Our regular newsletters begin with a quote. A look back at those from the first half of the year suggests two trends dominated the sustainable private markets discourse: the existential attacks on ESG in the US; and investors’ approaches to combatting the climate crisis. Here are 12 choice quotes from the more than 50 published in H1 2023:
“In today’s investment environment, it is more and more important that pension capital is invested not just for financial return but to make an active contribution to society’s challenges”
In our first newsletter of the year, Dennis van Alphen, head of infrastructure at PGGM, put context around the Dutch investor’s deal to acquire a stake in water business Saur from EQT (press release). In doing so, he set out the stall for investors considering more than just financial gains.
“Different LPs, based on their constituencies, have different perspectives”
The Carlyle Group’s head of investor relations Daniel Harris described revived investor demand for traditional energy funds on the firm’s year end results call in February. The questions of how and if to invest responsibly in fossil fuel-related assets was a recurring theme.
“They are in this real catch-22 [and] private capital takes that one issue away”
Brookfield Asia-Pacific regional head Stewart Upson described the position of heavy-emitting listed energy companies, such as Origin Energy, which require capital to transition. In February Brookfield was trying to take Origin private, which it went on to do.
“We may be subject to competing demands from different investors and other stakeholder groups with divergent views on ESG matters, including the role of ESG in the investment process”
Within its annual Form 10k report – released in March – Blackstone highlighted investors’ divergent views of ESG among the risk areas for its business. Other listed firms raised similar concerns.
“Our LPs are asking us for certain information. There’s only so many times you can go back to them and say, ‘We aren’t collecting this because it’s not material’”
The head of ESG at a mid-market private equity firm argued that ESG data standardisation is pushing their firm to collect irrelevant or immaterial data. The speaker was a panellist at PEI Group’s Responsible Investment Forum in March.
“It provides accessible oil to meet energy supply and security needs for California, but the plan over time is to decarbonise the supply of oil and ultimately turn this into a green business and asset. This is a very tangible example of what we call grey-to-green… and is something we want to replicate”
CPP Investments’ head of sustainable energies Bruce Hogg explained the pension’s “grey-to-green” investment, made alongside German energy investor IKAV, in Aera Energy, California’s second-largest oil and gas producer.
“Now you’re in a pickle: you know what you’ve previously said is no longer true”
Advancing scrutiny from regulators and investors has increased the risk of ESG-focused litigation. Chris Robertson, a partner at law firm Seyfarth, described how managers could come unstuck if changing conditions require them to backtrack on previous ESG-related investment statements.
“There’s an awful lot of the value chain that’s being captured [in private markets] that DC members haven’t been able to benefit from”
Amid a push to channel defined contribution pension funds into private markets, Schroders launched the UK’s first LTAF, a climate strategy. Danny Meehan, director at Cushon, a pension trust that invested in the fund, explained the appeal in March.
“A general headwind we see in that market, regardless of ‘impact’ goals, is investors continuing to be cautious about valuations/purchase price multiples in later-stage deals”
Tom Mitchell, managing director and partner at Cambridge Associates, described the uncertainty in the market in April as interest rate rises, liquidity constrained LPs and the M&A slowdown all hit fundraising prospects.
“Right now, the interest rates are a little bit higher than we started with, [during the] marketing of the fund. Perhaps our end result could be a little bit higher [than anticipated]”
Rising rates have not spelled gloom for everyone. Polestar Capital director Jan-Willem König discussed the target returns for its circular economy debt fund, which reached €187 million following new commitments in April.
“In Canada it’s not uncommon to have bilingual marketing brochures in French and English – but now they have in the US one marketing brochure for red states and another one for blue states. And that’s really sad”
CalSTRS chief investment officer Christopher Ailman, onstage at the Milken Conference in May (as reported by Bloomberg), reflected on the developing schism between political parties on the subject of sustainable investing.
“After working for several months on our biodiversity policy, it became clear that we would have to completely rethink our environmental approach”
Integrating nature and biodiversity considerations into investment processes will have big implications for investors’ climate considerations, as early adopter SWEN Capital Partners has found (described by deputy CEO Isabelle Combarel in a press release).