ARCH announces the launch of the ARCH Frontier Renewable Energy Strategy Read more

Climate Action

ARCH recognises the key role and multiplier effect that private funds have to play to mitigate ad adapt to climate change in line with the Paris Agreement.

ARCH aims to contribute to the Paris Agreement by playing a meaningful role in tackling climate change and supporting countries and communities in a successful and just transition to net zero and resilient economies.

Our strategy is therefore made up of the following three building blocks:
1. Investing for a net zero world: Investment decisions today affect emissions tomorrow
2. Just transition: Creation of decent jobs and skills development at the forefront of the change
3. Adaptation and resilience: Strengthening adaptation and resilience of sectors, communities, businesses     and people to the effects of climate change

We apply a country-specific lens to balancing three key interests:
1. The need to decarbonise
2. The need for energy to remain affordable for people and companies
3. The need for energy security

An equitable and resilient net zero future needs to be achieved despite significant increases in per capita electricity consumption in emerging markets. The Paris Agreement recognises that emissions will take longer to peak in developing countries, and the IPCC’s Sixth Assessment Report on Climate Change Mitigation acknowledges that near-term development in low-income countries will not jeopardise global climate goals. Accordingly, focusing on decarbonisation to net zero emissions in emerging markets at the same rate as developed high-emitting nations is both inappropriate and unjust – that the pathways should be different, and that carbon emission reduction should be secondary to eradicating energy poverty and enabling economic prosperity.

As of 2022, an estimated 600 million Africans lacked access to modern electricity.1 Furthermore, according to the United Nations, Africa’s population is expected to almost double from 2020 and be home to roughly a quarter of the world’s total population by 2050. Yet many models exploring decarbonization pathways for Africa assume minimal energy consumption increases and targets for achieving universal energy access far below what’s needed to get people out of poverty. 2

With this in mind, ARCH will not be advising fund portfolio companies to develop and implement decarbonisation strategies in line with current science-based targets over enhancing broader development goals. Rather, decarbonisation will be encouraged, in line with applicable Nationally Determined Contributions where they are in place. Should science-based targets be developed for emerging markets or specifically Africa in future, then ARCH will consider a commitment to them.

1 SDG7: Data and Projections – Access to Energy, International Energy Association - https://www.iea.org/reports/sdg7-data-and-projections/access-to-electricity
2 Who Decides Africa’s Net Zero Pathways? Five Ways to Fix how we Model African Energy Transitions and Why it Matters for Climate and Development, October 2022, Energy for Growth Hub - https://energyforgrowth.org/wp-content/uploads/2022/10/Who-Decides-Africas-Net-Zero-Pathways_.pdf

Many emerging market countries are unable to transition their energy systems from thermal to renewable power quickly, so sometimes we may design strategies and/or advise our funds to invest in solutions which enable renewables to scale during the transition period. In the rare cases where we would consider advising to make a fossil fuel-related investment, it would only be to support the transition into less carbon intensive sources of energy in the near term to meet current and future demand, and as a bridge to accommodate more renewables.

These commitments are not driven just by advising portfolio allocation decisions, which can create emissions reductions on paper but not in the atmosphere. Rather our approach is grounded in driving real emission reductions within the funds’ portfolio companies. It is imperative that the private equity industry focuses on investing, rather than divesting, in order to enact real progress on the energy transition. In announcing our contribution to net zero, we hold ourselves accountable to drive real emissions reductions within our advised funds’ portfolio companies to the extent possible within the funds’ positions of leverage.

Staying within 1.5°C does not mean there will be no negative impacts from climate change, so the final important focus of our strategy is on adaptation and resilience to manage any climate risk of an investment. We will advise our funds to increase their investment in those businesses that increase an economy’s ability to adapt to and become resilient to the impacts of climate change. We will also take a systematic approach to assessing climate risk and opportunities as part of the investment decision making process and across our advised funds’ existing investments.