Asset Allocators and Fund-of-Funds Managers
Key Information & Criteria: Asset allocators (consultants, fund-of-funds, OCIOs) who construct multi-asset portfolios face the task of defining climate tech as a distinct category and determining how to slot it into portfolio models. They require:
Definition and Taxonomy Clarity: A clear framework defining what qualifies as “climate tech” is needed so they can filter investment options. This means information aligning with established taxonomies: e.g. does “climate tech” include only climate mitigation technologies (clean energy, storage, EVs, etc.), or also adaptation and resilience solutions? Allocators will reference standards like the IFRS/ISSB climate-related definitions or the SEC’s guidance on environmental investment criteria to ensure they use consistent terminology. They might define climate tech in line with the GIIN’s IRIS+ Impact Categories, where Climate is an impact theme encompassing mitigation and adaptation solutions. Having a solid definition allows them to communicate to investment committees what this asset class covers (and avoids accusations of “greenwashing”).
Strategic Asset Allocation Framework: Information to decide how a climate tech allocation interacts with traditional asset classes. An allocator will ask: do we fund this 2% from our equity allocation, our private equity bucket, our real assets bucket, or truly create a new bucket? To answer that, they gather data on climate tech’s financial profile relative to each category. For instance, they may compare it to venture capital (in terms of return volatility and liquidity), and to infrastructure (in terms of long-term yield and inflation hedging). One recommended approach is a multi-asset strategy that spans the technology readiness spectrum: lower-TRL (Technology Readiness Level) investments via VC and higher-TRL via infrastructure debt. Indeed, frameworks now suggest matching climate solutions with the right financing: high risk, unproven tech -> venture or even grant funding; proven, scalable tech -> project finance and infrastructure funds. Asset allocators need information to implement such a framework – e.g. data on which sectors of climate tech are at TRL 7-9 and can be treated as infrastructure versus which are TRL 4-6 and require venture-style capital. Table 5 below provides an example mapping of TRLs to asset classes, which allocators can use as a guide:
Mapping technology readiness to asset class: Lower TRLs (1–3) involve lab-stage innovations suited to grants/seed VC, mid TRLs (4–6) attract venture capital and early growth funding, TRLs 7–8 (demonstration) may involve corporate venture or strategic partnerships, and TRL 9+ (full commercialization) can be financed via traditional project debt, infrastructure funds, or public markets.
Historical and Peer Allocations: Asset allocators will look for information on how peers are allocating to climate tech. For example, are other large pension funds carving out a target percentage? Data from surveys or coalitions (like the Glasgow Financial Alliance for Net Zero or other climate finance initiatives) can show what leading institutions are doing. A recent survey might show that X% of institutional investors plan to increase allocation to climate-related opportunities. This helps in making the case that a 2% allocation is within norm. They also examine any existing performance indices – e.g. “climate tech” funds index – to use in modeling. If none exist, they may use proxies such as a blend of NASDAQ Clean Edge Green Energy Index (for public clean tech) and Cambridge Associates Clean Energy PE index for private. In short, they need enough market data to simulate how a dedicated climate tech allocation would have performed historically (recognizing limitations).
Risk Management Tools: To satisfy their investment committees, allocators gather information on tools to monitor and manage climate tech portfolio risks. This includes frameworks for ongoing valuation (how to benchmark a climate tech fund’s interim valuations), ESG risk monitoring (using something like GRESB for infrastructure or TCFD-aligned reporting for private companies), and exit/liquidity planning (will secondary markets or continuation funds provide liquidity if needed?). Allocators might adopt existing standards – e.g. requiring that any climate tech fund managers report under the Task Force on Climate-Related Financial Disclosures (TCFD) framework or the upcoming SEC climate risk disclosure rules – to ensure consistent information flow. They also might use GRESB scores for any infrastructure-like investments to compare them to traditional infrastructure holdings on ESG metrics. Essentially, they want to treat climate tech with the same rigor as other asset classes by applying known risk management frameworks.
Portfolio Fit: Fund-of-funds managers will articulate how climate tech fits into the broader portfolio construction. They often position it as a thematic subset of private markets that can enhance returns and provide long-term diversification. Compared to say, a real estate allocation, climate tech will be higher risk but also potentially uncorrelated to property cycles and linked to megatrends (decarbonization). Compared to generic venture capital, climate tech may have longer horizons but also benefit from unprecedented government support (trillions in climate-related spending globally). Allocators need to convey that the opportunity is large and distinct enough to warrant dedicated attention. Frameworks like the Climate Allocation Compass (Columbia University) argue for multi-asset climate investing to fill financing gaps and align portfolios with net-zero goals. Allocators will use such research to design their policy: for example, committing that “2% allocation to climate tech will be invested across venture (for innovation), growth equity (for scaling companies), and infrastructure (for steady cash flows)” – each with its own benchmarks and risk guardrails.
