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Why private markets are key to accelerating climate solutions
Date & time :
Wednesday, 12 March 2025
Michael Eisenberg
Private markets are emerging as a pivotal force in scaling climate solutions as countries and organizations across the world seek to decarbonize as part of the global energy transition, making it a significant and worthwhile investment opportunity.
While institutional investors increasingly allocate capital toward sustainability and decarbonization, private equity and infrastructure firms are leveraging their governance models, operational expertise and commercial capabilities to transform companies across sectors.
This convergence of capital, commercial and operational expertise and strategic vision is creating a powerful ecosystem for driving meaningful change while generating attractive returns. Here’s how:
Identifying and scaling market opportunities in the energy transition
Private markets have already identified crucial funding gaps in the climate solutions landscape. Many firms are targeting profitable, scalable companies that need growth capital to expand internationally and scale operations.
Tikehau Capital, for example, was an early mover in this space and launched its inaugural energy transition fund in 2018 – well before such strategies became mainstream.
As Mathieu Chabran, Co-Founder of Tikehau, explained in an interview with the World Economic Forum: “There is so much need that the opportunity is more structural than cyclical. Large corporates focus on the transactions that move the needle for them, while early-stage capital is going into venture and R&D. We identified a gap: profitable, scalable companies that need capital to grow.”
The private markets governance model offers distinct advantages for driving the energy transition. Unlike public market investors, private equity firms can implement transformative changes through hands-on management and aligned incentives.
“We don’t just buy the company – we invest side by side with the entrepreneur,” notes Chabran. “We help scale their strategy without telling them how to run their business because they are the ones driving the bus.”
According to the World Economic Forum’s 2024 white paper Bridging the Divide: Private Markets and New Drivers of Value Creation, firms like TPG Rise Climate have developed specialized value creation capabilities that support climate-focused companies.
TPG combines capital with business-building expertise to help portfolio companies capture “green premiums” through enhanced go-to-market strategies and pricing optimization. Similarly, Permira focuses on investing in operations to enhance product offerings and drive efficiencies for climate transition businesses, including implementing new systems, technical enablement and refining customer segmentation.
Framing the exit narrative around decarbonization
As decarbonization-focused investments mature, private equity firms are refining their approaches to exits. Many are developing comprehensive sustainability equity stories that position companies as attractive targets for strategic buyers financial sponsors, or public markets.
J.P. Morgan’s Sustainable Solutions Group noted in the World Economic Forum report: “Many GPs [general partners] are now proactively working with companies 12–18 months or more ahead of an exit to develop the commercial, brand and operational proof points around the sustainability characteristics of their companies.”
This preparation ensures portfolio companies can attract a wider pool of potential buyers, including those with specific sustainability mandates.
Looking ahead, private market investors are identifying new opportunities beyond the initial wave of energy transition investments. Tikhau’s Chabran points to regenerative agriculture and adjacent sustainability sectors as promising areas aligned with broader climate goals.
Other firms are also stepping up and launching new fund products. Eurazeo, for example, has launched a fund dedicated to addressing environmental challenges, including biodiversity, water management, waste reduction and pollution control.
Meanwhile, Brookfield has expanded its energy transition focus with the emerging market-focused Catalytic Transition Fund in partnership with ALTÉRRA, targeting regions that comprise an increasing share of global emissions but have historically received only a fraction of global energy transition investments.
How private markets can drive systemic change
The collective experience of leading private market investors demonstrates how strategic capital, operational expertise and governance can reshape industries through sustainable transformation.
“The winners of today’s energy transition will be the large corporates of the next decade,” observes Chabran. “There will be a reshuffling of major players—and private markets will help build them.”
This sentiment is echoed across the industry. As noted in the Forum’s white paper foreword, “Private markets’ unique investor governance model can be a significant engine for the transformation and the rapid scaling required throughout the economy to drive the energy transition.”
The convergence of sustainability imperatives and commercial opportunities creates a compelling moment for action. For institutional investors, now is the time to evaluate allocations to private market strategies focused on the energy transition. The most sophisticated limited partners are already increasing commitments to these areas, recognizing both the financial opportunity and the positive impact potential.
For general partners, the mandate is clear: develop robust, specialized capabilities to identify, accelerate and scale climate-focused companies, or risk falling behind competitors who are already capturing this value.
For companies seeking growth capital, partnering with experienced private market investors can provide not just funding but crucial operational expertise to scale sustainable business models. The hands-on approach of these investors, combining commercial acceleration, international expansion capabilities and sustainability expertise, offers a powerful platform for growth in an increasingly sustainability-focused economy.
The convergence of climate urgency, technological progress and capital availability has created a unique moment. Private markets stand at the centre of this historic opportunity, not just to generate returns, but to fundamentally reshape our economy for a sustainable future. The question is no longer who will lead this transformation in private markets, but who will act quickly enough to capture its full potential.
Source: World Economic Forum