Four findings from our inaugural Climate Solutions special focus

Few challenges have captured the attention, imagination and capital of investors quite like the climate crisis. The amount of capital required to transition to a decarbonised global economy is daunting, but with that giant challenge comes a wide range of opportunities to invest capital smartly. These opportunities – spanning power generation, heavy industry, transport, the built environment, nature and beyond – are positioned all along the risk-return spectrum, and across asset classes.

Over the next two weeks we will showcase our 2024 Climate Solutions special focus, by way of a New Private Markets email takeover. Thanks are due to the sponsors of this focus: Ares Management, General Atlantic, Permira and Schroders Capital.

Looking across the upcoming reporting, four things become clear.

First is that climate as a theme has galvanised investors in a way that no other impact investing theme has. “We see interest across all segments of the investor base, and that interest is growing,” says Emily Pollock, client director at Schroders Capital. Some of the world’s largest pools of LP capital have created allocations to climate solutions investment (here are 10 examples). Funds with an overt climate solutions theme dominate our annual list of the world’s largest managers of impact capital.

Second is that those raising capital to deploy in this market view the vast dollar amount required to decarbonise the global economy as evidence that ample opportunity exists to deploy. A “huge supply-demand mismatch remains” between the need for capital (“around $3.5 trillion per year”) and the “few hundred billion” raised for equity investment, says Kush Patel, co-head of climate at Permira.

“The amount of capital available today is still well below what is required,” says Andrew Pike, infrastucture opportunities co-head at Ares Management.

“The massive investment needed for scale will involve many more players,” says General Atlantic’s head of climate, Gabriel Caillaux.

Third is that the concept of a “climate fund” – a phrase that arguably only entered private markets vernacular proper in 2021 – has quickly evolved from an infrastructure or growth equity play to something applicable across multiple asset classes and strategies. Climate-focused real estate funds, such as that launched this week by Fidelity, or climate VC funds are now familiar sights. In some cases, the unprecedented nature of climate solutions has spawned funds mandated to invest across asset classes or strategies. “We see more […] funds being thematic, focused on outcomes rather than asset classes,” says Schroders Capital’s Pollock.

Fourth is that much of the underlying technology needed to reach net zero already exists: it simply requires scaling, which is a task particularly suited to private capital markets. Perhaps the most salient example of existing ‘technology’ is nature itself. More than 50 firms now have strategies seeking to deliver carbon sequestration through natural means. These firms are navigating a fragmented and opaque set of voluntary carbon markets as part of their investment strategies, hoping for greater harmonisation and more institutional entrants into the market.

We hope you enjoy the report.