Generation Investment Management has closed its Sustainable Private Equity Fund II (SPEF II), which has raised over $1 billion via the fund and co-investment structures. The fund will be targeting sustainability platforms in major business areas such as energy transition, sustainable technology, enterprise software, data infrastructure and industrial workflows.

The private equity fund will focus on businesses that help to drive large-scale sustainability transformation, including sustainable private equity, energy transition investments and climate-focused funds, ESG investing and sustainability platforms. Generation explained that the plan targets companies which affect the way industries work by using technology, operational systems and infrastructure.

Invest in sustainability systems by industry

Generation Investment Management announced that SPEF II is the second fund in its Private Equity strategy. They have raised capital with institutional investors from various parts of the world, and will continue to do so from existing investment partners.

The fund will not only invest in sustainability projects or assets but also in companies that are part of critical platforms in industries. These companies can contribute to sustainability in various areas including energy management, digital systems, supply chain efficiency and industrial productivity, Gen-X said.

The investment approach enables Generation to hold minority and majority interests in companies. The firm will specialise in companies that have the ability to provide long-term growth and support sustainability outcomes across key industries.

The focus of institutional investors is shifting toward transition-focused businesses.Institutional investors are sharpening their focus to transition-oriented businesses.

Meanwhile, as institutional investors look for investment opportunities tied to climate transition and sustainable growth, the fund closure has come as a surprise. Sustainability is being increasingly sought by investors in businesses that have it embedded in their operations, technology and business models.

The transition towards a broader definition of sustainable investments from investing in renewable energy assets to investing in companies that offer the infrastructure to cut emissions and boost efficiency is what Generation is doing.

Progress toward sustainability more than ever relies on operational systems — software, data platforms, distribution networks, digital tools that enable businesses to better manage their resources and make decisions, among others, the firm said.

“It's really the systems that enable industries to transform around sustainability that are what we believe in, and that's what this fund is about,” said Tom Hodges, Co-Head of Private Equity at Generation Investment Management.

Companies that are involved in workflow management, data and distribution networks can help to advance sustainability at scale if they integrate environmental improvements into their daily business, he said.

Investments made early include Octopus Energy, IFS and Kraken Technologies.

Five investments have been made under SPEF II, one of which was Octopus Energy, another was Kraken Technologies and IFS.

Octopus Energy is a company specializing in energy retail, consumer services, renewable energy generation and energy transition services. The company has grown into an international business, active in over 25 countries in various energy sectors.

Kraken Technologies is a spin off of Octopus Energy that offers a technology platform to enable energy management and customer service operations. Energy utilities use the platform to handle customer accounts, optimize energy systems, and aid the shift to cleaner energy networks.

Generation’s third investment, IFS, is an enterprise software provider to asset intensive industries like manufacturing, construction and infrastructure. The company's technology helps enterprises to monitor assets, operate more efficiently and use fewer resources.

Industries' emissions challenges could be met with software platforms like IFS to enhance maintenance, productivity and manage physical assets, said Generation.

Sustainability investment transitions to implementation of infrastructure.Sustainability investment shifts to investing in operational infrastructure.

The fund's approach emphasises the increasing importance of technology and business infrastructure in the climate transition process. Investors are also turning to companies that facilitate more systemic changes in industrial systems, in addition to renewable energy, which is a core investment focus.

In the case of businesses, it represents an increasing focus on the integration of sustainability into business activities, such as procurement, logistics, energy consumption and capital planning.

Companies assisting industries with efficiency, waste reduction, and better resource management are increasingly crucial in the sustainability transition, especially in emission-heavy industries with intricate operational needs.

Sustainability is the area of private equity's focus.Private equity is all about scalability and sustainability solutions.

The new fund is part of a broader shift from the private sector, where investors are increasingly looking for sustainable investment opportunities. Businesses that offer solutions that can be scaled across industries and be able to provide measurable improvements in operations are becoming the focus.

The firm stated that SPEF II will continue to support the companies that help to advance the sustainability transformation in the long-term, but within commercially viable business models.

With growing pressure on companies and investors to ensure growth strategies align with climate objectives, sustainability-focused PE firms are turning to platforms that integrate technology, operational efficiency and environmental impact.