LeapFrog Investments – an archetypal social impact firm – is expanding into climate investing. It will initially deploy anchor investor Temasek’s capital directly into climate companies, two sources familiar with the matter told New Private Markets.
Temasek, Singapore’s state-backed investor, invested and committed a total of $500 million to LeapFrog last year in a landmark deal to take a stake in the firm and anchor future funds. Temasek’s object in striking the partnership was to invest with “social and environmental… impact” in emerging markets, a source close to the Singaporean institution told New Private Markets.
LeapFrog’s strategy will focus on lower-carbon alternatives for consumer markets in Africa and Asia, such as electric vehicles, including two-wheel and three-wheel vehicles; community solar apparatus; electric appliances to replace kerosene- and charcoal-fuelled stoves and lamps.
LeapFrog pioneered institutional impact investment, initially with a focus on financial inclusion in emerging economies. It subsequently broadened its scope to include healthcare investments. In adding a climate strategy, it will start participating in the dominant trend in impact investing.
Andy Kuper, founder and chief executive of Leapfrog, told New Private Markets earlier this year that despite the enormous demand and tailwinds behind climate investments, investors must not lose sight of the need for social impact strategies in emerging markets.
“Climate is like the internet in the ’90s. It’s just so massive that if you compare anything to it, you’re going to come up short,” he said. “There are many instances where people commit to climate funds before they commit to other impact funds.”
Kuper emphasised that financial inclusion – facilitating payment methods, loans, insurance and savings in low-income communities in emerging markets – is critical to achieving a global climate transition. For example: “You can’t upgrade to an electric vehicle as a low-income person,” he said.
LeapFrog’s climate strategy will be co-led by Nakul Zaveri, a former managing partner at sustainability-focused firm Relativity Investment Management.
LeapFrog has been growing its ranks following Temasek’s investment in the firm: it appointed Cinven veteran Yalin Karadogan as head of investor solutions in March 2022 to lead “multiple fund launches”, and Julie Wallace as head of impact.
The news comes while Leapfrog is raising its fourth flagship fund, for which it is targeting $1 billion. Fund IV focuses on healthcare and financial inclusion themes in emerging markets, in line with Leapfrog’s previous flagship funds, and will not expand to the climate theme in light of today’s news, one of the sources said.
Temasek has been ramping up its impact and climate allocations in the past year, and thinks “very hard about how we can weave in climate themes to emerging markets… again always with the view of serving the underserved customers,” Benoit Valentin, head of impact investing and private equity fund investments, said at PEI Group’s Impact Investor Global Summit earlier this year.
Leapfrog and Temasek both declined to comment for this story beyond the press release.