A new report from S2G Ventures, a multi-stage investment firm focused on the food, agriculture, oceans, and energy sectors, sheds light on the evolving landscape of climate investing. Titled “The Climate Finance Relay Race,” the report delves into how asset owners are approaching climate investments, the rationale behind their strategies, and potential pathways to increase capital flows.
The report underscores the urgency for climate action, emphasizing the increasing strain on global resources as a growing population demands more than what the planet can provide. This unsustainable trajectory, coupled with geopolitical complexities and volatile commodity prices, highlights the need for innovative solutions that improve resource efficiency and transition towards more sustainable production systems.
S2G believes that investing in the “climate megatrend” presents an unprecedented opportunity to boost resource productivity, reduce volatility, and drive sustainable economic growth. However, the report highlights the challenges faced by climate investing, emphasizing the lack of a robust capital market infrastructure to finance new solutions and address climate volatility.
The report estimates that over $30 trillion in investment opportunities exist for climate transition by 2030, yet only about 20% of that potential is currently being met. This gap is partly attributed to a capital market imbalance, with a concentration of capital directed towards early-stage or infrastructure-focused funds, leaving a critical funding bottleneck for growth-stage concepts with high potential but requiring de-risking.
Recognizing the significant potential of asset owners, who manage over $450 trillion in global assets, S2G conducted interviews and a survey of 50+ asset owners to gather insights into opportunities and challenges in climate-related underwriting. The survey revealed that most asset owners have or are considering climate targets (70%) and have implemented changes to prioritize the climate megatrend (82%).
However, despite growing interest, the report identifies several frictions and barriers hindering progress. These include organizational limitations related to incentives, capacity, emerging manager policies, strategy alignment, and organizational structure. The report also notes that asset owners are receptive to collaboration with external entities on climate investing but require clear demonstrations of applicability and value-add to their programs.
The survey respondents prioritize investment performance, regulatory action, board-level support, and transparent KPIs as key drivers for increased focus on climate. They express particular interest in engaging with government (58%), academia and advocacy organizations (38%), and general partners (GPs) and financial intermediaries (34%).
Despite these challenges, the report concludes that asset owners have tremendous market influence and the potential to significantly boost climate investments, even with small adjustments to their approach. However, S2G emphasizes the crucial role of an enabling ecosystem in navigating market and asset-owner-specific obstacles to climate investment. The report outlines six suggestions for fostering this ecosystem, promoting collaboration and facilitating the “climate relay race” from early-stage, high-risk capital to institutional, lower-cost-of-capital projects.
The report underscores the importance of collaboration and a robust ecosystem to unlock the potential of climate investing and accelerate progress towards a more sustainable future. S2G Ventures, through its multi-stage investment approach, remains committed to supporting entrepreneurs and businesses driving innovation and solutions across the food, agriculture, oceans, and energy sectors.
