LPs back Adamantem's emissions reduction drive

CEFC is contributing A$80 million ($59 million) towards a target of A$700 million. Adamantem reached a first close of A$675 million in September after six months in the market. Half of the money comes from new investors, with a 50-50 domestic-foreign split. Aware Super – formerly known as First State Super – is putting in A$80 million. It also backed Adamantem’s first fund, which closed at A$608 million in 2018.

CEFC is a government agency with A$10 billion in assets. It is most commonly associated with renewable energy investment, but the group’s remit is to lead efforts to tackle emissions challenges in sectors such as agriculture, energy generation and storage, infrastructure, property, transportation, and waste.

Previous fund commitments have focused on infrastructure and renewables. For example, last year it contributed A$100 million to a vehicle managed in conjunction with Ironstone Capital. Other portfolio GPs include Infrastructure Capital and Artesian Venture Partners. CEFC also makes direct investments through vehicles such as the A$200 million Clean Energy Innovation Fund.

Adamantem joins the portfolio by virtue of its proactive approach to emissions reduction. The GP targets mainstream assets in areas such as consumer staples, healthcare, and B2B services, but with an overriding goal of achieving carbon neutrality as well as traditional private equity-style returns.

Companies in Fund II will be required to take steps to eliminate or offset their emissions within a decade. Independent consultants will conduct measurements of scope-one and scope-two emissions, which cover direct emissions and emissions from purchased energy, respectively. Scope three – tracking indirect emissions through the supply chain – remains beyond most private equity firms globally.

While an increasing number of GPs appreciate that more questions need to be asked on climate change, relatively few are taking material steps to answer them. Emissions remain the starting point: Measuring the carbon footprint of a portfolio, establishing which companies are the key contributors, and evaluating ways to reduce the negative impact.

A minority of managers also conduct forward-looking scenario analysis and can identify the companies at risk over the next 5-10 years because of climate change issues like flooding. A minority of the minority that have begun scenario analysis are able to discuss science-based targets and the prospect of making their portfolios net zero carbon by a certain date.

CEFC will work with Adamantem’s newly established emissions reduction committee to develop and oversee detailed pathways for each portfolio company to achieve its emissions reduction target.

“The private equity sector is an asset class that is still in the early stages of climate transition. With more than A$30 billion of assets under management in Australia’s private equity and venture capital industry, engaging this sector is critical to the continued decarbonization of the Australian economy,” Ian Learmouth, CEO of CEFC, said in a statement.

“In a highly competitive sector like this, the successful implementation of a leading sustainability agenda by Adamantem will drive an increased focus on sustainability across the private equity sector.” 

Jenny Newmarch, senior portfolio manager for private equity growth assets at Aware Super, added that the superannuation fund believes it can generate strong long-term returns while also supporting this transition.

Aware Super claims to be one of only two Australian superannuation funds with clear coal divestment and emissions reduction targets. It planned to exit all businesses that get over 10% of revenue from coal by October and achieve a 30% cut in emissions in its listed equities portfolio by 2023.

There are no numerical targets for other asset classes because they remain a work in progress. Liza McDonald, head of responsible investments at Aware Super, told AVCJ earlier this year that real estate and infrastructure were more advanced than private equity in this area, but there is now a “real dialogue” with managers as to what climate risk means and how it might manifest in portfolios.

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• Topics
• Australasia
• Fundraising
• Buyout
• Cleantech
• Australia
• Adamantem Capital
• ESG
• First State Super