Goldman draws $1.6b to strictest ESG fund class

Bloomberg

The asset management unit of Goldman Sachs Group Inc. has drawn in over $1.6 billion in client cash for a fund registered under the European Union’s toughest ESG rules.
The fund, Horizon Environment & Climate Solutions I, closed after exceeding its initial target of “close to” $1.6 billion, Goldman Sachs Asset Management (GSAM) said. It’s listed as an Article 9 product, which is the highest environmental, social and governance investing standard in the EU.
The fund will pursue a private equity strategy and “intends to work closely with management teams to enhance impact,” GSAM said in an emailed statement. The asset manager said it will report on impact in each portfolio company and for the fund as a whole.
The announcement comes as some of the world’s biggest asset managers shy away from Article 9 designations, after enduring a wave of fund downgrades that’s affected at least $140 billion in client assets in recent months. Such reclassifications picked up pace in the final moments of 2022, as the industry adjusts to stricter requirements forcing firms to provide more granular documentation of their ESG claims.
Asset managers have largely blamed unclear guidance from financial regulators for the deluge of reclassifications. Since the Sustainable Finance Disclosure Regulation was enforced in March 2021, the EU has updated its guidance on how to interpret Article 9. Funds using the designation must hold 100% sustainable investments, with some allowance for the
hedging and liquidity.
An analysis by Morningstar Inc. showed that less than 5% of asset managers met that bar in the third quarter.
The Horizon Climate fund has “already committed nearly $1 billion across 12 portfolio companies at the forefront of climate and environmental innovation,” GSAM said.
Investments span North America and Europe and include manufacturers in lithium-ion batteries, sustainable packaging materials, and high-quality recycled cotton fibers, it said. The fund is also targeting businesses that have pledged more efficient water usage in agriculture, as well as increased energy efficiency in commercial and industrial buildings.
Since 2005, when Goldman started investing in what it describes as “transformative” environmental and climate solutions, there have been “major changes in the technologies that enable more efficient and sustainable business practices, and the appetite from users to adopt them,” Ken Pontarelli, head of Sustainable Investing for Private Markets at the asset management arm, said in the statement.
“As the imperative to transition to a more sustainable economic growth model gathers pace, we are excited to continue backing leading businesses in this space as they develop and scale the environmental and climate solutions of tomorrow,” he said.
Goldman Sachs has set itself a goal of achieving $750 billion in sustainable finance by 2030. It’s currently at about $300 billion, the firm said on Tuesday.