Is Abu Dhabi's impressive dynasty of clean energy projects enough to convince COP28 participants that it's serious about decarbonizing?

Matt

In recent years, a trend of clean energy empire-building has been underway in Europe.&nbsp;
In this space, most major EU economies have a national champion. Italy&rsquo;s Enel, Spain&rsquo;s Iberdrola; Norway&rsquo;s Orsted; France&rsquo;s EDF; and Germany&rsquo;s RWE are notable examples.
Having channeled investment towards renewable power generation, these European giants have each established a significant renewable energy footprint. They rightly have a reputation as some of the pioneers of the energy transition.
But they are now being outmaneuvered.
Six thousand kilometres to the east of Enel&rsquo;s HQ in Rome, a UAE-based company is quietly rewriting the rulebook of clean energy investing.
It stands unrivalled in three areas &ndash; coverage, creativity, and controversy. And despite their low-profile rise to date, this year they will not be able to escape the limelight.
<h2>Coverage</h2>
The name of the company is Masdar, Arabic for 'The Source'. Also known as the Abu Dhabi Future Energy Company, it was established in 2006 by the UAE government to support the economy&rsquo;s transition away from fossil fuels.
A period of prolonged relationship-building and strategy setting meant the Masdar project took time to gain momentum. But in recent years, its growth has been astronomical.
The company has quadrupled the size of its renewable energy portfolio in three years. Now, it boasts a portfolio of over 20 gigawatts of renewable energy assets. If Masdar were a country, it would be the 25th largest in terms of solar and wind power.
But most notable about Masdar is not the number of gigawatts, but the geographical diversity of those gigawatts.
Masdar will build renewable energy projects where its Western rivals are unwilling to venture.
Their projects span forty counties, including numerous developing markets such as Mauritania, Seychelles, and several Caribbean islands. By comparison, Enel has projects in 26 countries; Iberdrola in 16 countries; Orsted in just 5.
These projects are not small-scale, either: in Africa, Masdar leads the way, having acquired what is now the continent&rsquo;s largest renewable energy developer, Infinity Power.
A key mission statement for Masdar is to 'expand energy access to those who need it most&rsquo;. In this regard, they are truly walking the walk.
It is a truly global empire.
<h2>Creativity</h2>
Masdar also deserves the plaudits for the innovation and risk appetite that shapes its investment strategy.
Europe&rsquo;s clean energy giants have typically played continued to develop projects involving proven renewable technologies in which they have longstanding experience. Iberdrola is highly concentrated in solar power, Orsted in wind.
In contrast, Masdar is funneling capital into technologies that are so nascent, they barely have a name.
Firstly, sustainable aviation fuels. It is seen as a nascent market not expected to gain commercial scale until at least the 2030s. And yet Masdar is not shying away. The company last year announced a partnership with oil company Total and engineering company Siemens to develop a pioneering method for clean aviation fuel from methanol. It could be transformational for the aviation sector if the project yields the desired results.
Secondly, green hydrogen. Masdar has announced a target to produce 1 million tonnes of low-carbon gas by 2030. Given how early-stage this market is, achieving this goal would mean Masdar would own nearly ten percent of global green hydrogen production by the end of the decade.
