How $183bn of climate-focused private markets capital breaks down

Climate funds cut across asset classes, says Campbell Lutyens, and they are coalescing around three separate themes.

A total of $183 billion is either being raised or has been raised for climate-focused private markets strategies, according to research from placement agent Campbell Lutyens seen by New Private Markets.

The pool of capital is spread across asset classes, including private equity, venture capital, private credit and infrastructure, and is coalescing around three distinct themes, says Campbell Lutyens. The firm counted capital raised within the last six years as well as funds currently in market.

The majority of this capital ($110 billion) is committed to the energy transition but other climate strategies are also attracting significant volumes of capital: strategies targeting multiple sources of carbon emissions, such as industrial efficiency or electric transport, have raised $54 billion, while food, land and agriculture strategies have attracted $19 billion.

“We’re seeing a demand for climate strategies across all asset classes. And we’re seeing an openness to not having that purely siloed into one asset class,” Ali Floyd, co-lead of Campbell Lutyens’ sustainability practice, tells New Private Markets. Floyd has authored The Rise of Specialist Climate Strategies in Private Capital, a report exploring the GPs and strategies in private climate finance and their associated capital risk and return levels.

“There’s a dual incentive for LPs to put more money to work towards the decarbonisation of the economy. The energy transition is economically attractive and there is a lot of interest in getting exposure to the tailwinds of the decarbonisation of the economy. And on the other hand, LPs are interested in committing to strategies that are consistent with LPs’ own commitments to net zero,” Floyd adds.

Electricity production and the energy transition

Funds focused on renewable energy generation and the energy transition have totalled $110 billion since 2016, Campbell Lutyens’ research shows. Renewable energy infrastructure projects have continued to draw capital as the market matures. “But we’ve seen a shift in where capital is flowing,” says Floyd. “There has been an increase in capital to strategies beyond renewables infrastructure, to private equity strategies addressing other parts of the electricity generation value chain around renewable energy generation. Those are areas like energy efficiency, technology and innovation, which are much more appropriate to venture capital, private equity and often private debt.”

Other strategies in this space include hydrogen technology and carbon capture in private equity and venture capital stage; energy storage and biogas in private debt; and wind, solar and hydro power, transmission efficiencies and smart grids.

Food, agriculture and land

Funds with specific sustainability and regeneration mandates in food, agriculture and land have drawn $19 billion. In private equity and venture capital, Campbell Lutyens sees investments in agtech, low-carbon proteins, green animal feed and food waste management via generalist funds as well as funds with a specialist mandate. “There are lots of generalist investors that have invested in vertical farming technologies, for example,” says Floyd.

In real assets, the placement agent is increasingly seeing asset transformation strategies, such as “acquiring low yielding row croplands and repurposing them to a sustainable agriculture system for higher-value organic crops”, says Floyd.

Such strategies have higher risk/return profiles and higher upfront expenditure than traditional sale-and-leaseback strategies typically seen in agriculture, which can deliver higher returns. Many of these “have slightly longer investment time horizons”, adds Floyd.

Multiple emissions sources

A total of $54 billion has been raised for investments that tackle multiple aspects of the decarbonisation of the economy. This includes subsectors such as transport, the circular economy, industrial efficiency and energy efficiency for buildings. Funds in this space typically have venture capital and private equity strategies and generalist climate mandates, although there are a handful of subsector specialist funds.

“There are more new entrants in this area than other areas. It’s very fast-growing and fast evolving, but it didn’t start yesterday,” says Floyd. “These funds are generally investing in newer companies and their founders are quite mission-driven individuals. They want to partner with managers that are demonstrably mission-driven and aligned in their values. So it’s important for GPs to demonstrate that.”