The UK Environment Agency has put some of its £4.5bn pension fund into World Fund, a climate tech-focused VC firm based in Berlin, Sifted has learnt.
It’s a high-profile example of a government-funded institution backing a climate tech investor in Europe. The continent’s pension funds back far less VC in general than in places like the US, but are becoming increasingly interested as pressure mounts to both diversify stagnant portfolios and support solutions to the climate crisis.
The Environment Agency is in charge of flood management, regulating land and water pollution and conserving nature across the UK.
Its pension fund — which oversees employees and former employees’ pensions — has committed to having a net-zero portfolio by 2045, and to putting 17% of its capital into climate solutions.
Becoming an LP
Germany-based World Fund came out of stealth at the end of 2021 and is aiming to raise €350m to back European companies at seed, Series A, Series B and up. It’s one of many climate-focused firms that have launched in Europe in recent years.
World Fund portfolio companies have to be able to show they can reduce greenhouse gas emissions by at least 100 megatonnes of CO2 equivalent annually, which is about a quarter of the UK’s greenhouse gas emissions in 2020.
World Fund’s largest LP had been German eco-friendly search engine Ecosia, which uses its revenue to pay for tree planting. World Fund won’t disclose how much the Environment Agency put in, but Daniel Valenzuela, head of investor relations at the firm, says it’s one of the largest LPs alongside Ecosia.
World Fund’s previous investments include quantum computing startup IQM, which is working on climate applications, and precision fermentation platform Planet A Foods.
Valenzuela says the Environment Agency hasn’t specified areas it wants the firm to look into, but that there are some sectors it’s less interested in.
It’s against backing tech that makes unsustainable industries more sustainable — such as tech to trap emissions coming out of oil refineries — because it risks allowing them to stay part of the agenda longer than they should, Valenzuela says.
European pension funds move into VC
Pension funds putting money into venture capital firms is far more routine in North America than it is in Europe.
“Generally the venture allocations are extremely low in Europe,” says Valenzuela. “In North America, it's a major source of funding for venture capital. Here it's actually very, very minor.”
In Europe, around 50% of total money raised by VCs from pension funds come from European ones, according to Atomico’s State of European Tech report. European pension funds invested less than $700m into European VC funds in 2020, equal to only 0.018% of their total assets under management.
In North America, pension funds are likely to have double-digit percentages of their portfolio invested into VC, Valenzuela says, but, in Europe, it’s more like 0-3%, with the rest in bonds and public markets.
The startup prime minister
The World Fund deal will have been brokered before the UK’s current prime minister, Rishi Sunak, came into office last week — but it is interesting in light of his focus on putting more pension money into backing startups.
As the UK’s top finance minister, Sunak pushed for pension funds to invest in more high-growth companies, promising to change the regulatory framework for pension schemes, in a bid to make backing high-growth companies easier for institutional investors.
Although the PM’s startup credentials are often lauded, his interest in fighting the climate crisis is already under criticism. Just a week into the top job, he’s demoted the climate minister and ruled out attending COP — though that decision is currently under review.