Finally, there is the futuristic &lsquo;Masdar City&rsquo;, located in Abu Dhabi. This urban project has been making the headlines for years as a hub of low-carbon innovation. Indoor vertical farms, carbon-absorbing building materials, and long-duration energy storage are among the range of cutting-edge technologies on display. Such is Masdar City&rsquo;s prestige, the International Renewable Energy Agency (IRENA) opted to set up its global headquarters there.
This creative approach to addressing climate change &ndash; with a unique investment strategy of venture capitalists and infrastructure funds &ndash; puts Masdar&rsquo;s dynasty in a league of its own.
<h2>Controversy</h2>
However, despite these laudable ambitions, the Masdar empire is entangled in a saga, and it is due to reach a climax later this year.&nbsp;
The saga involves the company&rsquo;s chairman and one of its owners.
Sultan Ahmed Al Jaber can be thought of as &lsquo;Mr Masdar&rsquo;. Taking the position of CEO at the company&rsquo;s inception, the current chairman has been at the centre of everything Abu Dhabi&rsquo;s clean energy company has achieved.
And, as the UAE&rsquo;s climate envoy to the United Nations for nearly a decade, Al Jaber was influential in landing the country the role of the host nation for this year&rsquo;s UN&rsquo;s Climate Change Conference, COP 28, later this year.
But &lsquo;Mr Masdar&rsquo; also occupies a much more controversial role: Al Jaber is also CEO of the Abu Dhabi National Oil Company (&lsquo;Adnoc&rsquo;). This presents an uncomfortable reality: the figurehead of Abu Dhabi&rsquo;s renewable energy push also sits atop one of the world&rsquo;s largest oil companies.
And Masdar&rsquo;s fossil fuel links became even more obvious in early 2023 when Adnoc themselves acquired a 24% stake in Masdar.
This came just months after the UN elected Al Jaber as the President of COP 28.
It is an uncomfortable situation for the UN. And it has not gone unnoticed that the world's largest annual climate event is being led by the chief executive of a $16B oil giant: 130 lawmakers from the US and EU wrote to the UN earlier this year calling for his removal from the post.
But the protests are not expected to reverse the decision. A main reason for that: Al Jaber, through his association with Masdar, can claim to be first and foremost a pioneer of the energy transition, and someone helping Abu Dhabi to diversify its economy away from its current focus on oil.
It is in this respect that the importance of Masdar, once again, overshadows its European rivals. It is not just a corporate renewable energy venture; it is the political mouthpiece through which the UAE, and its leaders, claim they are meaningfully trying to decarbonize their economy.&nbsp;
At COP 28, the low-carbon credentials of a nation, therefore, rest on Masdar&rsquo;s shoulders.
<h2>The moment of truth</h2>
This all means that, as COP 28 descends on Abu Dhabi later this year, the Masdar story (minus the recent acquisition of Adnoc) will be showcased by the UAE&rsquo;s leaders to global political leaders and UN delegates.
Whether its impressive dynasty of clean energy projects is enough to convince conference participants that Abu Dhabi is serious about decarbonizing remains uncertain.
What is certain, however, is that Masdar&rsquo;s empire-building will continue at pace. The thirty billion dollars invested so far is just the beginning. Masdar is seeking to own 100 gigawatts of renewable capacity by 2030, whilst also wanting to remain at the forefront of some of the most cutting-edge clean technologies.
It is critical that these ambitions come to fruition. Otherwise, Adnoc&rsquo;s spectre will continue to harm the reputation of Masdar and the UAE. For now, at least, the source of 'The Source' remains oil.
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>

