Seven quotations that sum up the year

It’s been a year of contrasts: some significant fundraising success for sustainability-related strategies was set against a muted backdrop for wider private markets. Substantial progress in terms of managing ESG considerations happened amid the ‘noise’ of anti-ESG rhetoric and lawmaking in the US. Here are seven themes that ran through the year, viewed through the lens of your comments:

Reaction to the backlash

“Five years from now, are we going to be talking about this? No”

The ‘political theatre’ of the anti-ESG movement in the US was a prominent part of the discussion when Robert Eccles, visiting professor at the University of Oxford’s Saïd Business School and an adviser to KKR, visited PEI Group’s London office in October. The issue had rumbled on throughout the year and prompted those who have championed ESG to consciously articulate its material financial benefits, and to choose their language around sustainability carefully. Eccles’ take? The backlash will run out of steam after US presidential elections in 2024.

Data maturity

“The direction of travel is clearly towards auditing, but there’s a lot of great steps being made by GPs in the meantime”

Ben Morley, partner at consulting firm BCG, was one many experts to weigh in the topic of ESG data at affiliate title Private Equity International’s Responsible Investment Forum Europe in November. While there is certainly evidence of discussion fatigue when it comes to ESG data (“Are we really still talking about this?” asked one conference delegate), there is also a clear feeling that meaningful progress has now been made, with limited partners revelling in the fact that their ability to gather comparable data from GPs has gone “through the roof”, as Anna Follér, head of sustainability at pension AP6, put it.

Emerging markets climate investment

“There is huge potential for emerging markets to leapfrog a generation of traditional and incumbent technology with access to clean technology”

In his comment on a research report published in November by LeapFrog Investments, CGAP (a unit of the World Bank) and Temasek, the latter’s head of impact investing, Benoit Valentin, touched on a theme that would gather pace throughout the year: climate investment in emerging markets. A number of funds were launched or raised on the theme throughout the year, but activity reached crescendo in early December at COP28, when Altérra, a $30 billion climate fund from the United Arab Emirates, launched with a glut of record-setting fund commitments.

More sophisticated climate thinking

“We’re doing this all in the context of potential value creation and prevention of value destruction of the fund”

Institutional investors are going into detail on the material financial effects of the climate crisis. Jonathan Grabel, chief investment officer of the $74.6 billion Los Angeles County Employees Retirement Association, explained in November why the fund had joined other forward looking investors in undertaking climate scenario analyses on its portfolio. The analysis, presented at a board meeting by consulting firm Meketa, left board members feeling bleak; “The fact is the world is on fire. I think our individual and collective heads are in the sand,” said board secretary Joseph Kelly.

Sustainability-related secondaries

“We believe that we have owned the company for too short a time to realise its full potential”

Hannah Gunvor Jacobsen, Summa Equity COO and head of investor relations, explained in straightforward terms to New Private Markets why the impact-focused private equity firm chose to hang on to waste management company NG Group by rolling it into a continuation fund. Sustainability-focused secondaries transactions were tipped early on in the year as an emerging theme, and deals like Summa’s – and those backed by Blue Earth Capital and North Sky Capital – show that the appetite is there.

The growth of natural capital

“Until now, we have tried to take nature into account when building infrastructure, but we must go further and define nature itself as infrastructure”

Erik Berglof, chief economist at the Asian Infrastructure Investment Bank, writing in its Nature as Infrastructure report in December, summarised the two ways in which private markets investors are increasingly taking nature into consideration. On one hand it is a material risk factor for portfolios that merits disclosure; the Taskforce on Nature-related Financial Disclosures released its final recommendations for nature-related risk management and disclosure in September. On the other hand, it is emerging as a vital and investable asset class in itself, with new offerings this year from Ardian, Just Climate, Mirova, Manulife, Gresham House and many others.

Favourable climate

“In the current market environment, energy transition and sustainability resonate”

Goldman Sachs Asset Management co-head of infrastructure Tavis Cannell spoke to affiliate title Infrastructure Investor following the close of the firm’s fourth flagship fund in October. In a year characterised by difficult private markets fundraising conditions, those raising climate funds have benefited from new pools of LP capital coming online and continued investor interest. The California Public Employees’ Retirement System was one of a number of LPs to announce plans to increase its allocation to climate solutions investments. As Connor Teskey, president at Brookfield Asset Management, put it in November when describing the prospects for the firm’s second climate mega-fund: “Not only is the investor spectrum widening, it is growing in terms of size of commitment as well.”

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