As climate change accelerates and the world population continues to grow and urbanize, the demand for climate infrastructure intensifies. This urgency presents a significant investment opportunity, with governments and industries alike seeking to upgrade and build new infrastructure to support our net zero future. Investors can play a pivotal role in addressing climate change while capitalizing on the shift toward low-carbon infrastructure solutions.

Climate infrastructure is essential for our energy transition

While venture capital (VC) and private equity (PE) focus on commercializing and scaling earlier-stage technologies and innovations, infrastructure focuses on deploying mature climate technologies on a global scale. Climate infrastructure includes, but is not limited to, renewable energy systems (like off-shore wind farms), smart grids, transportation upgrades (like EV charging networks), and energy storage systems (like large-scale battery storage facilities). Highlighting the need for capital across all stages—VC, PE, and infrastructure. 

By scaling up essential climate technologies, infrastructure investments support a necessary and timely shift in global energy systems. These investments allow these technologies to become more affordable and accessible in the process.

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The climate infrastructure opportunity

Investment in the energy transition will need to grow from just over $2 trillion per year in the past five years to nearly $5 trillion by 2030 and $4.5 trillion by 2050*. In this context, unlocking capital at scale, including that of private investors, is critical for addressing the urgent funding gap and advancing the transition to a net zero economy. 

Climate infrastructure funds stand out for their resilience, even amid the recent global fundraising slowdown. Their stability stems from their underlying investments’ long-term offtake contracts, often inflation-linked, which help mitigate risks and reduce sensitivity to market fluctuations. This positions them as an appealing investment addition for those seeking a balanced risk-return profile, especially when also investing in private equity and/or venture capital. For investors looking to support the energy transition with lower risk exposure, climate infrastructure funds offer a compelling and stable opportunity.

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Understanding climate infrastructure investing

A key advantage of a climate infrastructure investment is its focus on fast deployment and earlier cash proceeds. A significant portion of the capital is directed towards projects that are ready to be built, meaning they can start generating returns sooner. This ensures quicker cash flows for investors than climate technology-focused venture capital investments. Additionally, the ready-to-build nature of these projects minimizes delays, helping to meet climate goals more rapidly and leading to faster and more predictable CO2 emissions reductions. Meaning there’s a speedier impact of capital but less outsized potential.

These investments also come with limited tech risk. Since the focus is on proven technologies, the risk of technical failure is lower compared to early-stage innovations. 

Finally, while the risk profile is still significant, climate infrastructure investment offers a balanced risk/return profile compared to earlier-stage innovation investments. The projects may not have the explosive growth potential of even riskier ventures, but they provide relatively stable, long-term returns. This is due to the use of established technologies and long-term contracts, which reduce the likelihood of significant losses. 
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In conclusion, key characteristics of climate infrastructure investments are: 

• Essential infrastructure: and reliable counterparties
• Long-term revenue streams: secured through contractual offtake agreements
• Stable cash flows: Predictable and often linked to inflation
• Reduced correlation to economic cycles: resilience in various market conditions 
• Low technology risk: with expected loss ratios below 5%
• Moderate project risks: including development, commercial, construction, finance, and similar planning/execution risks
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Climate infrastructure investments may offer less potential for outlier impact and returns compared to earlier-stage investments, but their balanced risk/return aligns with the goal of achieving steady and scalable climate impact. Making infrastructure investments a great diversification tool. They are typically found in a portfolio context alongside other private market investments, listed stocks, bonds, real estate and more.

Types of climate infrastructure investments

There are different types of investments within climate infrastructure, each offering slightly different risk/return/impact profiles. Understanding the classification of types of climate infrastructure investments helps investors identify the best strategies for making impactful and profitable investments. 

Climate infrastructure types at a glance: 

Core infrastructure

Core infrastructure is considered the most stable form of infrastructure equity, with the lowest risk/return profile. Core infrastructure is about acquiring existing infrastructure. These assets are lower-risk because there is no tech or construction risk, and have stable capital structures with contracted or regulated revenues. These types of investment opportunities have been available for a long time. However, due to their lower risk profile, the expected return is also lower. In addition, these types of investments have very limited impact as the capital invested is not used to build additional projects, but only to purchase already existing infrastructure. 