The next energy empire: how a controversial company is reshaping the clean energy landscape

Large corporations have a lot to answer for on Overshoot Day

Large corporations have a lot to answer for on Overshoot Day.
A study published in 2017 found that 71 percent of all historical emissions can be traced to just 100 companies. And that is just carbon. A similar story occurs for resource utilisation: just twenty companies are responsible for over 55 percent of the world&rsquo;s plastic waste.&nbsp;
Short-term profit chasing to overshoot revenue forecasts has led to an overshooting of a much more alarming kind, and with much longer-term consequences on the planet.
That said, it is easy to view the corporate sphere through a singular negative lens. But doing so overlooks some of those organisations who have responded to reduce the demand they place on nature.
These entities are scarce. Across the 9,000 companies rated by the CDP, a global environmental reporting NGO, only 13 have a &lsquo;Triple A&rsquo; rating that reflects high performance across climate, forest, and water protection.
This piece looks at just three of those companies, and how they are demonstrating that it is possible to achieve strong business performance whilst making a positive contribution to the ecosphere.
<h2>LMVH Mo&euml;t Hennessy Louis Vuitton (France)</h2>
Fashion represents 10 percent of all global CO2 emissions and sends 92 million tonnes of clothing to landfill per year. Given the scale of potential destruction, it is critical that the sector&rsquo;s heavyweights make efforts to minimise their footprint.
LMVH, the world&rsquo;s largest high-quality products group, has introduced a &lsquo;LIFE 360&rsquo; strategy aimed at doing just that.
It is achieving meaningful results.&nbsp;
High investment into renewables means the company now powers approximately half of its operations on clean power. Even more impressive is the group&rsquo;s activity in carbon reduction far beyond their main operations. Louis Vuitton, the designer fashion label, has become a world leader in developing Sustainable Aviation Fuels (SAF).
LVMH also thinks more broadly about its impact on biodiversity. Through a partnership with UNESCO, the group reforested 1.3 million hectares of land in 2022, a land area comparable in size to the state of Connecticut.
Circular products are also a strategic priority. Christian Dior, another group company, launched a fashion collection last year developed from marine plastic waste.
Far from hindering performance, LIFE 360 is providing investors with confidence of the company&rsquo;s long-term strategic focus. Despite a year of economic turbulence in 2022, LMVH posted record profits of &euro;21 billion in 2022.
<h2>L&rsquo;Or&eacute;al (France)</h2>
L&rsquo;Or&eacute;al operates in a global beauty and cosmetics industry responsible for 120 billion plastic packaging products every year.
&lsquo;L&rsquo;Or&eacute;al for the Future&rsquo; was the company&rsquo;s response. This sustainability strategy stands out in terms of thoroughness and ambition. The strategy was formed in consultation with seven internal expert panels and set a range of targets with a 2025 deadline.
One example is a target of carbon neutrality across all production sites by 2025. The firm is on track, having already had 110 carbon-neutral sites, including 22 of its factories.
But the group is not just focused on the present but has also made efforts to address the historical impact on nature. Through the &euro;50 million impact investment fund, the &lsquo;Fund for Nature Regeneration&rsquo;, they have committed to at least 15 million metric tonnes of CO2 capture by 2030.
Becoming a leader in sustainability has required significant financial support. L&rsquo;Or&eacute;al has outpaced industry rivals in R&amp;D spend. Now it sits at the cutting edge of innovative climate technologies such as agronomy, biotechnology, and biofermentation solutions.&nbsp;
And this allowed top-line growth that also outpaces rivals. company growth is also outpacing rivals. investment is already seeing early benefits. A strong 14 percent increase in revenues announced in early 2023 shows the benefits of such a progressive mentality.
<h2>Mets&auml; Group (Finland)</h2>
The global paper industry is responsible for 2 percent of the world&rsquo;s emissions and results in approximately 14 percent of total deforested land area.
Finnish paper manufacturer Mets&auml; Group is leading the path in demonstrating that a less destructive alternative exists for paper companies.
Firstly, Mets&auml; has made strides in reducing its on-site footprint. Ownership of a host of on-site renewable generation plants allows the company to power 90 percent of its operations through clean power. Ninety-nine percent of water consumed is purified and returned to waterways, promoting resource circularity.
Secondly, Mets&auml; takes its role as a guardian of the forests seriously. The firm plants an average of four seedlings for every tree felled for its products. Development of a detailed certification scheme means it can trace and verify the sustainability of nearly ninety percent of all wood used (versus a global average of 10 percent).
Mets&auml; is unique in its corporate set-up, with its parent company structured as a cooperative owned by more than 90,000 Finnish forest owners. This promotes a culture of collaboration and common interest in the nation&rsquo;s natural ecosystem. This has allowed the Group to implement large-scale conservation efforts, such as the retention of decaying trees to promote biodiversity.
This sustainable approach has paid off. Energy self-sufficiency through Mets&auml;&rsquo;s self-owned biomass plants allowed them to continue operating during the energy crisis when competitors saw output decline. Operating income rose 29 percent last year.
<h2>Conclusion</h2>
There is no substitute for businesses doing the right thing for the sake of doing the right thing.
That said, all three cases show that transitioning towards more sustainable operations can also lead to competitive advantage. Not only does it convince investors of a clearly defined long-term strategy, but it also meets the demands of an increasingly socially conscious consumer base.
This should act as a source of motivation for companies &ndash; even in sectors such as the ones listed above with high potential for ecological devastation &ndash; that a path to lower emissions is not just possible in theory, but in practice.
As a start, it would help firms stop associating &lsquo;overshoot&rsquo; with exceeding revenue forecasts.
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.

