Partech ties carry to impact for climate tech growth fund

The French manager is targeting €300m for its impact debut, which will link half of its carried interest to impact performance, according to general partner Rémi Said.

Parisian venture and growth manager Partech has launched its first impact fund, which will see it invest in European climate tech companies, according to a statement.

Partech Impact is seeking to raise €300 million to invest in 15 growth stage companies. The firm expects to hit its target “towards the end of 2024”, general partner Rémi Said told New Private Markets. It has already completed a first close, though Said declined to comment on the amount raised thus far.

The fund has a broad mandate to invest across the climate tech space. “We are thematic investors and look at impact across different themes: it can be decarbonisation, it can be circular economy, it can be renewable energy, it can be Agritech. We want to pick the player that we believe has this ability to really truly scale up delivering both financial return but also increasing its impact on the world,” said Said.

To incentivise impact, Partech has tied 50 percent of its carried interest to the achievement of impact goals. The firm will select a single KPI for each portfolio company, against which its impact performance will be judged. Any unearned carry will be donated to foundations, though specific recipients are yet to be chosen. Impact performance will be externally verified.

“We want to find one KPI for each company that is very closely tied to the business model of the company and that we can measure, with a very clear objective to measure it and to report it to our investors and to the world,” said Said.

Partech has already inked its first deal: Dutch climate impact verification company SustainCert; CO2 emissions reduction has been chosen as the KPI that will be linked to carry.

A number of firms have linked their carried interest to impact, though the practice is by no means mainstream and the approach varies from fund to fund. It has often been viewed as best practice among impact investors, though that view is now being challenged by some prominent figures in the market.

Bluemark CEO and co-founder Christina Leijonhufvud described impact-linked carry as “risky business” at NPM‘s Impact Investor Summit: North America earlier this year, on the grounds that it involved “cherry-picking a few metrics or trying to quantify impact in a single metric”.

Capricorn Investment Group client solutions head Kunle Apampa also questioned whether financial incentives were the correct way to encourage impact. He said: “I personally hesitate on financial incentives around creating impact more broadly. When you think about the traditional space, and what really motivates a lot of fund managers to do what they do, a lot of it is tilted towards the financial. It’s tilted towards the alpha. But with that breeds [what] I would call bad habits. What I don’t want to see is those bad habits get translated into a space that needs to be purpose built from the ground up.”