Goldman backs Al Gore’s investment firm in major CO2 impact bet

The investment firm co-founded by Al Gore is teaming up with industry giants including Goldman Sachs Asset Management to create a new impact venture it says will target private markets with the greatest potential for rapid decarbonization.

Generation Investment Management LLP, which oversees $36 billion, said on Wednesday that other co-investors include Microsoft Climate Innovation Fund and Harvard Management Co., who together will provide an undisclosed amount of startup capital to launch Just Climate. The goal is to make investments pegged to limiting global warming to 1.5 degrees Celsius above pre-industrial levels, and reflects Generation’s view that there needs to be a fundamental shift in capital allocation if the planet is to avoid cataclysmic overheating.

“The challenge of the climate crisis and the just transition are urgent, and they’re vast,” David Blood, senior partner and co-founder of Generation, said in an interview. “And importantly, we can see more and more that sustainability and ESG aren’t alone going to be able to address these challenges.”

Environmental, social and governance strategies were a necessary step to put financial markets on a more sustainable path, but it’s now clear ESG is failing to keep emissions and temperatures in check, said Blood, who left Goldman Sachs Group Inc.’s asset-management unit more than a decade and a half ago to start Generation with the former U.S. vice president. The United Nations estimates that without aggressive action to cut emissions, the world will warm 2.7 degrees Celsius by 2100, a level it has called ``catastrophic.’’

The ESG market is on track to exceed $50 trillion by 2025, yet this huge shift of capital has failed to halt greenhouse-gas emissions from continuing to rise at a devastating pace. Blood said the fastest path to decarbonization is to send trillions of dollars into markets that are currently underinvested, particularly in emerging economies where there’s the greatest need to cut emissions.

In a release on Wednesday, Generation said Just Climate “intends to invest globally in catalytic climate solutions across energy, transport, industry and buildings as well as natural climate solutions, food, agriculture and oceans.”

The announcement has been timed to coincide with the COP26 climate talks in Scotland.

Blood was careful not to dismiss ESG investing as a strategy. But he lamented the continued flow of capital into “areas that aren’t going to be catalytic or in fact probably won’t address the most urgent decarbonization needs.” For fund managers serious about investing in a way that actually prevents climate change, ESG is no longer enough, he said. 

“Ultimately we imagine that climate-led investing is an asset class that will be — at a minimum — a priority for all the institutions who have made net-zero commitments,” Blood said. “It is very difficult to make a Paris-aligned net-zero commitment and then continue to allocate capital in the way that we’re currently doing it.”

In the lead-up to COP26, the financial industry has sent out a barrage of announcements to assure stakeholders of its commitment to fighting climate change. At the same time, banks have continued to feed the fossil-fuel sector, sending about $4 trillion into oil, gas and coal since the 2015 Paris agreement was struck, according to data compiled by Bloomberg. Among banks that say they won’t abruptly halt fossil finance is Goldman Sachs. 

Generation said other partners backing Just Climate include Ireland Strategic Investment Fund, Hall Capital Partners and IMAS Foundation, which is affiliated with the owner of Ikea stores. Goldman’s support will be through its Imprint Group unit.

© 2021 Bloomberg L.P.

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