BlackRock, Temasek close inaugural decarbonization fund at $1.4 billion

In 2021, two of the biggest investors in the world, BlackRock and the Singapore sovereign wealth fund Temasek, launched a joint venture targeting next-generation decarbonization companies. Now, three years later, the company has closed its inaugural fund.

• The top line: Decarbonization Partners surpassed its $1 billion goal by 40% for Decarbonization Partners Fund I, closing the fund at $1.4 billion. Over 30 institutions — including Allstate, Total Energies, Mizuho Bank Ltd. and more — from around the world invested in the fund, which went live in 2022. 
• The nuts and bolts: The fund’s portfolio includes thermal energy storage startup Antora Energy, lithium-ion battery recycler Ascend Elements, and Monolith, a low-emission carbon black and hydrogen company.
• The market grounding: BlackRock in particular has made noise about the need for investment firms to take action on climate change in the past. Earlier this year, however, CEO Larry Fink walked back BlackRock’s climate commitments amidst fears that ESG investments will eat into the firm’s bottom line and social standing as anti ESG-legislation is on the rise nationwide. 

To date, seven companies have received funding, and Decarbonization Partners said those investments are focused on securing long-term financial returns from concrete, measurable decarbonization solutions. The firm plans to add up to 13 more startups to its portfolio through lead or follow-on financing. At launch, it said it plans to raise multiple late-stage venture and growth equity funds.

While the portfolio so far is diverse, funding is primarily directed toward de-risked technologies that have proven scalability, including next-generation energy, carbon capture and storage, digital transformation, and advanced mobility. 

Fink said in a statement that the energy transition to low-carbon power sources has yielded “enormous demand for energy infrastructure” around the world. The joint venture, he added, aims to “identify generational investment opportunities in climate technology that we believe will help to bring down the green premium, enable a more affordable energy transition, and generate long-term financial returns for our clients.”

BlackRock’s backpedal

BlackRock was a vocal proponent of cutting carbon out of investment portfolios even before the launch of the Decarbonization Partners. In his 2020 letter to CEOs, Fink wrote that “climate risk is investment risk,” explaining that “companies, investors, and governments must prepare for a significant reallocation of capital” over the coming years. In 2021, the firm joined Vanguard in announcing a commitment to “limit greenhouse gas emissions to net zero by 2050” and called on other investors to do the same.

In recent months, however, BlackRock has appeared to rethink its commitment, a tone shift that comes amid a broader trend of declining support for climate-related or ESG initiatives among major investors who have argued the proposals are “overly prescriptive.” 

In February, BlackRock extricated its U.S. arm from Climate Action 100+, the world’s largest investor-led coalition pushing corporations to take meaningful action on climate. The move came as part of Wall Street’s mass exodus from similar initiatives. 

The money manager effectively pulled $6.6 trillion — approximately two-thirds of BlackRock’s total assets — from the alliance’s pool, in light of new priorities that included having signatories engage with policymakers on climate concerns and make public details on their efforts to hold companies accountable for meeting net zero emissions targets.

BlackRock has a particularly abysmal record of supporting ESG initiatives, supporting only 7% of ESG-related proposals between June 2022 and June 2023. And, in the wake of both a conservative backlash against Fink and of BlackRock’s becoming a target for GOP lawmakers going after “woke investing,” the company’s desire to distance itself from environmental concerns appears to be on the rise.

BlackRock’s head of the global client business Mark Wiedman said recently that the company’s new focus is on “transition investing” in cleantech infrastructure — exemplified by the Decarbonization Partners joint venture — rather than on initiatives that push companies to change their habits.