Clara Barby CBE explains Just Climate’s distinctive approach to ensuring maximum impact on net zero
Clara Barby CBE, Senior Partner, Just Climate
Last June, Just Climate closed a $1.5bn inaugural fund. The firm was established in 2021 by Al Gore and David Blood’s Generation Investment Management to help address the global net-zero challenge.
Clara Barby CBE, Senior Partner, told Shaun Beaney, Editor of Preqin First Close, about combining a decarbonization mission with making attractive risk-adjusted returns.
We call it climate-led because our investment process starts with the question ‘which are the highest emitting sectors that are most off-track in their transition to net zero?’. So, you’re leading with climate science as well as market data. You’re looking for companies whose outsized climate impact is potentially a source of attractive risk-adjusted returns and solutions that can radically decarbonize industrial sectors and restore nature.
Half of your story when you’re practicing climate-led investing is in industrial sectors. But the other half is in solutions to decarbonize agriculture as well as using the benefits of nature to sequester carbon. You’ve basically got industrial climate solutions and natural climate solutions.
Much of the industrial climate solutions story is about the energy transition. Much of the natural climate solutions story is about the land transition.
We aspire to a capital market where all assets are managed sustainably. In other words, sustainable investing is just good investing. And we aspire to that across public and private markets. That’s the philosophy. Generation has been committed for 20 years to providing a range of strategies that enable clients to put that aspiration into practice.
Just Climate complements the rest of Generation’s strategies. We specifically focus on solutions that not only are managed sustainably but also have the biggest impact on bending the global emissions curve to net zero. I think of this as the next frontier of sustainable investing. Clients – investors, asset owners – who ask us to manage their capital are not only seeking to manage assets sustainably. They’re also tilting their portfolios deliberately to include products that, provided the risk-adjusted financial returns are attractive, can address systemic risks such as climate change, and capture the opportunity presented by policy and market tailwinds.
It's actually a strategic asset-allocation imperative in our view, because the other assets in investors’ portfolios – large-cap companies, real estate projects, private equity businesses – desperately need these climate solutions to come down the cost curve and scale if they’re going to transition their own business models.
Our first two strategies [industrial and natural climate solutions] are growth-focused. Over time, we’ll look to create additional products for clients which may be more infrastructure-like. The real impact happens when you roll out these solutions at scale.
We do think you need a specialist team for this. You really need climate science and carbon accounting skills. They’re critical. You then need engineers on the industrial side, because you’re trying to understand how much technology risk has really been retired. On the natural climate solutions side, the equivalent skills to engineering are biology and agronomy. And then we have the growth investment skills. But, interestingly, we also need project finance experience, because a lot of these asset-heavy business models have big debt packages. You need to be able to really understand that through diligence, negotiation, and post-investment management support.
We’re fortunate to have a group of not only influential and large but also really thoughtful LPs. The benefit of having thoughtful, large asset owners is being able to put more capital to work. It’s an attractive proposition for larger investors that they don’t have to look at us as a stand-alone growth player. Over time, we can provide complementary offerings across the capital spectrum to scale these solutions.
We’re using ‘attractive’ literally. Just because these solutions have the potential for very high impact, it doesn’t mean that inherently they’ll have a risk-adjusted returns profile that’s atypical for a growth investor. We believe that it’s because they’re going to have very high impact on radical decarbonization that they’ll succeed. You have the potential upside that you typically see in growth-style investing – growth-style IRRs. But you often have greater downside protection because these are asset-heavy business models.
As you’d expect, it’s a range. We’ve got five portfolio companies. What’s nice about those five is that they’re very representative of what we said we’d do with this strategy. You have some which are very large development projects, such as H2 Green Steel and Ascend Elements, and you’ve got others that are more modular, classic growth businesses selling products, such as ABB E-Mobility.
We’re continuing to look very hard at really difficult areas, such as sustainable aviation fuel, longer-duration energy storage through to transmission, baseload power moving from geothermal models to enhanced geothermal models, and at emerging markets.
Our natural climate solutions strategy is global, like our industrial strategy. We have an office in London. Generation as a group has an office in San Francisco, and Just Climate opened an office in Sao Paolo.
Brazil is a key geography. Firstly, it’s the world’s largest agricultural producer. The Amazon is the 'lungs of the Earth'. It has the largest tracts of degraded land, from a restoration perspective. We expect, as a result, some of the innovation in natural climate solutions will come from Brazil. Secondly, regardless of where the companies in our pipeline are based, all of them want to compete in the Brazilian market.
Shaun Beaney is the Editor of Preqin First Close, the essential newsletter for the global alternatives market. It’s quick, easy, and free to subscribe here.
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The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and Just Climate accept no liability for any decisions taken in relation to the above.