A New Approach for Corporates Reducing Carbon Footprints: Investing in Renewable Energy Private Equity Strategies

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PE funds producing returns and carbon credits may attract corporates with business, suppliers and cash in China.

Mounting pressure on corporates to achieve net-zero carbon emissions or carbon neutral targets is prompting more of them to consider investing in private equity (PE) strategies focused on renewable energy assets. The trend is in its early stages, and companies need to thoroughly vet impact fund managers and understand regional investment characteristics before taking the plunge. But it’s clear that treasury and finance teams working with sustainability officers to meaningfully address climate change need to weigh the relative merits of impact investments that may contribute to reducing a corporate’s carbon footprint.

A spotlight on China. Interest in such renewable funds may be particularly strong among companies doing business in China, the biggest source of global greenhouse gas emissions as well as where many multinationals have key suppliers resulting in scope 3 emissions (carbon in a business’s value chain that it doesn’t control but which it indirectly impacts). The fund structure can offer corporates an investment opportunity for excess or trapped cash, producing a financial return in addition to carbon credits.

China is a critical growth market for many companies committed to climate neutrality but may present a challenge to those that want to purchase renewable energy. The good news is that the Green Electricity Certificates issued by the Chinese government to owners of renewable energy assets can be transferred from the asset holding company of a PE fund to a corporate investor in proportion to the amount invested in the fund. The transfer is only allowed once, to be used solely as an offset and not to trade, according to DWS.

Please click here to read the complete story, including the advantages of fund structures for renewable energy investments.