Why Bregal’s impact push starts with natural capital

Bregal Sphere has made its debut with a natural capital investment, putting this 'increasingly important asset class' at the centre of the firm's new impact strategy.

Bregal Investments has laid out plans to “dig deeper” into impact with the launch of its new platform, Bregal Sphere. The platform puts natural capital firmly at the center of the firm’s budding impact strategy.

Bregal Investments is the private equity platform of COFRA, a holding company owned by the Brenninkmeijer family, which founded the European clothing retailer C&A in 1841. Bregal Investments comprises four direct investment teams and a fund of funds team operating across the US and Europe with more than €14 billion of assets under management.

Its “Sphere” impact platform will sit alongside these and deploy capital globally in “mission-driven companies” with a “strong focus on climate action and nature-based solutions,” Alvar de Wolff, head of ESG and responsible investing at Bregal, told affiliate title New Private Markets.

While the impact platform is a new venture for Bregal, it is no stranger to ESG and was among the first firms to have its emissions reductions targets validated by the Science Based Targets initiative (SBTi) last year. The firm has paved the way for further innovation in the ESG space with its Sustainable Development Fund, a €50 million debt vehicle that finances sustainability projects within Bregal’s portfolio in cases where the payback period could be seen as too long term for the typical private equity investment horizon.

“We see Bregal Sphere as a natural extension of our ESG approach. We’ve been in dialogue with mission-driven companies for many years across all of our funds but have never had a dedicated platform for them,” de Wolff said.

While Bregal has been tracking the impact space for a while, the size of the market at present – GIIN now calculates it at $1.164 trillion – signaled to the firm that the “the time was right” for a dedicated strategy to be launched. “We try to operate at scale and the impact market has expanded significantly, so it’s a natural step for Bregal to get involved,” de Wolff explained.

The platform will take “an impact first approach” using a range of global impact standards including the Impact Management Project’s five dimensions of impact, as well as “best-in-class impact KPIs” aligned with the IRIS framework. As per Bregal’s existing portfolio, all companies that join the Bregal Sphere platform will set science-based targets in line with the 1.5C pathway.

Bregal declined to comment on the size of the Sphere programme and whether it will be staffed internally or by a new team. “More specific plans will be announced in the coming months,” according to de Wolff. 

Bregal has kicked off the launch of Sphere with a majority stake in PUR Projet, a French company that specialises in carbon insetting services through agroforestry and environmental projects. By starting the platform with a natural capital investment, Bregal is participating at a relatively early stage in what de Wolff describes as an “increasingly important asset class.”

“There is a nature-financing gap that needs to be addressed. If we want to reach global climate goals, investing in nature and biodiversity is a fundamental part of the solution – but we need to act now,” he said.

Carbon insetting is one area in particular that is expected to start gaining traction in the natural capital space. While it is still a nascent market, de Wolff believes that the recent release of standards like the SBTi’s Forest Land Agriculture Guidance (FLAG) – the first standard for companies in land-intensive sectors to set emission reductions and removal targets – will fuel demand for carbon insetting. By partnering with PUR, Bregal is hoping to capitalize on this trend and accelerate climate action,” de Wolff explained.

Natural capital, investing in the world’s natural resources to create financial value while driving environment and societal benefits, is yet to enter mainstream investment management, but this is changing; according to de Wolff, it will be a “key part of Bregal Sphere’s climate strategy going forward.”

Bregal joins a growing cohort of impact players that are embracing natural capital. Among those early movers in the space is Pollination, which teamed up with HSBC in 2020 to create Climate Asset Management, an asset manager dedicated to natural capital investments. More recently, impact fund manager AXA IM Alts raised €500 million for its natural capital strategy and QIC launched its first natural capital vehicle, targeting A$500 million ($313 million; €320 million), last month.

New standards and guidelines are expected to trigger further action on the natural capital market. In September, the Taskforce on Nature-related Financial Disclosures released its final recommendations for a framework that allows organizations to report and act on evolving nature-related risks. The first release of science-based targets for nature v1 is expected in early 2023, according to Science Based Targets Network.