GP Profile: EV Private Equity outlines plans for dedicated energy transition fund

The GP (formerly known as Energy Ventures) has invested in the energy sector with a focus on cost and resource efficiency since its foundation in 2002, Kobayashi said, although its strategy originally targeted oil field services. “This was the case up until Fund V,” she said. “But as the sector transitions, we’re also on this journey. Our next mandate will be to invest in renewable and clean tech companies, with the aim of avoiding the emission of one million tonnes of CO2 over fund lifetime."

The GP's sustainable investment commitment will be demonstrated by the fact that the vehicle will be an Article 9 fund within the EU SFDR. As part of this, 25% of its carry will be linked to impact targets, Kobayashi said.

The GP has raised six funds to date, the latest of which was EV V Plus, which held a final close in 2018 on USD 61.5m. Its predecessor, EV V, which held a final close in 2016 on USD 175.9m, was its first vehicle to shift from the firm’s focus on oil field services. The firm’s recent investments include Norway-headquartered energy management software Noova, in which it invested alongside Shell Ventures and impact investor Swen Capital Partners in February 2022.

“COP27 has been a reminder of our energy transition commitments and the fact that we need to continue on that journey,” Kobayashi said. “We see opportunities to decarbonise existing processes and products, replacing these with efficient technologies.”

EV’s next mandate, the Sustainable Energy Technology Fund, will have a EUR 350m target and will aim to make 10-15 deals. The vehicle will take controlling stakes in European growth companies involved in the energy transition, focusing on tech-enabled businesses. This technology focus will include sensors, software, integrated hardware and process efficiency. The firm will exclude asset-heavy businesses and infrastructure.

The firm has historically had institutional investors in its LP base and expects to attract more investors from the Nordics for its next fund, according to Kobayashi. “We expect to attract LPs who are aligned with what we are proposing,” Kobayashi said. “There are still investors who will agree to finance fossil fuels as they see value in doing this. The existence of this group is required for the whole system to be able to work.”

Portfolio work
As 2023 approaches, fundraising will be the GP’s priority, Kobayashi said. “But we also want to keep developing our companies, moving them towards energy transition and securing higher exposure to renewables,” she added. 40% of the firm’s investments will be committed to SBTIs [Science-Based Targets Initiatives] by 2025, with 100% by 2030, she said.

Potential exit opportunities are part of this development, but timing needs to be right both for the portfolio company and for the market, according to Kobayashi. “We go for a ‘hurry, hurry, stop’ approach, so we have our companies ready when the opportunity comes,” she said.

The GP’s ESG programme contributes significantly to exit readiness, Kobayashi said, given that implementing ESG measures is also about minimising risks. “Part of our programme is to require ESG policies from our portfolio companies and this has contributed to our companies achieving good exits and a smooth process,” Kobayashi said.

“It’s important for us to review who the buyer is, making sure that they are aligned with our agenda and that our ESG processes will be carried through when we exit,” she said. “We always understand the universe of potential buyers, but once we receive the final offer, it’s important to us that it is a reputable party and that we have confidence that they will carry through the agenda.” Although the firm does not implement anything ”too structured” in these situations, it remains a consideration on exit, she said.

The firm’s recent exits include Norwegian pipeline inspection business Halfwave, which was sold to a Canadian trade buyer in 2020. EV Private Equity currently has 20 companies in its portfolio and has made 40 exits, according to its website.

ESG in focus
EV began reporting on ESG to its LPs in 2012, Kobayashi told Unquote. ESG is incorporated into the firm’s due diligence processes, as well as its ownership period and value creation initiatives at portfolio level.

“Financial reporting needs to go hand in hand with sustainability reporting,” she said. “It’s not only the bottom line that is important to investors, and some are even happy to sacrifice profit in order to hit their sustainability goals. We are preparing to comply with the SFDR, having made adjustments for Level 1 last year.”

The firm founded greenhouse gas emission measurement software tool xIQ, which it uses to automate Scope 1-4 emission measurement processes as part of its ESG policy.

Even prior to making energy transition-focused investments, the GP has increased the revenue share of renewables in some of its companies over time, Kobayashi told Unquote. “We had an ESG agenda from the outset in terms of health and safety, as well as looking for environmental technology that sought to reduce or avoid greenhouse gas emissions during the production of oil and gas,” she said. “It’s not the answer to exclude oil and gas completely, we need to go through a transition phase: we all take planes, have gas boilers, and fill our cars with petrol. We need to deliver the energy transition in a responsible manner.”

EV Private Equity has offices in Stavanger, Norway, as well as in Houston and Aberdeen. The firm a team of 17 and was formed in 2002. Kobayashi was promoted to partner and head of sustainable investment earlier in November 2022, with the aim of enhancing the firm’s responsible investment mandate, as reported.

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