The Platform

Pablo Tosco/Oxfam

The Paris Agreement set the objective of limiting global warming to a 1.5°C increase by 2050 to ensure the transition to a sustainable economy.

As the world grapples with the monumental task of curbing global warming to a 1.5°C increase by the year 2050, the Paris Agreement has laid down a gauntlet: slash greenhouse gas emissions by 43% within this decade. At this pivotal juncture in our climate trajectory, the mobilization of private finance’s substantial capital reserves is crucial to energize and expand green energy initiatives.

The ambitious climate goals of the Paris Agreement necessitate breakthroughs in green technology — a challenge tantamount to the survival of our planet. In response, the European Commission’s 2019 “Clean energy for all Europeans package” provided a strategic blueprint to transition away from fossil fuels. The package estimated that an additional annual investment of nearly €200 billion from 2021 onward would be necessary to meet the 2030 climate and energy benchmarks.

This financial strategy underscores the pivotal role of private investment in fostering the energy transition, propelling sustainable energy projects forward through what is commonly referred to as green finance. This surge of private equity offers a golden opportunity to catalyze the growth of the green energy sector, which is vital to meeting the world’s emission reduction goals. Private sector commitment to this cause is already robust and growing.

Green finance transcends clean energy, encompassing any investment that either spares the environment harm or furthers a circular, efficient, inclusive, and clean economy. It aims to steer market actors and private enterprises towards practices aligned with climate imperatives, highlighting that investing in green projects can coincide with value creation and economic growth.

The realization that green finance can drive real economic expansion has sparked a proliferation of environmentally conscious investment funds. Market analyses generally indicate a positive correlation between these funds and stock performance. As the energy transition impacts every economic sector, investors are increasingly drawn to green finance opportunities. Data from PitchBook reveals that between 2017 and mid-2022, buyout and growth equity funds engaged in energy transition–related deals worth approximately $160 billion, primarily within the renewables and clean industry sectors.

A prime illustration of this is the French investment firm Ardian, which launched the Ardian Clean Energy Evergreen Fund (ACEEF) in 2022. Ardian’s infrastructure division created the fund to provide investors with renewable energy and energy transition exposure. Over half of the €1 billion target was initially deployed in a seed portfolio of wind and solar assets, with 1 GW capacity spread across Europe and the Americas. Backed by the AXA Group, the open-ended ACEEF is designed to fast-track the shift to cleaner energy and complements Hy24, a project centered on clean hydrogen.

“ACEEF is a new innovative step to provide long-term capital to accelerate the energy transition. The fund, managed by a highly qualified team with a track record spanning 15 years and a large network of industrial experts, offers to our clients a unique platform to operate in the renewable energy sector with an industrial approach. Ardian’s strategy to accelerate the energy transition is more relevant than ever to fight climate change and to contribute to energy independence,” stated Mathias Burghardt, Head of Ardian Infrastructure and an Executive Committee member.

Another corporate titan delving into green finance is RWE AG. In 2022, the German energy conglomerate invested €4.4 billion net across over 30 projects in eleven countries, with 2.4 gigawatts of capacity going live. RWE Energy Transition Investment’s foray into Ryse Energy, a leader in decentralized renewable energy with over 4,000 units installed globally, exemplifies this with a significant $15 million investment.

“At RWE, all our efforts are dedicated to setting up a climate-neutral energy supply. In 2022, we invested a total of €4.4 billion net worldwide and commissioned 2.4 gigawatts of new capacity. Further projects with a total capacity of 6 gigawatts are currently under construction. RWE is one of the international drivers of the energy transition. We now hold a leading position in all our core regions – in the EU, the UK and the U.S. We will continue to strengthen this position through massive investment in our green core business,” announced Markus Krebber, CEO of RWE AG.

The energy transition has redirected the focus of private equity from a profit-centric model to one aligned with ESG standards and the collective endeavor to address climate change and the energy crisis. Despite political, regulatory, and geographical hurdles, private equity firms worldwide are recognizing that inaction poses greater risks than active participation. With public sectors inclined to support a conducive environment for private investment in clean energy, the forecast is an upswing of private capital fueling the energy transition in the foreseeable future.

Taylor Mitchell specializes in the field of materials and methods for energy storage and conversion.