Lightsmith Group closes climate adaptation fund on $186m

Founder Jay Koh says investors are beginning to focus more systematically on physical climate risk to particular sectors and markets.

The Lightsmith Group has closed its debut fund on $186 million to support a global climate adaptation strategy that includes focus on resilient food systems, agricultural analytics and water efficiency.

Investors in the Lightsmith Climate Resilience Fund include PNC Insurance Group, the Rockefeller Foundation, Caprock Impact Partners and the Asian Infrastructure Investment Bank. Those LPs were joined by unnamed family offices and the Green Climate Fund, a UN vehicle established to support a global response to climate change which made the largest commitment to the fund at $46 million.

“At each of the stages that we’ve raised capital, we’ve had a combination of private, institutional or family office investors and government and philanthropic investors,” explained Lightsmith co-founder Jay Koh, who previously served as a chief investment strategist for the US Governments’ Overseas Private Investment Corporation, according to his LinkedIn profile.

Koh told Agri Investor that New York-headquartered Lightsmith began developing its strategy in 2016 and reached a first close for the Climate Resilience Fund in December 2019. He said although as much as $35 billion has been raised to support climate-related private equity strategies in the past year alone, Lightsmith’s is the first fund to focus specifically on climate resilience and adaptation.

“Climate change is here and happening and will continue to create enormous risk and the also enormous opportunity for technology to understand the changes that are going to occur and to address those changes,” he explained.

Lightsmith will support between eight and 12 growth-stage businesses helping address areas such as drought, agricultural stress and supply chain disruption. Target businesses, Koh explained, will generally have between $5 million and $100 million in annual revenue.

Koh said he expects “a fair number” of the investments from the vehicle will ultimately focus on agriculture. So far, Lightsmith has drawn from the Climate Resilience Fund to support investments in Indian agri-commerce platform WayCool Foods and SOURCE Global, a Scottsdale, Arizona-headquartered startup offering technology capable of producing drinking water from sunlight and air.

Though much of the capital that has been raised for climate-related strategies so far has focused on carbon abatement and the energy transition, Koh said, investors are beginning to systematically focus on physical risk to particular sectors and markets already among their investments.

“You could have been a water investor 20 years ago or 10 years ago. Now, if you are a water investor and you are not taking into account – in serious and systematic terms – the impact of climate change, you are going to be unpleasantly surprised,” he said. “Similarity in agriculture, or even in forestry, you could have been investing in those asset classes for 40 or 50 years or longer, but if your analysis doesn’t include the effect of climate change, you could be unpleasantly surprised again.”

Koh said the growing recognition of climate change’s importance is reflected in growing investor interest in ESG-related consultancies and strategic investments such as S&P Global’s January acquisition of Durham, North Carolina-headquartered The Climate Service for an undisclosed sum.

Though such activity suggests a more welcoming environment for climate-related startups that could ultimately be suitable to the Climate Resilience Fund’s growth-stage capital and positive for its strategy, Koh said, the Lightsmith Group strives to keep the humanitarian challenges associated with climate change adaptation top of mind.

“We would rather not have the investment opportunity and not have the challenges for folks,” he added.