‘Undershooters’: three companies who are showing sustainable operations can boost business performance

Patagonia has become the Usain Bolt of the corporate social responsibility agenda: portrayed as a barely mortal freak of nature operating in a universe of corruption and drug cheating

Patagonia has both the substance and style worthy of a corporate sustainability golden child.
This substance lies in their outcomes. Patagonia became the first company in California to achieve B-Corp status in 2011. They have developed innovative materials with a lower carbon footprint and will repair pre-bought items for ongoing use. Not to mention that 84-year-old founder Yvon Chouinard has donated the entire business to Holdfast Collective, a non-profit tackling climate change.
The style lies in the Hollywood-esque narrative surrounding the company. This includes an enigmatic protagonist &ndash; founder Yvon Chouinard is described on Wikipedia as 'rock climber, environmentalist, philanthropist and outdoor industry businessman' &ndash; and a highly relatable industry &ndash; sustainable fashion ranks among electric vehicles and plant-based steaks as environmental value propositions. Their headquarters are just down the road from Hollywood's studios.
The issue of Patagonia, therefore, is not one of substance or style. It is one of surprise: Patagonia, through no fault of their own, is becoming old news.
With the corporate world lacking the imagination or effort to locate additional sustainability success stories, the safe but unimaginative example of Patagonia continues to surface.
A publication by leading consultancy McKinsey in April 2023 titled Patagonia shows how turning a profit doesn&rsquo;t have to cost the Earth is just one recent reference. But it is one reference among many &ndash; among management consultancies, ESG analysts, business media, and more &ndash; that shows an industry still obsessed with the surfing brand.
And this is problematic when we consider the real target audience: business boardrooms. Most know the Patagonia fairytale. Further references risk a reaction not just of indifference among corporate executives, but also disillusionment.&nbsp;
We need more proof points of sustainability leadership. We need to find more Patagonias.
<h2>Implied scarcity</h2>
Patagonia has become the Usain Bolt of the CSR agenda: portrayed as a barely mortal freak of nature operating in a universe of corruption and drug cheating.
Over-usage of the Patagonia case study reinforces their image as a one-off anomaly to stand back and applaud. But this generates a sense of aloofness that could perversely discourage companies from even attempting to catch up.
Worse still, it could incentivize corporate &lsquo;doping&rsquo; to do so. Last year, fashion retailer H&amp;M faced a lawsuit among greenwashing claims via a liberal definition of &lsquo;sustainable materials&rsquo;.
Patagonia will continue to innovate and provide reasons for acclaim. Chouinard's bestseller 'Let My People Go Surfing' was first published in 2005, 17 years before the donation of his company to Holdfast.
But that does not mean they should remain the default case study. The sustainability industry should focus more on demonstrating that emulating Patagonia is not an impossible task.&nbsp;
<h2>One size fits all</h2>
Constantly citing the Patagonia model also lacks an appreciation of the company and industry-specific challenges facing businesses on their path to sustainability. In practice, there is much more variation and nuance.
Achieving Net Zero alignment is one example.
Broadly speaking, businesses can pursue one of two pathways: 'Reconfigure&rsquo; or &lsquo;Relocate&rsquo;.
&lsquo;Reconfigure&rsquo; involves removing the emissions intensity across the supply chain of the existing core business. This has been Patagonia&rsquo;s pathway. Renewable-powered production facilities, high recycling rates in clothing, non-oil-based dyes. Other businesses may seek alternative strategies bespoke to their industry.
'Relocate&rsquo; sees companies divert revenue exposure to a new set of business operations more compatible with lower emissions. A fossil fuel power producer abandoning their coal plants in favor of developing wind farms is one example. An internal combustion engine manufacturer who transitions to producing EV batteries is another.
Critically, 'pathway' does not equate to 'option'. Some industries have no alternative but to pursue the more radical &lsquo;relocate&rsquo; strategy in the absence of a viable &lsquo;reconfigure&rsquo; route. There is no 'green coal' or &lsquo;green petrol engine&rsquo;, for example.&nbsp;
Excessive coverage of Patagonia reinforces a false perception that the route to sustainable operations is of equal complexity and effort to all companies. Where this is not the case, the analogy is undermined.
Lambasting heavy polluters from the sidelines with 'Why can't you just do a Patagonia?' lacks understanding of the distinct challenges they face.
<h2>The Imperfectionists</h2>
But, perhaps most significantly, Patagonia is being placed on a pedestal of perfection that they neither welcome nor should be expected to live up to. For the existence of the quasi-superhuman &ndash; the ESG Usain Bolt &ndash; is not a belief that Patagonia themselves hold.
In a recent interview to discuss his new book, CEO Charles Conn highlighted a novel concept: that companies should not expect to always get it right. He invites businesses instead to see the pathway to sustainability as a journey rather than an end state. 
<blockquote>
&ldquo;It&rsquo;s one of the reasons why in Patagonia, we don&rsquo;t actually say that we&rsquo;re sustainable. We&rsquo;re not.&rdquo;
</blockquote>
Patagonia may be the only entity that does not consider Patagonia sustainable, but there is logic behind Conn&rsquo;s claims.
The more alternative examples of sustainable corporations we can draw upon, the more normalized their activities become and the more willing that other companies develop a culture of strategic risk-taking for sustainability benefits. Or, as Conn describes it when discussing his book, &ldquo;a culture that recognizes that whatever we&rsquo;ve achieved today, we&rsquo;re gonna overthrow it tomorrow&rdquo;.
The name of his book: The Imperfectionists. A title that encapsulates the Patagonia ethos sublimely.
<h2>New arrivals</h2>
The frequency with which Patagonia is held up as the embodiment of a &lsquo;sustainable&rsquo; company underscores just how difficult it is to realize its accomplishments.
However, corporate sustainability is not an Olympic final, resulting in a single gold medal winner and a series of losers. It is a zero-sum game contingent on the entire field getting over the finishing line.&nbsp;
References to the Californian clothes brand lack novelty, relatability, or attainability.
Executives are tired of having Patagonia brandished as the reason why they should be doing much better. As are Patagonia tired of being proclaimed the finished article; for they see themselves as an unsustainable company in transition.
After all, Yvon Chouinard's Wikipedia profile describes him as a rock climber, not Spiderman.
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>

