Norway’s state-backed investor, Nysnø Climate Investments, is on a mission to “build a net-zero carbon society” in Norway and globally, “based on the shoulders of our long experience from the maritime industry, our offshore competence and knowledge of energy production”, Ingvild Meland, strategy and communication director at Nysnø told New Private Markets.
Nysnø invests in climate-focused venture funds as well as making direct investments into early-stage climate technology companies – allocating roughly half of its funding from the Norwegian annual budget into each. It targets above-market-rate returns. It can also make debt investments. “The purpose of establishing Nysnø is to fuel the acceleration into a low carbon society,” investment director Lars Hvam told New Private Markets.
One of Nysnø’s requirements for fund investments is for funds to support Norway’s transition to a low-carbon society, said Meland: “For example, by establishing offices in Norway or having Norway as one of their focus areas when they’re looking into investments. Norway is a really small market. We are five and a half million people, so if Norwegian companies are going to grow, they need market access abroad.”
Norway’s economy is heavily reliant on oil and gas production. Oil and gas exports made up 40 percent of the country’s total exports by value in 2020, a report from government agency Norwegian Petroleum showed, using data from Statistics Norway. Norway was the world’s third largest gas exporter in 2019, according to BP’s 2020 statistical review of world energy. But Norway’s fossil fuel exports have been in decline in the past decade after highs of 61 percent of Norway’s total exports in 2008 and 2012, the Norwegian Petroleum report showed. The Norwegian government plans to “develop, not dismantle” the oil and gas sector and promote a gradual move to green energy, BBC News reported in October 2021.
“We need to build on the knowledge that we have built up on technology and energy – but also see how we use our competence from the energy business to transform financial markets and investments in the right direction,” said Meland. “Norway has been an oil and gas and energy nation for many decades. We have been able to develop the natural energy resources into becoming a capital nation. And now we’ve set our goals to become a climate nation.”
“Norway has been an oil and gas and energy nation for many decades. And now we’ve set our goals to become a climate nation”
Meland continues: “When building a net-zero carbon society in Norway and contributing to low carbon emissions in international markets, the best thing Norway can do is to do that based on the shoulders of our long experience from the maritime industry, our offshore competence and knowledge of energy production.
“Norway also has this huge maritime competence, so we can take a huge step in building clean-tech maritime solutions that can be used internationally. And Norway has a lot of natural gas, which we can transform into hydrogen, and we can capture that carbon and put it through Norway’s full scale carbon capture and storage solution being built as we speak. That would help not only Norway but also Europe – being our largest market – to transform.”
Hvam added: “Norway has in-depth competence and experience from the maritime and offshore technology industry. In addition, Norway also has a competitive advantage in having access to clean energy and being a technologically advanced society with a reliable political system.”
When asked, Meland said there has been no resistance from Norway’s government or public to funding the transition via Nysnø, given Norway’s oil and gas industry. “I would have to answer no to that. I believe we have strong support from the government in Norway, and that we are seen to be a useful tool to mobilise private capital into clean tech venture, help Norwegian growth companies succeed and create positive ripple effects in Norway. It’s not a question of if we want to go to a low carbon society, it’s just a matter of how fast we can get there.
“We all agree that we need to move in the right direction for the climate,” said Meland. “I see a growing consensus in Norway on that. The discussion is more about how fast the transition will actually go, and which tools we are willing to set into action. We all want to go in the same direction. We have different views on how fast it will go. But the best thing we can do is to use the things that we’re good at, which can really help the transformation.”
What does Nysnø look for in fund managers?
“We have a soft spot for thematic-focused fund managers, having a specific focus on sustainable climate solutions in a clear segment, industry or technologies,” Hvam said. “We also value having specific networks or a strategic LP base that we can work alongside, sharing dealflow, sharing best practices and information, and hopefully doing co-investments with. Of particular interest to us is where Norway has a competitive edge: that could be in areas such as hydrogen, power intensive and high-tech industries, green tech, clean tech maritime, offshore wind and carbon capture and storage.”
Nysnø also considers emerging and first-time fund managers. Although the investor looks for proven experience and strong performance track records in managers, “there’s been such rapid development and increased focus on climate and sustainability over the last couple of years, so there are a lot of new and interesting opportunities, and we want to take part in that journey”, said Hvam.
“There can be very competent managers coming from other backgrounds who have delivered strong returns before, but not necessarily in [their current] sector,” Meland added. “We have used our capital to contribute to stimulating the ecosystem on this – while not compromising what we expect on profitability.”
At the commencement of its operations, the Stavanger-based investor was primarily focused on investing directly in climate technology companies. Almost four years later, its portfolio has shifted to a 50:50 split between direct investments and funds. The move to “ramp up” in this area was made to form long-term strategic relationships with fund managers and deliver superior financial returns, Hvam noted. Nysnø made seven fund commitments in 2021, more than triple its commitments in 2019 and 2020.
Its focus is primarily in venture capital, although it also has the flexibility to invest in growth-stage companies. Ticket sizes are between €5 million and €20 million.