When it comes to fighting climate change, there’s a lot of talk. And often, that’s it. There was certainly a lot of chatter at Climate Week in New York City last week. But some firms, individuals, and organizations are trying to focus on more action, too. And one little-known, New York-based investment firm—which invests both in real assets and venture-backed startups—is planning to put some of its fund managers’ money behind organizations addressing climate solutions.
Aligned Climate Capital, a four-year-old firm, told me they will donate 3% of the carried interest—the profits that fund managers make from the returns of a fund—from their new venture fund to three climate-focused nonprofits. The firm is currently in the process of raising its second venture fund, and intends to raise $150 million. Aligned’s managing director and COO Brendan Bell tells me they’ve raised about half of that so far, with a final close planned for March (filings show they’ve raised about $55 million as of September). Among the investors in Aligned’s new fund is former Google CEO Eric Schmidt’s foundation, The Schmidt Family Foundation, which invested $3 million, senior associate Roman Torres told me via email. Bell said that they plan to donate a percentage of carry in future funds, too.
“We're here to make as much money for our investors as possible, but a number of our investors care about investing their dollars for impact,” Bell told me. He says that when the firm was starting the process of raising their second fund last year, “all of us kind of sat down and said, 'Alright, what are we going to do in terms of really making sure that this is a mission driven fund? Like, what else can we do here?’” He says they spent roughly six months meeting with nonprofits that fell into three buckets they wanted to support: energy access, climate justice, and what they’re calling "market transformation."
The three organizations Aligned has chosen to donate the carry to are The Climate Equity Action Fund, the Honnold Foundation, and Impact Capital Managers. The trio will technically own a piece of the new fund in order to get the carry, although none of them are investing in the fund, Bell said. But why donate carry? “There's the 1% pledge for the planet that some companies do, so this is sort of three times that,” Bell said. “If we do our job right, one point of carry in our fund is about $900,000. That's real financial support for these entities.” (According to Bell, the firm’s venture strategy has a 3.9x return.)
Bell views it as a multi-pronged move. Aligned as a firm is focused on generating profits for its limited partners, which include institutions and family offices, and investing in businesses that are already commercial—not burgeoning technologies that are still being developed, or climate-focused consumer products. But there are other things that could help mitigate climate change that are overlooked by venture capital money.
That’s where those like Alex Honnold, the well-known solo climber and philanthropist (who you may know from the National Geographic documentary Free Solo, which documents his climb of El Capitan in Yosemite), want to come in. “There's something like a billion people on earth...who the market doesn't serve at all,” Honnold tells me. His charity (which is largely funded by Honnold himself, as well as others like Andreessen Horowitz investor Peter Levine) helps fund community organization-led solar projects in rural and marginalized communities—places that he’s visited on climate expeditions or through travel. “Nobody cares about the environment unless their basic needs are met,” he added. Honnold says Aligned’s donation—however much it ends up being, once the fund is launched and, hopefully, earns returns—will go to a roughly $60 million backlog of projects they want to fund.
Bell says he hopes this donation isn’t just something that Aligned is going to do. “We're excited to do it, but I would also love if BlackRock [or the] Global Renewable Power fund did it, right?”
I may be cynical (and as a journalist, in general, I am), but I certainly hope there’s a wider trend that the BlackRock’s of the world catch onto. After all, we’re running out of time.
See you tomorrow,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
Submit a deal for the Term Sheet newsletter here.
Joe Abrams curated the deals section of today’s newsletter.