Why the sustainability industry needs to move on from Patagonia

A new breed of unicorn is emerging that should draw attention: the climate unicorn, a billion-dollar company designing solutions to combat climate change

Counting unicorns does not sound a task for serious financial analysts.&nbsp;
Even in the business context, the idea of a unicorn &ndash; a privately-owned company valued at over a billion dollars &ndash; may be perceived as too arbitrary to have any meaningful significance.
But a new breed of unicorn is emerging that should draw attention: the climate unicorn, a billion-dollar company designing solutions to combat climate change.
For those familiar with the term, unicorns typically draw connotations with software start-ups incubated in Silicon Valley that operate smartphones and social media platforms. Much less so asset-heavy companies located in industrial parks across the world&rsquo;s manufacturing hubs, a much more common profile in the land of climate unicorns.
For now, they remain a rare species, but they&rsquo;re backed for a bright future by some. Including BlackRock&rsquo;s CEO:
<blockquote>
"It is my belief that the next 1,000 unicorns [&hellip;] won&rsquo;t be a search engine, won&rsquo;t be a media company, they&rsquo;ll be businesses developing green hydrogen, green agriculture, green steel, and green cement."
</blockquote>
When this statement was made by Larry Fink in 2021, such businesses were few and far between.
Yet two years on, Fink&rsquo;s fantasy is slowly materializing. A millennium of climate unicorns will almost certainly emerge. However, the profile of the current population is far less colourful than the institutional investing guru describes; and, unlike the mythical type, the life of a climate unicorn is certainly not always full of happily-ever-afters.
<h2>Unicorns taking flight</h2>
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://illuminem.b-cdn.net/articlebody/f78ec81eec9320b76982ef4bc22b35ea480b177c.jpg?" alt="Climate unicorns by vintage year" />
Slowly but surely, climate unicorns are gathering momentum.
At present, there are 78 active unicorns with a link to cleantech or climate tech, according to investor analytics firm Pitchbook. This represents a combined valuation of over $200 billion. Even amidst difficult financing conditions, the first five months of 2023 have seen eight climate unicorn births.
At the current rate, this year will likely not match the 28 climate unicorns that emerged during 2022. But what is significant within the context of the wider tech landscape is the growing proportion of new climate unicorns within the overall unicorn cohort. So far in 2023, this share is 31%, compared to just 6% in 2019.&nbsp;
Depending on the macro-economic climate, it is not unrealistic to think we could see a century of active climate unicorns by the end of 2024. Whilst Fink's millennium seems further on the horizon, the last two years have seen a tripling of new climate unicorns.
At that growth rate, that would see number one thousand emerge just before 2030.&nbsp;
<h2>A tale of two sectors, and two lands</h2>
&nbsp;<img style="display: block; margin-left: auto; margin-right: auto;" src="https://illuminem.b-cdn.net/articlebody/03d13f4b25b31fcfd3d30e30aa2436f10c77f3c5.jpg?" alt="Total number of climate unicorns by HQ country" />
<img src="https://illuminem.b-cdn.net/articlebody/1cbf9e66a0ceeaec17488d9775ea8b9cd3147e9a.jpg?" alt="Active climate unicorns with highest current valuations" />
Yet, so far in the tale of the climate unicorn, growth in numbers has not been met by growth in variety. This is true both at the sector level and at the region level.
