Amara Goeree, Schroders Capital’s sustainability director for private equity, reflects on the past year and looks forward to 2023.
Looking back at 2022, were there any pivotal events, moments or developments in terms of sustainability in private markets?
Yes, I find it incredibly inspiring to see – far from seeing allocations of resource slowing down, we saw a “doubling down” on sustainability through the turbulent year of 2022: hiring dedicated resources, scaling up ESG capabilities and investing in high impact business models. In past market downturns, sustainability programmes were often among the first to lose funding; seen purely as a pure cost centre. In the current recession, it seems as if many market participants have realised that investing in ESG not only reduces risk, but also creates value.
A distribution colleague noted: “Our clients would much rather hear about our progress on sustainability and impact than interest rate increases.” I hope the end of year statistics will support that sentiment.
Thinking specifically about private markets, do you think the industry has made progress on climate in the last year? Where are the bright spots? Where has it disappointed?
Yes, we have seen exponential growth in the number of climate impact funds raising capital, and an inflow of good teams. There is a huge demand for new technologies that tackle climate change as well as adaptation. Indeed, the unique investment opportunities in climate insurance in frontier and emerging markets have been recognised at COP26 and COP27.
We’ve also seen a surge in opportunities to invest in established companies that perform better than their peers on climate-related management areas. That said, there is still a gap between net-zero commitments and operational reduction programmes. We hope to see that more portfolio companies – with support of the fund managers – define more concrete Net Zero Action Plans, and start to proactively report real carbon emissions data.
We also notice that there is very high demand for investment strategies that focus on mostly new and still unproven climate solutions without willingness to take on more risk. The market might have to adjust its risk appetite if it wants to reach its climate goals.
Looking ahead to 2023, what is your firm’s next priority in terms of climate? What would you like to complete over the next 12 months?
We believe that the challenges investors are facing will do nothing to avert the urgent need to tackle climate change and decarbonisation. With that in mind, we hope that – a year from now – we can say we have made progress in all four of our top climate priorities:
- Access to real, consistently defined GHG emission data for all our direct and indirect portfolio companies through initiatives such as the ESG Data Convergence Initiative
- More companies with concrete carbon reduction targets and clear action plans
- Further increase in investors that are willing to take on more risk so that we can scale investment in new climate solution technologies
- Expansion of our climate investment solutions to internally managed nature-based mandates as we are developing expertise internally.
Aside from climate, which other areas of sustainability will be prominent on your agenda and why?
We believe five long-term megatrends can provide tailwind to certain investments. Climate change and decarbonisation is the first; the other four are: technological revolution, sustainable lifestyles, ageing populations, and growth of emerging and frontier markets.
Sustainability is a prominent factor in all of them. For our private equity practice, this translates into circular economy investment opportunities, but also impact investment opportunities more broadly. We believe in a Just Transition and will continue to scale our investment in companies with the impact intent, that make measurable contributions to the UN SDGs and play a role in reducing inequalities.
Scaling ESG data availability (and exchange) and further professionalising sustainability frameworks in our value chain through engagement remain a very high priority for us as well, and we hope our partners will continue to see us as trusted partners for that. In addition to climate-related topics, social factors such as diversity and inclusion and labour practices play a big role in that.
How are more emerging topics like nature/biodiversity occupying your time and resources?
Alongside investment opportunities in renewables, these topics have gained significant momentum across Schroders Capital’s private assets business, which will continue in 2023. In 2021, Schroders invested in NatCap Research, an Oxford-based company that provides a nature platform for enterprise and finance. Earlier this year, Schroders announced a partnership with Conservation International to launch Akaria Natural Capital, one of the first dedicated natural capital investment managers in Singapore.