Sustainable Finance Roundup: Fundraising and New Fund Launches

KKR Hires New Team For Impact Investment Fund Launch

Private equity firm KKR has set up a new business unit to house its planned impact investing fund, Reuters reports. The fund will invest in small and medium-sized companies in areas like renewable energy, education and environmental management, with themes tied to the United Nations’ Sustainable Development Goals. The new unit will be run by Robert Antablin, previously KKR’s head of energy private equity for the Americas, and Ken Mehlman, KKR’s global head of public affairs.

KKR’s move comes after another private equity giant, TPG, launched its own impact investment fund, The Rise Fund, last year. That new vehicle reached $2 billion in assets last October from major investors including the New York State Common Retirement Fund, the Washington State Investment Board and Swedish pension fund Andra AP-fonden. In April, the company announced that former U.S. Secretary of State John Kerry joined the new fund as a senior advisor, with a focus on identifying renewable energy investment opportunities.

In 2016, Bain Capital launched its Bain Capital Double Impact Fund, which invests in middle market companies that create positive social impact in areas like water, energy and agriculture. The fund raised $390 million, with new commitments coming last year from institutional investors like the Los Angeles City Employees’ Retirement System and the Los Angeles Fire and Police Pension Fund.

Overseas, $74 billion Swiss private equity firm Partners Group last month launched a $1 billion global impact investing fund, PG Life, that will seek investments that help alleviate poverty and support companies developing affordable and clean energy technology. The fund will have a dual mandate of achieving attractive returns as well as a measurable and positive social and environmental impact.

PG Life will make equity investments in deals ranging from $100 million to $1 billion. Existing investors in the group include large institutional investors such as the Canada Pension Plan Investment Board, public pensions in Texas, and the Korea Investment Corp., who are also expected to invest in the new fund, says the FT.

Alecta, Sweden’s largest pension fund, is boosting its commitment to the NN-FMO Emerging Markets Loan Fund, an emerging markets fund that focuses on financing projects tied to the UN’s Sustainable Development Goals. The $91 billion Alceta last month doubled its commitment to the fund, raising it from $100 million to $200 million.

The fund had a first close at $250 million in assets, and a second close due later this year is expected to net another $750 million. NN-FMO is a collaboration of NN Investment Partners and the investment arm of Dutch bank FMO.

More Major Banks Step Up Commitment to Low Carbon, Sustainable Finance

In April, Wells Fargo committed to investing $200 billion in sustainable business by 2030, with 50 percent focused on clean technology and renewable energy transactions that support a transition to a low carbon economy. The remainder is expected to go toward sustainable agriculture, recycling, and conservation projects.

Meanwhile, Morgan Stanley also committed to $250 billion in low-carbon financing by 2030. The money is expected to fund cleantech and renewable energy financing, sustainable bonds and other transactions that enable low-carbon solutions. Since 2006, the company says it has financed more than $84 billion in projects that support cleantech and renewable energy and underwritten $27 billion in sustainable bonds

These announcements follow other major banks making similar commitments in recent months, including HSBC (which committed $100 billion), JP Morgan ($200 billion) and TD Bank ($78 billion).

HSBC also announced it will stop financing most new coal power plants, oil sands projects and arctic drilling. ING says it will cut its exposure to coal power to zero by 2025, while BNP Paribas says it will no longer finance shale or  oil sands projects.

New Clean Tech Venture Capital Fund G2VP Raises $298 Million 

Former partners at Kleiner Perkins Caufield & Byers have raised $298.2 million for a new venture capital firm, G2VP, according to a filing with the SEC.

The new fund’s founders — Brook Porter, David Mount, Benjamin Kortlang and Daniel Oros — were all partners in Kleiner Perkins‘ $1 billion Green Growth Fund.

G2VP will focus on sustainability and resource efficiency, and on sectors including transportation, manufacturing, energy, agriculture and logistics. It has made investments so far in companies like Shift, Scoop and Kespry, according to its website.

CleanCapital LLC and CarVal Investors, which was formed by Cargill, announced a $250 million equity partnership, including debt capital, to acquire up to $1 billion of solar projects. To date, the CleanCapital team has acquired nearly $100 million of operating solar projects.

The firms are working toward the first “pure” small scale solar C&I securitization transaction, according to a release. The new partnership plans to purchase small, already operating C&I solar projects in the U.S., and then aggregate them into funds to offer to family offices and other accredited investors.

Asset Managers Launch New ESG Products

JP Morgan Asset Management last month launched a suite of fixed income indices, called the J.P. Morgan ESG index (JESG), in collaboration with BlackRock. It’s intended to address growing demand from bond investors looking for a benchmark that targets emerging market issuers with strong ESG practices, JP Morgan says.

Also in April, UBS launched a portfolio dedicated to environmental and socially-friendly stocks and bonds in Asia, following the launch of a similar portfolio in Europe earlier this year. These new portfolios are being driven by client demand for 100% sustainable investing across asset classes, UBS says.

Institutional and high-net-worth investors are focusing more on climate risks and sustainable investing. Demand for sustainable investments in Asia is particularly strong, and investors are realizing that sustainable investing is becoming a source of alpha in their portfolios, says Simon Smiles, global CIO for ultra-high net worth at UBS Wealth Management, in this Bloomberg video interview.

Other major institutional asset owners are focusing on sustainable investing:

- New York City’s comptroller, who oversees the city’s pension funds,  recently issued an RFP for a consultant to advise on its potential divestment of $5 billion in fossil fuel investments.

- CalPERS recently committed $1 billion to an internally managed ESG global equities fund developed by QSI, and hired the first investment director of its Sustainable Investment Program.

Although capital appears to be flowing into sustainable and low carbon investments, it is still not enough to meet the goals of the Paris climate accord , according to a U.N. report released last week. The report calls for more national action and shifting focus towards areas such as digital finance, the roles of rating agencies, and key policy platforms. The “next phase of sustainable finance” will require better performance metrics for the financial system, metrics that integrate sustainability as well as outcomes, says the report.

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