Of the current climate unicorn cohort, 60% are active in two sub-sectors. Firstly, clean mobility, with the group led by a series of Chinese EV OEMs, including GAC Aion and Zeekr, valued at $14 billion and $13 billion respectively. Secondly, renewable energy, where Chinese solar and wind developer Huadian New Energy leads the herd with a $14 billion price tag.
This limited geographical diversity among the big hitters is reflected across the wider group. Chinese companies represent 55% of the combined value of global climate unicorns. A further 27% is based in the US, home to companies such as hydrogen equipment developer Bayotech and Aurora Solar. There is little evidence of this dynamic shifting: the pair host 24 out of the 28 unicorns born in 2022.
Beyond the Sino-American axis, the climate unicorn pool is shallow. Germany and France are the only multi-company contributors. They provide five and two firms to the list respectively (this includes French photovoltaics producer Amarenco who, following a March 2023 funding round, can boast the title of the group's youngest climate unicorn). That leaves five countries - United Kingdom, Sweden, Canada, India, and Switzerland - who each provide a single entity to complete the list.
This lack of diversity reflects the ongoing nascency of many &lsquo;green&rsquo; markets, including those referenced by Fink. The opportunity within these markets should serve as an impetus for ongoing capital deployment into nascent but high-growth sub-sectors of the climate transition. As electric mobility and renewables are showing, the size of the prize is colossal.
<h2>The fairy-tale ending for unicorns</h2>
The focus so far has been on 'active' unicorns, those both valued at $1 billion and under private ownership. A more holistic appraisal of Fink's prediction requires considering two more subsets.&nbsp;
Firstly, the &lsquo;post-unicorns', Billion-dollar companies now listed on public stock exchanges, therefore not meeting the privately-owned criterion. An afterlife in the public markets - with much more rigorous and real-time scrutiny from investors &ndash; has shown to be both lucrative and perilous for unicorns.
American EV manufacturer Rivian has seen both sides. After the company&rsquo;s IPO in November 2021 resulted in a market valuation of $65B, the title of 'unicorn' almost seemed an insult. However, turbulent equity markets and supply-chain lawsuits have since popped the Rivian bubble, seeing its valuation tank to below $15B.
Secondly, the &lsquo;ex-unicorns': those who hit the billion-dollar benchmark before declining into insolvency.
The most recent slain unicorn in Pitchbook&rsquo;s database is BritishVolt. Lauded as the future of the UK automotive industry, the UK-based start-up planned to produce 30-gigawatt hours of batteries per year, powering hundreds of thousands of cars. However, difficulties securing investment forced BritishVolt into administration in January 2023, leaving behind the eerily empty Gigafactory that it was hoped would employ 3,000 individuals in North-East England.
Admittedly, there may be a faint pulse left in this ex-unicorn: it was subject to a distressed takeover by Australian auto manufacturer Recharge Industries in February 2023. However, at a reported purchase value of just &pound;8.6 million, BritishVolt is a shadow of its former size.
This speaks to an important lesson not quite consistent with children's storybooks: unicorns are not immortal.
Fink will just have to hope there are enough fair maiden investors around to keep a thousand of them safe!
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>

