Jay Koh, Lightsmith Group
Jay Koh, Lightsmith

Impact firm Lightsmith Group has closed its debut fund, Climate Resilience Partners, at $186 million.

The fund will invest in growth-stage technology companies providing solutions to mitigate the effects of climate change, such as increased drought, flooding and fires. “We think these companies will scale commercially as demand for their technology increases and that scaling is directly correlated with their impact,” Jay Koh, co-founder and managing director, told New Private Markets. The fund is seeking above-market rate returns alongside positive social impact outcomes for climate-vulnerable communities.

This was the first private equity vehicle dedicated to climate resilience and adaptation when it launched in 2016, Koh said. Several other funds with climate resilience or adaptation mandates have since come to market: Union Square Ventures’ climate fund closed in December 2020 at $162 million; Helios and InfraCo launched the CLEAR fund in November 2021 with a $350 million target to “support communities susceptible to the impacts of climate change”; and ReGen Ventures has raised $50 million for natural resource restoration technologies.

Most climate adaptation financing comes from development finance institutions, concessionary and grant funding from international organisations, a World Bank report shows.

Investors in Lightsmith’s Climate Resilience Partners fund include PNC Insurance Group, the Rockefeller Foundation, Kinneret Group, Caprock Impact Partners, the Green Climate Fund, European Investment Bank, Asian Infrastructure Investment Bank, German development finance institution KfW, the Nordic Development Fund and the Luxembourg government, according to a statement from the firm.

“There’s a class of investors interested in the effects of climate change, not just the cause of climate change,” Koh told New Private Markets. “Investors have to look at both. If you have a low carbon transition fund that’s still vulnerable to increasing fires and storms, then those investments will fail. A second group of investors see this as a highly differentiated growth strategy around technology: the demand for the products and services for climate resilience companies is going to be driven by the rate and speed of climate change, not necessarily by the credit cycle or consumer behaviour. And a third group is looking for strategies that are less correlated with the economic cycle or ones that serve as sort of a strategic perspective or a natural hedge against climate impact.”

Lightsmith is particularly interested in technology companies “already embedded in different industries, but that can be used in new ways to assess and manage the risks from climate change in their sectors”, said Sanjay Wagle, co-founder and managing director. “For example, supply chain analytics software that also includes weather data and weather forecasts to help industries become better able to manage disruptions from extreme weather events and weather volatility that keeps increasing.”

The fund has already made two investments: water harvesting company Source Global and India-based agriculture and food supply chain services company WayCool Foods. Lightsmith will allocate three to five impact KPIs linked to the UN’s Sustainable Development Goals for each investment.

Lightsmith was founded in 2016 by private investment veterans Koh and Wagle. Koh was previously a principal at Carlyle, chief investment strategist at the US Development Finance Corporation and head of EMEA private investment at Lehman Brothers. Wagle was previously a principal at VantagePoint Venture Partners.

This fund’s dedicated strategy reflects a growing trend of investors and managers pursuing thematic strategies within impact investing. For many investors, this is because investment opportunities that meet all their criteria and have the impact label are in short supply. For others – such as Max Gottschalk, co-founder of multifamily office Vedra Partners – a GP needs to focus on a single sector to secure both impact and returns.