Brookfield takes impact investing to the infrastructure mainstream

Following the recently closed Global Transition Fund on $15bn, managing partner Natalie Adomait describes what to expect and how the firm plans to bounce back from its unsuccessful AGL bid.

Impact funds may soon no longer be seen as an add-on, or even stand in a category of their own, after Brookfield’s Global Transition Fund closed at $15 billion at the end of last month, $2.5 billion over its initial hard-cap of $12.5 billion.

“BGTF will be the primary vehicle for investing in decarbonisation within Brookfield,” Natalie Adomait, managing partner of Brookfield’s renewable power and transition group, told Infrastructure Investor.

BGTF will have a lifespan of 12 years with two one-year extensions – the same as the firm’s flagship infrastructure funds. Also the same is the LP base.

“[Our LP base is a] similar kind of mix to what we would see in our other funds,” Adomait said. “We obviously have a few founding partners that came into the strategy early, really saw the importance of this theme and were supportive of us right from the very beginning of developing the fund. That’s OTPP, Temasek, PSP Investments and IMCO.”

The targeted return, however, may be a bit higher than a typical Brookfield flagship infrastructure fund, which typically aims for a net 10 percent IRR.

“[Target IRR is] going to be in the range of our infrastructure funds, probably slightly higher,” Adomait said. “BGTF, from a return perspective, will invest on a return spectrum. So there are going to be some projects which might be lower risk, like if we invested alongside a regulated utility in helping them build out renewables. But those will be offset by a lot of investments we’re expecting to do that will generate returns in the high teens – scaling new technologies, investing in broader platforms to help expand decarbonisation solutions.”

Of the $15 billion raised, $2.5 billion has already been deployed. At the end of last year, BGTF invested in German solar developer Sunovis, and at the beginning of 2022, invested in another solar developer, Urban Grid. The firm also dedicated C$300 million ($228.7 million; €228.3 million) to Entropy, a carbon capture and storage developer, as well as a tie-up with UK utility SSE to target Dutch offshore wind.

These renewables investments will be the first of many. “When we think about our pipeline and what we see coming next, renewable energy is where we’ve seen the first and immediate investment opportunities and that’s where a lot of our capital is being deployed,” Adomait explained.

Transitioning ahead

Brookfield, of course, is no stranger to energy transition investments. What, then, will differentiate BGTF from the firm’s infrastructure funds?

“[Our infrastructure funds] have a very clear, differentiated mandate,” said Adomait. “The Brookfield Global Transition Fund is really investing in decarbonisation solutions with an additionality aspect to them. Our infrastructure funds will continue to invest in infrastructure and in renewable energy, but with an operational improvement angle.”

There will be three major themes driving these investments by BGTF: clean energy, business transformation and sustainable solutions. Clean energy is relatively straightforward – investing in renewables and storage. Sustainable solutions will entail investments that aid in the decarbonisation of an entire sector and/or customer base.

“Think energy efficiency investment roll-out, think servicing businesses, think recycling companies or EV charging infrastructure,” Adomait said.

“Business transformation is probably the one that we’re personally the most excited about,” she continued. “This is where we’re going to help to invest alongside companies to achieve any of their net-zero objectives. So that could be us investing in carbon capture for a cement facility, or it could be investing in an electrolyser to help a steel company achieve green steel. It could be us going into the power utility sector and helping to take companies private in order to reduce their emissions responsibly in line with the temperature targets of the Paris agreement.”

Those keeping up with the firm might find that last example to be familiar. Indeed, Brookfield tried (and failed) to take over Australia-listed AGL Energy this spring with an A$8.5 billion ($5.7 billion; €5.7 billion) bid, with the ultimate goal of decommissioning the company’s coal-fired power stations. The bid was “unfortunately a transaction that played out quite publicly”, according to Adomait, but remains “the type of transaction that we will absolutely look to pursue elsewhere around the world”.

The AGL debacle may have been too public for the firm, but overall, BGTF remains a source of pride. The dual financial-impact return targets for the fund have resulted in Brookfield creating an “extensive impact management system” to govern everything from impact targets to external audits.

“We provide an immense amount of data to our investors on how we’re meeting emissions targets,” said Adomait. “We are very proud that there is no discount given with the fact that we can pursue impact as well as financial returns.”