Goldman Sachs & Others Close Over $6 Billion Climate Fund

Goldman Sachs Asset Management (GSAM) raised $1.6 billion for its first private equity fund focused on investing in firms that provide climate and environmental solutions, while two other firms closed ~$4.5 billion.

Goldman Sachs is one of the world’s largest managers of private markets impact capital. It has an extensive track record of transformative private markets investments in the space.

The company announced the final close of its inaugural direct private equity fund called GSAM’s Horizon Environment & Climate Solutions or Horizon Funds at over $1.6 billion. The fund was launched in 2021 when investors are turning their eyes to businesses that help in the fight against climate change.

Goldman Sachs’ Horizon Climate Fund

Through a series of Horizon Funds, Goldman Sachs will work with companies that deal with key sustainability trends. These include developing solutions for five major themes that support the firm’s approach to climate transition:

• Clean energy,
• Sustainable food and agriculture,
• Sustainable transport,
• Waste and materials, and
• Ecosystem services. 

These themes represent sectors where GSAM noted high demand and growth opportunities for cost-effective solutions its partners need. 

GSAM head of sustainable investing for private markets, Ken Pontarelli, remarked: 

“The centre of the bullseye that we look for … is if we can invest in companies that have products and services that enable other organisations to cost-effectively meet their sustainability objectives, that’s a winner.”

Sustainable Investing Group manages Goldman Sachs’ Horizon Fund. It has made investments in 12 portfolio companies so far spanning North America and Europe markets with a total amount of around $80 – $90 million. 

The investments include a Swedish battery developer Northvolt and a textile waste recycling company Recover. Each investment is measured on sustainability outcomes, e.i. acres of wetlands restored or tons of carbon sequestered.

Investing in Sustainable Climate Solutions

Pontarelli also said that they’re willing to fund larger companies betting on innovative and sustainable climate solutions of tomorrow. This is timely as the transition to a more sustainable growth keeps pace.   

The Horizon Fund also leverages Goldman Sachs’ proprietary operating platform, the GS Value Accelerator. It helps in working with partner companies to build lasting businesses and create increasing value.

The climate fund went beyond the target to close to over $1.6 billion that includes commitments from some of the world’s biggest investors. 

Goldman Sachs supports sustainable economic growth and financial opportunity. Both are critical to the company’s net zero targets where growth capital is key to a low-carbon transition. 

The company has set a 10-year goal of $750 billion in sustainable financing by 2030. To date, the manager has achieved about $300 billion.

So far, the climate finance provided and mobilized by developed countries in developing countries is the following, as per OECD’s analysis.

Thematic Split of Climate Finance Provided & Mobilized (USD Billion)

The climate adaptation opportunity, in particular, is huge and growing. The market can be worth $2 trillion per year by 2026. And the need for adaptation solutions will grow as climate impacts become more severe.

Other private equity companies apart from Goldman Sachs are also embracing the same trend in climate funding. 

More Capital to Fund Climate Actions

Last year, another large manager Morgan Stanley Investment Management had also closed a $1 billion private equity fund. It’s specifically intended to invest in firms that will remove or prevent 1 gigaton of CO2 emissions from entering the air by 2050.

MSIM investments will focus on the mobility, power, sustainable food and agriculture sectors and circular economy. They’re expected to deliver both financial returns and positive environmental impact.

The manager said it will tie some of the investment’s compensation to the emissions performance of its underlying investments. The company believes that to drive progress in climate solutions, a significant amount of financial incentives should link with climate funding. 

Likewise, a global growth equity firm General Atlantic also launched a climate-focused fund last December. The company closed its inaugural $3.5 billion BeyondNetZero fund to invest in climate solutions. 

The New York firm also thinks that the climate solutions it seeks to support are an important part to mitigate the threat of climate change. 

As companies seek to ramp up the race to net zero, more capital will come together to fund climate solutions.