Two of the world’s most powerful money managers are joining forces to build a business that invests in climate change and raises one of the largest venture capital funds dedicated to carbon-cutting technology. .
BlackRock Inc. and Temasek Holdings Pte of Singapore. to set up a new company, the Carbon Reduction Partner, to join startups that have the potential to reduce the world’s dependence on fossil fuels and meet the three-decade goal of zero carbon emissions. They are pledging a total of $ 600 million to the effort, including $ 300 million in seed capital for a $ 1 billion first fund and raising the rest from outside investors.
Ultimately, the Carbon Reduction Partner aims to manage billions of dollars from multiple funds, Larry Fink, CEO of BlackRock, said in an interview with Bloomberg Television, adding, “I consider this one of the the greatest investment opportunities of our lifetime. “
While renewable energy is replacing coal in electricity generation and electric vehicles can be cost-competitive with gasoline-powered cars, there is no viable solution to problems like massive energy storage. Large or clean alternatives to cement and steel production that use a lot of carbon. Hydrocarbons still dominate the economy because they are cheap and easy to transport.
Money dedicated to clean technology is on the rise these days, but regulators tend to focus on the advantages of innovation or cash-flow assets like solar and wind farms. . BlackRock and Temasek are focusing on end-stage VC, a time when startups need a larger amount of capital to produce on a large scale and expand into new markets.
Dilhan Pillay Sandrasegara, CEO of Temasek International, said: “When you look at the transition to greener options, it is clear that there is a need to address the gap between the cost of what’s available and the road. cost curves of those solutions. That is why private capital is required, in order for these solutions to become commercialized, so that the cost curves can be lowered to the level of non-green or even low-cut options. than”.
Breakthrough Energy Ventures, founded by Bill Gates in 2015, is currently the largest venture capital firm in the sustainable energy sector. It has raised over $ 2 billion for its early stage investment, where the risk of failure is high and is expected to hold its stake for 20 years or so. Another partner, Energy Impact Partners, raised $ 1.7 billion, mainly from power and industrial companies.
More money is flowing into carbon-related investments. Traders Chamath Palihapitiya and Ian Osborne plan to raise at least $ 1 billion for a publicly traded vehicle. Venture capital for climate technology startups totaled $ 16 billion in 2019, up from around $ 400 million in 2013, according to a PwC report published last year.
The first climate investment boom between 2006 and 2011 did not end well, with venture funds losing more than half of the $ 25 billion invested. One notable bankruptcy is Solyndra, a solar panel startup with funding backed by US taxpayers.
The carbon reduction partner will operate like a traditional VC fund, requiring investors to lock in money for about a decade and targeting an annual return of around 20%. Fink offers $ 5 billion as a long-term target for the assets under management.
“We’ll test this, we’ll build it, we’ll have proof of concept and then we’ll see,” he said. “These are not tens of billions of dollars. It can lead to those kinds of large-scale investments, but it doesn’t have to be that large ”.
Temasek, a state-owned investor that oversees around $ 230 billion, has pledged to halve the net carbon footprint of its portfolio companies by half by 2010’s levels by 2030 and to zero by 2050. Because they control Singapore Airlines, one of Temasek’s priorities is finding a sustainable and cost-effective alternative to jet fuel.
Pillay and Fink have described their shared interest in making blue hydrogen a practical alternative to fossil fuels. Carbon Reduction Partners are also targeting battery storage, autonomous driving and grid reliability technologies, as well as material and process innovation for industries and infrastructure.
As the world’s largest asset manager, New York-based BlackRock has the reach and relationships with clients to coordinate capital into new investment vehicles. Just last week, it raised $ 4.8 billion to buy renewable energy facilities and raised $ 1.5 billion privately from Temasek, the California State Teacher Retirement System, and others. another for two exchange-traded funds. ETFs use proprietary research and analysis to find stocks that will benefit in low carbon transitions.
Fink has spoken out in the fight to reduce carbon emissions, declaring climate change as an investment risk and promoting sustainability. In his annual letter to the CEOs in January, he said companies must disclose their plans to make their business models compatible with the net-less economy.
Temasek and BlackRock were already partners in a Chinese wealth management business, and Temasek was one of BlackRock’s top shareholders. Pillay, who took over as CEO of Temasek in October, said he will gauge the success of the new venture on two metrics: the rate at which its investments help reduce carbon in the economy. economy and profit.
“We won’t look at sacrificing profits,” he said. “We may have to wait longer, due to this early stage partnership factor, but we believe profits will come.”