Climate unicorns: the myth becoming a reality

Climate-focused funds act as a green façade that at best obscures, and at worst excuses, ongoing capital deployment into environmentally harmful businesses

<h2>The dawn of the climate-focused fund</h2>
The private equity (PE) industry is uniquely positioned to play a critical role in financing the low-carbon economy.
PE firms boast a consistent track record of delivering strong returns on investment. Protection from short-term fluctuations in stock market sentiment allows them to apply a longer-term strategy (typically over a 3-5 year holding period) to acquisitions. And the model of full ownership gives PE firms significant influence at portfolio companies.
Private equity is waking up to this reality. Their response? The so-called 'climate-focused fund'.&nbsp;
Climate-focused funds &ndash; also marketed under 'energy transition fund', 'clean growth fund', 'sustainability fund&rsquo;, and similar titles &ndash; seek to invest exclusively in businesses pursuing 'sustainable' technologies and practices.
Recent years have seen a climate fund arms race unfold among PE&rsquo;s heavyweights, as a raft of such investment vehicles has been set up.
TPG made the headlines in 2020 with the creation of its Rise Climate Fund which aimed to provide $5 billion in climate-related investments. Months later, Brookfield&rsquo;s Global Transition Fund, with a target of $15 billion, set a new benchmark. Blackstone, the world&rsquo;s largest alternative asset management manager, changed the game in 2022 with the launch of an energy transition platform &ndash; a group of future funds &ndash; that aims to deploy $100 billion into clean energy investments over the next decade.&nbsp;&nbsp;
The benefits to PE firms are clear: positive publicity, elevated demand from private investors, and support compliance in a fast-developing regulatory environment.
However, overreliance on the charm of a climate fund is problematic. Three negative repercussions are worth particular attention.
<h3>1. The Smokescreen Effect</h3>
Climate-focused funds act as a green fa&ccedil;ade that at best obscures, and at worst excuses, ongoing capital deployment into environmentally harmful businesses.
A 2022 report by Private Equity Climate Risks (PECR) on PE giant Carlyle highlighted this hypocrisy. According to the PECR, the value of Carlyle&rsquo;s carbon-based energy investments outnumber those in renewable and sustainable investments at a ratio of 16:1.&nbsp;
New York-based KKR, which in 2022 launched an infrastructure fund that it claimed would prioritize investment in renewable energy, is estimated to have supported transactions in oil and gas totalling over $14 billion in the past two years, according to PE Stakeholder.&nbsp;
These two examples reflect a lagging wider industry. According to MSCI's May 2023 Net Zero Tracker, PE buyout funds contributed to over 70Mt CO2e in 2022, over 50% of all private asset emissions.
A standalone &lsquo;clean&rsquo; fund, whilst a positive step, is insufficient alone to respond to the urgency with which PE funds must move towards lower-emission portfolios. 
<h3>2. The Sunshine Effect&nbsp;</h3>
The notion of climate-focused funds also creates a false duality between 'sustainable' and 'unsustainable' companies.&nbsp;
A company's business profile has an inherent level of &lsquo;green&rsquo; orientation: an electric car manufacturer is naturally more Net-Zero aligned versus its combustion engine-producing competitor.
However, the broad-brush labelling of companies as 'sustainable' and, in turn, worthy of inclusion in a climate-focused fund, risks overlooking or understating areas of their operations that leave a lot to be desired from a sustainability perspective.&nbsp;
Electric vehicles and associated components, which attracted $9.5 billion in PE and venture capital investment during the first 10 months of 2022 (according to S&amp;P Global), is one such sector with high sustainability credentials at face value, but which contains diverse ESG risks further upstream in the value chain.&nbsp;
