Lightsmith raises $186m fund focused on climate resilience investments

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A little outside of the typical Artemis wheelhouse, but this is news we feel our investor community will appreciate and it is also highly relevant for any readers seeking growth equity funding for their risk modelling, analytics and risk transfer businesses.

lightsmith-group-logoGood friend of Artemis, the Lightsmith Group, has announced the successful raising of a $186 million investment fund focused on climate resilience and adaptation, including risk transfer related opportunities.

Founded by Jay Koh, a previous speaker at one of our insurance-linked securities (ILS) conferences in New York, and Sanjay Wagle, Lightsmith Group is a private equity investor with a unique focus on climate resilience and adaptation, deploying its managed funds into growth-stage technology companies that address the effects of climate change.

Yesterday, the company announced the final closing of its fund, Lightsmith Climate Resilience Partners SCSp RAIF , with $186 million of commitments from backers including some very well-known institutions.

Lightsmith Climate Resilience is the first private equity fund to with this specific climate resilience and adaptation focus and its backers include PNC Insurance Group, The Rockefeller Foundation, Kinneret Group, Caprock Impact Partners, the Green Climate Fund (GCF), European Investment Bank, Asian Infrastructure Investment Bank, KfW on behalf of the German Ministry for Economic Cooperation and Development (BMZ), Nordic Development Fund, the Government of Luxembourg and other investors.

Specifically, Lightsmith Climate Resilience will invest its capital into growth-stage companies whose technologies can address the growing physical impacts of climate change.

It’s estimated that this represents a total addressable market of over $170 billion today.

Climate Policy Initiative (CPI) found that Lightsmith Climate Resilience is the first private equity fund focused on climate resilience, and said that until now less than $500 million per year of private investment has targeted climate change adaptation.

As a result, this is a huge opportunity in a sector that needs private capital and it’s a sector that has significant relevance to the global insurance, reinsurance and insurance-linked securities (ILS) industry.

Initially, Lightsmith will focus on investments into six key areas related to climate resilience and adaptation: water efficiency and smart water management, resilient food systems, agricultural analytics, geospatial intelligence, supply chain analytics, and catastrophe risk modeling and risk transfer.

Importantly, Lightsmith Climate Resilience will follow a strategy that is “committed to delivering economic returns while adhering to global environmental, social, and governance (ESG) standards and providing impact assessment through its Impact Measurement System (IMS),” the company explained.

Lightsmith founders Koh and Wagle each have more than 20 years investing experience at institutions such as The Carlyle Group, VantagePoint Capital Partners, the US Development Finance Corporation (DFC), International Finance Corporation (IFC), US Department of Energy, and New York Green Bank.

The broader Lightsmith team also draws its experience from Goldman Sachs, True North Partners, Baring Private Equity Asia, IFC, and US DFC.

In addition, the Chairman of the investment committee for Lightsmith Climate Resilience is Richard Kauffman, the Former Chairman of Energy and Finance for New York State.

“Lightsmith Climate Resilience is the first private equity fund to focus on investing in solutions to the effects of climate change,” Kauffman commented. “Lightsmith has brought together a team with a unique combination of experience in direct investment and climate change and has secured the commitment of leading global investors to invest in climate resilience.”

“Climate resilience technologies are an overlooked, multi-billion dollar investment opportunity that will just keep growing,” added Koh. “Increasing drought, agriculture stress, and supply chain disruption linked to climate change will drive demand for data and analytics to understand those risks and for the solutions to manage them.”

“As investors, we know very little about the future with any certainty. One thing we do know is that companies that have smart solutions to respond to climate change will be increasingly in demand. Investing in climate resilience solutions can deliver both financial returns and real benefits to companies, communities, and individuals,” Wagle said. “Climate resilience technology is an opportunity for investors and for us all.”

Lightsmith Climate Resilience will follow an investment strategy (dubbed “CRAFT”, the Climate Resilience and Adaptation Finance and Technology-transfer facility) which has been developed with support and input from the Global Innovation Lab for Climate Finance, Nordic Development Fund, the Global Environment Facility, Conservation International, and the International Climate Finance Accelerator (Luxembourg).

The Green Climate Fund (GCF), which was established by 194 countries under the UN Framework Convention on Climate Change in 2010, has committed $46 million and is the largest investor in Lightsmith Climate Resilience.

“GCF is extremely proud to make this investment in CRAFT. By committing to the first private sector investment fund for adaptation, GCF’s catalytic investment will accelerate the transfer of private sector technologies to developing countries, boosting climate adaptation efforts and resilience, while promoting a green recovery from the COVID-19 pandemic,” Yannick Glemarec, Executive Director of the Green Climate Fund explained. “It is a game changer and a strong example of the role the private sector can play in mobilizing adaptation finance and delivering innovative solutions to complex climate challenges.”

There are a number of reasons this news is particularly relevant to Artemis’ readership.

Firstly, for our global investor community, as well as any insurance or reinsurance related entities that might find such an opportunity attractive, the Lightsmith fund is a chance to invest in and support the future of climate risk management, resilience and analytics, with some of its future portfolio expected to be strongly supportive of innovations in risk transfer.

Secondly, there’s a real need for private capital to address climate resilience and this is an opportunity to invest in future technologies that will be supportive of our readers day-jobs, while also providing a strongly ESG aligned source of returns.

It is really important that private capital flows effectively into the climate risk and resilience focused technology sectors and Lightsmith’s team is already very tuned into risk transfer trends, including insurance-linked securities (ILS), as a result of which you can expect companies they fund to prove useful to the industry’s future potential and profitability as well.

Thirdly, start-ups and growth companies developing technologies and services focused on the climate analytics, catastrophe modelling and risk transfer space (as well as adjacent areas), might like to introduce themselves to Lightsmith Group, as your missions may align.

Investors in insurance-linked securities (ILS) tend to have equity focused investment arms, while insurtech focused investors might also find a side allocation through a climate resilience focused fund appealing.

Given the significant size of the addressable market for climate risk and resilience innovation, it’s clear significant capital is required to ensure society can benefit from the technology that is often being bootstrapped, or developed with minimal funding.

Growth equity funding, with a specific focus on the climate resilience and adaptation needs of the planet, is going to be critical to continue the development of this important and still emerging technology segment.

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