It took a phone call from U2 foreman Bono to persuade him, but then Hank Paulson, a former US Secretary of the Treasury, went to work. Bono’s question was whether he wanted to lead the new ‘climate fund’ of TPG, a large investment company.
Paulson is the man to take on this important task, estimated musician/activist Bono, who is also involved with TPG. The 75-year-old Republican has many connections and a lot of experience in the financial world as a former CEO of Goldman Sachs. And he has been concerned about the climate in recent years. Finally Paulson said yes, he told the New York Times. Because: “I’m in a hurry to make a difference.”
Paulson started at the beginning of this year, this week it was announced that he has raised 5.4 billion dollars (4.5 billion euros) from investors. The fund will invest that money in companies that devise smart climate solutions in the areas of energy, transport or agriculture. Remarkable: not only large institutional investors, such as pension funds, have joined. Multinationals such as Apple, Boeing, General Motors and Nike are also participating.
All impressive – but coincidentally, on the same day, an investment company announced an even larger climate fund. Canadian Brookfield has raised seven billion dollars for a new fund that wants to invest in “the transition to a net-zero economy”. And here too a well-known foreman: Mark Carney, former head of the British central bank and UN special envoy for ‘climate action and finance’. He made his name as a green forerunner with a speech in 2015 about the necessary greening of monetary policy.
Also read this story: Central banks are also going green
Now such reports, about new climate funds with billions of dollars in them, are not the order of the day. But they are no longer a rarity. More such funds have been launched this year than in the past five years combined, according to data from financial data company PitchBook.
The amounts of 5.4 and 7 billion dollars are not childish either. Bigger is always possible in the financial world: Carlyle, one of the largest investment companies in the world, is raising $27 billion for a new fund (not focused on climate). That would be the biggest ever. But an average private equity fund contains less than $1 billion.
And there was even more news this month about green ambitions of investment companies. About relatively unknown names, but hefty amounts. Generate Capital of San Francisco raised $2 billion for green infrastructure investments. And New York’s General Atlantic wants to raise $3 billion for climate investments.
Has the world of private equity, ultimately focused on making money by buying up companies and selling them at a high profit, also adopt the green faith?
Investment companies are „late to the party”, says professor of banking and finance Dirk Schoenmaker of the Erasmus University in Rotterdam. But indeed: first the trend of sustainable investing emerged, now private equity follows. “It’s really taking off.” Schoenmaker’s research focuses on sustainable financing, among other things.
Green hot air balloons
Where does this cover come from? Hank Paulson of TPG cites an existential reason. He believes that the deep pockets of private equity are indispensable in the climate crisis. A lot of money is needed, but governments don’t have that, he says in an interview with the government Financial Times. “And I’m all for philanthropy” […], but in my opinion that will not provide the capital we will need.”
People like Paulson and Mark Carney believe that you can make money with sustainable investments. Anyone who enters a climate fund can therefore expect a ‘normal’ return.
Greening does not come from goodness alone. A business reason to switch to sustainable will weigh heavily: there is a huge demand for such investments.
No one can control how sustainable private equity is. But we can’t do this on the blue eyes
Dirk Schoenmaker professor
Take the large Dutch pension investor APG, which manages more than 600 billion euros. “We actively seek funds that contribute to our clients’ sustainability goals,” said Claudia Kruse, Head of Responsible Investment. By customers she means: the pension funds that place their billions with APG, such as the ABP civil servants fund. She calls the assessment of investment opportunities ‘strict’, because that is what the pension funds require from APG.
What can we expect from private equity’s green ambitions? On the positive side, investment companies have a reputation for doing very thorough research into the companies they buy up. Each digit is flead, the strategy endlessly challenged. You can expect green hot air balloons to be punctured.
On the positive side, there is also an immense amount of money looking for a destination. This can give promising young companies the opportunity to grow at lightning speed and to quickly expand their sustainable product or technology.
But there is also a risk, according to Professor Schoenmaker. Saying that you are working sustainably is not that difficult. “It is very important that that is also verifiable. That is often not yet the case, it is still very opaque.” What Schoenmaker does see are ratings in the field of ‘ESG’, shortly before environmental, social and governance. They come from special rating agencies. But: ‘the quality of such ratings leaves much to be desired’.
Rather make it concrete, says Schoenmaker. „How much CO2 for example, do you emit, how much have you reduced? And have that checked by an accountant.” Some large publicly traded companies are already doing this. Investment companies could do this too, for every company they own. “Now no one can control it. But we can’t do this on the blue eyes.”
Demand is huge, so investment companies are also going green
Source link Demand is huge, so investment companies are also going green