimated data is a non-starter.
Over the course of the year, however, the asset owner community has responded to this gap with some clear guidance for managers on what it wants and needs in terms of data. The One Planet Sovereign Wealth Fund network, a group that contains some of the largest private markets investors in the world, published guidance in October. And in November the Net Zero Asset Owners Alliance, a network of 82 investors with combined assets of $11 trillion, unveiled a call to action for its external managers, spelling out what it requires. The ESG Data Convergence Initiative now counts more than 250 GP and LP participants reporting standardized emissions data.
The resources available to guide private equity firms on climate strategy were bolstered by various groups. The increasingly influential initiative Climat International – a network of GPs sharing best practice on climate action – released a white paper in November giving guidance on setting and meeting portfolio net-zero targets. The IIGCC produced guidance for both private equity and infrastructure managers on how to align their portfolios with net zero by 2050.
Perhaps the most dramatic part of the 2022 private markets climate story was the scale up and diversification of the climate investing ecosystem.
Beyond totemic, category-defining fund closes for Brookfield’s $15 billion Global Transition Fund and TPG’s $7.3 billion Rise Climate Fund, an array of managers entered the climate investing fray.
We saw conventional private equity firms, like Argos Wityu and Adamantem Capital, launch dedicated climate vehicles. Multi-strategy managers like Apollo and Tikehau progressed climate investment plans. Specialist impact investors, like Leapfrog, Lightrock and BlueOrchard all launched climate-specific teams or funds. Newer climate specialists, like Lightsmith Group, Ara Partners, Just Climate, Planet First Partners and Climate Adaptive Infrastructure made an impact.
We also saw some established energy investors, like HitecVision and Longbow Capital, successfully retool towards decarbonization strategies; and managers like Energy Impact Partners, Aramco Ventures and Future Energy Ventures, backed by major energy and utilities companies.
A dizzying array of venture capital firms launched or raised climate funds during the year. To name a few: in the US there was Union Square Ventures, Activate Capital Partners, Bouyant Ventures, Powerhouse Ventures and Fifth Wall. In Europe there was Climentum Capital, Contrarian Ventures and Systemiq.
On the buy side, investors like USS, OTPP and EAPF created climate-specific asset allocations.