• The target return typically is 4-6% net IRR, with mostly cash yield

Core Plus Infrastructure

Core Plus investments go mostly to upgrading existing projects and to projects that are still under development. These projects are often already fully designed and ready-to-build in terms of licenses, location, an operational team, etc., although there may be room to improve upon contracts with better terms. Investments in Core Plus infrastructure have a low to moderate risk profile and have a higher climate impact than Core investments because the capital is used to construct new climate infrastructure. 

• The target return typically is 10-12% net IRR, with a 3-4% cash yield. 

Value-add infrastructure

In Value-add infrastructure, the capital is used to finance projects where some of the design and preparations still need to be done. As such, it will typically take a little more time before the actual project is established. These projects are in an earlier stage and potentially involve newer technologies. These kinds of investments have moderate risk profiles and result in a higher impact in the climate fight as the capital is really mostly used to bring new climate technologies live which will create more GHG abatement. 

• The target return typically is 12-14% net IRR, with limited cash yield. 

Some examples of infrastructure projects: 

1. Protium is a leading independent developer of hydrogen energy services in the UK, specializing in green hydrogen solutions that help industrial sites achieve net zero emissions. Its projects span green aviation, commercial transport and consumer-facing industries. Protium’s projects are anchored in relatively mature technologies but also involve the development of new, higher-risk projects. Investors in Protium can expect stable returns from existing assets while gaining exposure to the growth potential of emerging hydrogen applications, thus fitting the Core Plus and Value-add categories. In this case, we are talking about a TopCo investment: Investors would invest in the developer company, as well as the underlying assets of the projects themselves. Infrastructure funds typically invest in both. 

2. Swish was born from the carve-out of a French electrical engineering group. With a B2B approach, they help their clients install their EV charging stations ingeniously coupled to photovoltaic solar panels and advise on how best to optimize their output with their software. Swish anticipates the installation of 17,000 charging points by 2026, and 83,000 by 2030. Given the focus on new installations, Swish is a Value-add infrastructure investment. 

A strategic focus for accelerating the energy transition 

At Carbon Equity, we identified Core Plus and Value-add infrastructure as two critical areas to focus our scope on. These types of investments prioritize projects that are actively developing meaningful impact. In contrast, investing in existing projects, where risk and return are lower and impact is relatively limited, falls outside our strategic focus. In the end, we believe this makes our new Climate Infrastructure Fund I a great complement to a well-balanced climate impact portfolio.  
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Key characteristics of infrastructure projects with Carbon Equity

• 12-14% net IRR
• Mid-sized funds ($500 million to $3 billion)
• 100% focus on funding the roll-out of climate technologies
• Strong climate impact and returns track record
• Cohesive team and institutionalized processes
• Deep project execution skills
• Solid impact assessment processes
• Systemic energy transition knowledge
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Our new Climate Infrastructure Fund I invests in 3 to 5 infrastructure funds giving access to 40 to 50 projects within the energy transition. Investing in multiple climate infrastructure funds, rather than single assets, offers diversification, better financing, and more robust long-term value creation. Ultimately, the strategic focus of the Climate Infrastructure Fund I underscores the importance of diversifying portfolios while maintaining a strong commitment to impactful, scalable climate solutions. 

The path to a net zero future is intrinsically linked to strategic investments in climate infrastructure. It’s not just about upgrading and building required systems but also about driving the global energy transition. By focusing on climate infrastructure, investors are not just supporting the transition to a low-carbon economy—they are actively shaping our economy's net zero future. 

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Curious about climate infrastructure investing? Create an account to check out our new Climate Infrastructure Fund I here

‍Important notice: This content is for informational purposes only. Carbon Equity does not provide investment advice. You should not construe any information or other material provided as legal, tax, investment, financial, or other advice. If you are unsure about anything, you should seek financial advice from an authorized advisor. Past performance is not a reliable guide to future returns. Your capital is at risk.