Lightrock CEO Pål Erik Sjåtil tells why he is doubling down on growth-stage technology businesses as others pull back.
Pål Erik Sjåtil, referring to the recent fundraising for your Climate Impact Fund, has investor appetite for impact investing turned a corner?
I would say that we have a lot of reasons to be optimistic about the future of impact investing.
At Lightrock, we have certainly perceived a remarkable increase in institutional interest, awareness, and appetite for impact-focused investment solutions, as well as a significant increase in asset allocators wanting to dedicate capital to combatting climate change, especially from more sophisticated institutions.
Our Climate Impact Fund is no exception and we’re pleased to say that it has the most diverse investor base of any of our funds and counts some world-leading institutions among its backers.
What’s sparking institutional players to become more interested in this type of investment?
European regulatory developments have supported this growing institutional interest, with both the EU’s taxonomy for sustainable activities and Sustainable Finance Disclosure Regulation (SFDR) encouraging more operators to take a fresh look at impact investing.
The climate debate and energy crisis in Europe seem omnipresent in the news.
I believe the increasing presence of a worsening climate emergency in the public and political consciousness is spurring new action.
In Europe, the energy crisis is driving much of this awareness, but elsewhere in the world, it is climate change-linked natural disasters – wildfires, floods, hurricanes – which have grown in frequency and severity in recent years.
Combatting climate change is the core aim of your latest fund, is it not? What do you mean by that?
Yes, absolutely. For the Lightrock Climate Impact Fund, our focus is on backing growth-stage businesses that measurably contribute to greenhouse gas emission reductions across our five climate investment themes. These themes correspond with the technology mix required to achieve net-zero by 2050 and include: Energy Transition, Decarbonizing Industries, Sustainable Food & Agriculture, and Sustainable Transportation.
We also have an additional cross-cutting focus area centered on the underlying Enabling Technologies & Solutions that support decarbonization across sectors and industries.
We are particularly interested in maximizing the Fund’s positive environmental impact, so we are especially eager to hear from founders working to decarbonize the ‹hard-to-abate› sectors like construction, transport, agriculture, and heavy industries.
Can you tell us about one of the companies you have invested in for the Fund?
Sure, one of the companies we’re very proud of backing is called Mainspring and they are based out in California. Mainspring uses linear generator technology to address the challenge of managing network reliability and output during severe weather events and during periods of low wind or solar output.
Their cutting-edge generators offer a dispatchable power solution, meaning they can quickly vary output as demand changes across the distribution network, all with near-zero emissions. This boosts grid resilience and further enables society’s transition away from carbon-emitting energy sources to renewables.
Your Climate Impact Fund focuses on growth-stage technology companies, why is that?
Because we can do a great deal with existing means. In fact, 85 percent of greenhouse gas (GHG) emissions can be avoided with existing technologies. As an investor, we want to focus on supercharging the growth of those proven technological solutions that have a clear and demonstrable impact on GHG avoidance and mitigation.
In doing this, we not only bring net-zero closer, but we also support the transformation of key industries and our energy supply for the better whilst targeting attractive financial returns.
How do you approach impact management?
Impact is core to Lightrock’s strategy and portfolio construction, with each of our Funds having clear SDG-mapped objectives and theories of change driving our decision-making.
We use a proven proprietary methodology that was developed in-house for our approach to impact assessment and management, which influences our due diligence, investment management, value creation, and investment realization processes.
Responsibilities under this approach are shared between departments, with the investment team playing a central role. We don’t silo impact away with our dedicated team. Instead, we view it as a shared responsibility between teams, with the Impact team as a catalyst.
Given the rough year technology companies have had in 2022 and the volatile economic context, did you have any reservations about raising a tech fund?
Simply put, no. In fact, I think our conviction that we are doing the right thing has only grown stronger. We believe that tomorrow’s most valuable companies will be solving the most pressing global problems today.
The challenges our tech companies are founded to meet – climate change, health inequality, and financial exclusion, to name a few – persist and, in some cases, are growing more severe in this economic context.
Until we resolve these global issues, there will be an enduring need for responsible sources of capital, like ours, which focus on scaling proven tech-based solutions to these issues so that we might drive both positive financial and social or environmental returns.
Since we last spoke two years ago, Lightrock has closed three impact funds that are all focused on scaling the growth-stage technology business, with aggregate investor commitments of 2 billion euros. So, after three Funds in less than three years, what lies ahead for Lightrock?
We have a lot of exciting developments in the pipeline but, for now, our focus is on executing our strategies and responsibly deploying our investors’ capital.
Looking to the future, we are concerned that global economic headwinds are growing more acute, but we are investors in secular trends – climate change being among the most obvious.
As a consequence, we do not see ourselves pulling back across the next few years. In fact, we’ll probably be getting busier.
Pål Erik Sjåtil has been CEO of Lightrock, a sister company of LGT, since October 2020. Lightrock recently closed three impact funds focused on scaling growth-stage technology business with aggregate investor commitments of roughly 2 billion euros. Before Lightrock, Sjåtil was managing partner for McKinsey in Europe. The Norwegian-born executive advised clients in private equity, technology, and telecommunications. He studied industrial economics at the Norwegian University of Science and Technology and served as an officer in the Royal Norwegian Air Force.
