BlackRock, Temasek to set up VC fund for carbon-cutting start-ups

NEW YORK • Two of the world's most powerful money managers are joining forces to build a business on climate change investing and raise one of the largest venture capital (VC) funds dedicated to carbon-cutting technologies.

BlackRock and Singapore's Temasek have formed a new company, Decarbonisation Partners, to take stakes in start-ups that have the potential to reduce the world's reliance on fossil fuels and meet the goal of zero carbon emissions in three decades.

They are committing a total of US$600 million (S$802 million) to the effort, including US$300 million of seed capital for a US$1 billion first fund, and raising the rest from outside investors.

Eventually, Decarbonisation Partners aims to manage billions across multiple funds, BlackRock chief executive Larry Fink said in an interview with Bloomberg Television.

"I look at this as one of the greatest investment opportunities over our lifetimes," he said.

Although renewables are displacing coal in power generation and electric vehicles can be cost-competitive with petrol-driven cars, there are no viable solutions for problems like large-scale storage of energy or clean alternatives to carbon-intensive cement and steel production.

Hydrocarbons still dominate much of the economy because they are cheap and easy to transport.

Today, the pools of money dedicated to clean technology are growing, but managers tend to focus either on the bleeding edge of innovation or cash-flowing assets such as solar arrays and wind farms.

BlackRock and Temasek are zeroing in on late-stage VC, the point at which start-ups need more capital to manufacture at scale and expand into new markets.

"As you look at the transition to greener options, there is obviously a need to address the gulf between the cost of what's available today and the cost curve of those solutions," said Temasek International chief executive and incoming Temasek CEO Dilhan Pillay Sandrasegara.

"That's why private capital is required, to give these solutions a chance of making it to commercialisation, to where the cost curves can be brought down to the levels of non-green options or even lower."

Breakthrough Energy Ventures, founded by Microsoft's Bill Gates in 2015, is currently the largest VC player in sustainable energy.

It has raised more than US$2 billion for early-stage investing, where the risk of failure is high, and anticipates holding its stakes for 20 years or longer.

More money is flowing into carbon-related investing. Dealmakers Chamath Palihapitiya and Ian Osborne plan to raise at least US$1 billion for a publicly traded vehicle.

Venture funding for climate tech start-ups totalled US$16 billion in 2019, up from US$400 million in 2013, noted a PricewaterhouseCoopers report published last year.

"We're going to be testing this, we're going to be building it, we're going to have proof of concept and then we'll see," Mr Fink said.

"This is not tens of billions of dollars. It may lead to those types of large-scale investments, but it doesn't need to be that large-scale."

Temasek, an investor that oversees about US$230 billion, has pledged to reduce net carbon emissions by its portfolio companies to half their 2010 level by 2030 and to zero by 2050.

Because it controls Singapore Airlines, one of Temasek's priorities is finding a sustainable and cost-effective alternative to jet fuel.

Mr Pillay and Mr Fink described their shared interest in making green hydrogen a practical replacement for fossil fuels.

Mr Pillay, who takes over as Temasek CEO in October, said he will judge the new venture's success on two measures: the speed at which its investments help achieve carbon abatement in the economy, and profitability.

"We're not going to look at sacrificing returns," he said. "We may have to wait longer... but we do believe the returns will come."

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A version of this article appeared in the print edition of The Straits Times on April 15, 2021, with the headline 'BlackRock, Temasek to set up VC fund for carbon-cutting start-ups'. Subscribe