European private equity firm Argos Wityu has launched a climate fund with a mandate to reduce the carbon intensity of European SMEs. The fund is being raised alongside the firm’s flagship buyout funds and will tie a portion of its carried interest to the achievement of its decarbonisation goals. Here is what we know:
The strategy: the fund will invest in European SMEs “for which decarbonisation is key to their long-term development”. It will have a target of reducing, by at least 7.5 percent a year, the carbon intensity of each portfolio company.
The context: This part of the climate investment spectrum – “greening” existing companies – is relatively under-explored, especially at the smaller end of the market, compared to investment strategies oriented towards climate solutions (ie, companies providing the tech or services to help others decarbonise).
Carrot and stick: 25 percent of the Argos Wityu team’s carried interest will be contingent on the fund meeting the above target. Progress will be “measured by pre-approved GHG emissions auditors and accounted for by ton of CO2eq per €m of sales”, the firm said. In the event of targets being missed, carried interest is diverted to funding carbon compensation programmes.
Disclosure: the fund will be classified as Article 9 under the EU SFDR.
The team: the fund will be managed by a team of six people comprising existing Argos Wityu personnel with two recent hires: Sandra Lagumina (former deputy CEO of Meridiam) and Jack Azoulay (former chief of staff at France’s ministry in charge of Energy, Transport, Housing and Environment).
Fund size: is not disclosed, but for reference the last of the firm’s flagship private equity funds closed in 2017 on €520 million, according to affiliate PEI‘s database.
They say: this fund “aims at leveraging its 30-year track record of transforming European SMEs by facilitating the ‘Grey to Green’ transformation of the core economy and shaping sustainable leaders”.