Argos Wityu puts skin in the game for new climate fund

Min Ho
17 October 2022

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Argos Wityu believes its plans to link internal compensation to “very clear” CO2 target reductions can set its new climate fund apart from the wider impact strategies proliferating across the private equity market, senior executives at the firm told Unquote.

The French GP, which is aiming to raise "several hundred million Euros" for its Article 9 buyout climate fund, will target CO2 intensity reduction of 7.5% per year for its new mid-sized European portfolio companies, managing partner Louis Gordon said.

"Our ESG fund has a very strong focus on climate inside the 'E'. This is a pure product that we are bringing in the market, which is much more focused on one target, and which is probably the most important variable I can think of in terms of decarbonization and fighting climate change," Gordon said.

Under the scheme, one-fourth of the team's carried interest pay will be mobilised to compensate every missing ton of CO2 equivalent reduction, by funding high-quality carbon compensation programmes, a statement said.

The "Article 9" classification relates to the most demanding level of environmental ambition under EU Sustainable Finance Disclosure Regulation (SFDR).

"We are very clearly stating our objective in terms of greenhouse gas emission reduction of 7.5%, which frankly, not many firms do," said Gordon. "That's a very clear statement, which is easy to check year after year, and where we will provide independent reports every year."

"Other firms have very good strategy and are doing very good things, but which is probably less focused, less quantitative, and less committed to some of them in terms of meeting your current interest," he added.

Investments
The climate fund will have a capacity to deploy between EUR 10m and EUR 50m equity cheques across 10 to 12 portfolio companies over its investment period, Gordon said

Although sector agnostic, it will target European mid-sized businesses in polluting industries, in areas ranging from carbon-heavy sectors such as clothing, agriculture to building materials, with the ambition to transform them in "sustainable leaders" in their markets, senior partner Jack Azoulay said.

On the contrary, business services firms or software companies that have limited environmental impact will not be interesting targets for the strategy, Azoulay said.

"Our conviction is that in the next few years, there will be very strong drive from customers and clients, as well as employees, across B2C or B2B companies for decarbonisation," he said. "Environmental champions in their industry will have higher valuations, higher margins, and also more resilience."