Climate-focused funds encourage PE firms to seek out these conventionally &lsquo;green&rsquo; companies without looking beneath the bonnet.
<h3>3. The Shunning Effect</h3>
On the other hand, excessive focus on investing in energy transition darlings neglects the decarbonization opportunity that exists by reducing the carbon intensity of companies operating in heavy-emitting industries.
A sustainability transformation at a typically &lsquo;unsustainable&rsquo; incumbent in the steel or fertilizer industries may sound less sexy than simply acquiring a solar developer. Yet it is these companies that often provide the greatest opportunities for material reductions in greenhouse gases: steel production alone is responsible for 7-9% of global CO2 emissions.
Success stories outside of the private investing landscape should offer inspiration to PE investors.
A leading example is Orsted, the former Danish O&amp;G major, which has undertaken a major pivot towards clean energy production: they now own over 15GW in renewable assets, including the world's largest operational wind farm. Coupled with divestment from fossils, the company cut emissions by 76% between 2006 and 2021.
A limited number of PE funds have shown an appetite to support the transition of high-polluting sectors. Scandinavian firm Altor is an investor in H2 Green Steel, a Swedish firm specializing in low-carbon metal production. US PE firm Warburg Pincus has also acquired a division of Australian construction material company Boral. At Boral, they will look to integrate the low-carbon cement technology of another portfolio company, Eco Material Technologies.
Yet PE-led green transformations are few and far between. If climate-focused funds remain as the primary decarbonization strategy pursued by private equity, these companies will be left stranded.&nbsp;
<h2>A higher hurdle: how can firms raise the benchmark?</h2>
The tens of billions pumped into climate-focused funds will no doubt accelerate the scaling-up and learning rate within sectors critical to the energy transition.
However, the use of these funds in isolation is problematic. It reduces the urgency with which firms must divest from fossil fuels. It places a cloak of invincibility around companies with &lsquo;solar&rsquo;, &lsquo;EV&rsquo;, or &lsquo;recycling&rsquo; in the business description. At the same time, it spurns the need to collaborate with heavy emitters on their journey to lower-carbon operations.
Private equity can do better. And they can start this process with some quick-win actions.
Firstly, as well as in-vestment targets, PE firms should implement clearer di-vestment targets, increasing accountability for reducing exposure to fossil fuel players inherently incompatible with a low-carbon future.
Secondly, the industry should establish bespoke guidelines and reporting frameworks to increase transparency around sustainability standards in PE. Greater collaboration with leading initiatives, such as the Glasgow Financial Alliance for Net Zero (GFANZ), will facilitate this.
Finally, a screening of the emissions intensity and decarbonization levers within existing portfolios will identify companies with sustainability transformation potential.&nbsp;
The pathways to Net Zero are taking form across sectors, but often remain unproven at commercial scale. Pursuing these pathways to reduce emissions, whilst also tapping into untapped profit pools, is a complex challenge that the experience, rigour, and innovation of the private world is ideally placed to take on.
It just may require more thought than a standalone climate-focused fund.
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
<div class="css-16rcf8n">
<div>
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>

Matt Hattam

Matt Hattam

The next energy empire: how a controversial company is reshaping the clean energy landscape

Recent publications

Readers also like

Want to know more about illuminem Voices?