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Following suit with public interest in offsetting the effects of climate change, asset owners are looking for new ways to invest their money in ventures that focus on reducing greenhouse gas emissions. As a result, private markets are experiencing unparalleled growth in a category that few investors have yet to master.

While the process of forming energy transition funds may seem similar to any other category within the private market asset class, there are four distinct characteristics that call for a different approach:

  1. The climate category covers a far wider range of investment opportunities, from climate technology to industrial decarbonization.
  2. Government policies have a significant influence over different kinds of investment opportunities.
  3. There is a lack of investors who have managed to establish successful track records in the climate category.
  4. Climate investment strategies have yet to demonstrate they can generate long-term returns on investment.

When it comes to forming a new fund in more established asset classes, you typically only need one or two reputable investment leaders with excellent track records. However, because of the above complexities, a climate fund requires a carefully curated team of leaders. Piecing this team together can be a bit like solving an intricate puzzle, as these experts need to have complementary skills and perspectives that, together, will give the fund the credibility it needs. We find that the most successful teams usually consist of the following:

  • An advisory board and chairperson who contribute via their network, leadership experience in subsectors of interest, and/or knowledge of policy, engineering, science and similar disciplines—even if they have little to no investment experience.
  • Investment leaders with experience in technologies, industries, or sectors that are becoming increasingly important in climate strategies (e.g., renewables, chemicals, supply chain).
  • Climate/decarbonization operating partners, from industry or consulting backgrounds, who can establish appropriate carbon reduction targets and create/implement a road map for achieving them.

For more insights into the vital role of fund leadership in establishing climate-related investments, download our paper “A climate fund is a team sport,” or contact one of our experts.

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