Welcome to the inaugural edition of Climate Investing Insights, a podcast newsletter dedicated to exploring the multifaceted world of climate investing. I’m your host, Elena Shirokaya, founder of Private Equity for Climate. In this first issue, we delve into the intricacies of Article 9 reporting through a conversation with Eva Normell, the Sustainability Officer at Alder, a private equity firm based in the Nordics.
Setting the Scene
In my practice, I frequently engage with managers planning to raise climate private equity funds. A common dilemma they face is whether to opt for Article 8 or Article 9 reporting. The feelings of being overwhelmed, the time and effort required, and the uncertainty of where to start are prevalent. What better way to address these concerns than by talking to someone who’s been there and done that?
Introducing Eva Normell
Eva Normell, the Sustainability Officer at Alder, has been deeply involved in sustainable finance since joining the firm three and a half years ago. Alder, founded in 2008, has always prioritized sustainability. Today, the firm manages three funds, all classified under Article 9.
Eva’s role at Alder involves aligning the firm’s strategies with sustainability objectives and integrating sustainability into every aspect of the investment process. This includes ensuring that Alder meets the rigorous requirements of Article 9 while driving significant impacts through its investments.
Alder’s Journey to Article 9 Compliance
Eva shares that Alder’s journey to Article 9 compliance was resource-intensive but ultimately rewarding. The firm had to ramp up their internal processes, improve data reliability, and ensure alignment across its portfolio companies. Training and robust data management systems were crucial in meeting the rigorous standards of Article 9.
Alder’s first fund is nearly at its end, with only one asset left. The second fund, with an AUM of 1.6 billion SEK, is fully invested, and the third fund, which had its final close in May, has a commitment of 3.1 billion SEK. This brings Alder’s total AUM to approximately 450 million EUR.
The Role of External Consultants
Alder utilized external consultants for specialized roles, such as greenhouse gas analysis and EU taxonomy compliance. Eva emphasizes the importance of building internal competencies and creating a culture where sustainability is everyone’s responsibility. At Alder, everyone in the team takes responsibility for sustainability, and the firm provides extensive training to ensure that all staff are equipped to contribute to sustainability efforts.
Portfolio Companies’ Experience
Working with portfolio companies, especially smaller ones, presents its own set of challenges. These companies often lack the frameworks and data required for rigorous sustainability reporting. Alder provides strategic guidance and tools to help these companies manage their sustainability efforts. Over time, the initial resource investment decreases, and sustainability becomes a regular part of business operations.
Eva explains that Alder’s portfolio companies are expected to have at least one person dedicated to supporting sustainability efforts. Alder also provides training and support to ensure that these companies can meet the rigorous standards of Article 9. The firm uses external consultants for specialized areas, such as Scope 3 greenhouse gas analysis and EU taxonomy compliance, but aims to build internal competencies within its portfolio companies.
Key Strategies for Emerging Climate Fund Managers
Eva shares essential strategies for managers launching their climate private equity funds:
- Make Informed Choices: Decide between Article 8 and Article 9 based on your long-term dedication to impact investment. Opting for Article 9 signals a strong commitment to sustainability and positions your firm as a leader in the green transition.
- Implement Robust Data Systems: Invest in scalable data collection systems to meet the diverse reporting needs of various investors. Accurate data is crucial for effective sustainability reporting and decision-making.
- Maintain Focus: Avoid getting bogged down in data collection and analysis. Concentrate on optimizing resources, reducing emissions, and maximizing the positive environmental impact of your investments.
- Ensure Transparency: Be clear about the level of data and information you are reporting, including where you use raw data and approximations. Transparency fosters trust with investors and stakeholders.
- Leverage External Expertise: While external consultants can offer valuable insights, it’s vital to build internal competencies and cultivate a culture of sustainability. Use external experts for specialized areas and focus on developing in-house capabilities.
The Importance of Data Management
Eva highlights the importance of robust data management systems in meeting the requirements of Article 9. Alder has invested in a data collection system that allows the firm to collect raw data from its portfolio companies. This data is used to calculate various KPIs and measure the impact of the firm’s investments.
Alder’s data management system has helped the firm improve the quality and reliability of its sustainability data. This, in turn, has enabled Alder to make more informed decisions and provide more meaningful sustainability reporting to its investors.
The Role of Culture in Sustainability
Creating a culture of sustainability is crucial for the success of any climate private equity fund. Eva emphasizes that sustainability should be everyone’s responsibility within the firm. At Alder, all employees are trained in sustainability practices, and the firm fosters a culture where sustainability is integrated into every aspect of the business.
Eva also highlights the importance of aligning sustainability efforts with the firm’s overall business strategy. This ensures that sustainability is not just a compliance exercise but a core part of the firm’s value proposition.
Challenges and Opportunities
The journey to Article 9 compliance is not without its challenges. Eva acknowledges that the process can be resource-intensive and time-consuming, especially for smaller firms. However, she also highlights the significant opportunities that come with Article 9 compliance.
Article 9 funds are seen as leaders in the green transition, and this can attract significant interest from investors. Additionally, the rigorous standards of Article 9 can help firms improve their sustainability practices and drive positive environmental impacts through their investments.
Conclusion
Navigating the complexities of Article 9 reporting is demanding, especially for small companies. However, the rewards in terms of investor interest and alignment with global sustainability trends are significant. Keep your approach strategic and long-term, and use external experts wisely to enhance your sustainability reporting.
Thank you for joining us in this first edition of Climate Investing Insights. Stay tuned for more in-depth discussions and insights into the world of climate investing.
