Recommendations for Co-Development and Underwriting Pilots
To accelerate the institutionalization of climate tech, collaboration is key. Here are recommendations on who to reach out to and how to engage in pilot projects or co-development of underwriting standards:
Partner with Specialist Underwriters for Risk Mitigation: To get comfortable with unfamiliar risks, mainstream investors should partner with those who specialize in those risks. For instance, engage an insurer like Munich Re or AXA XL to jointly develop an insurance product for a first-of-a-kind project. Insurers have teams now devoted to climate tech – working with them in a pilot (say, insuring the performance of a new carbon capture plant) can provide the loss protection that makes the investment viable. Brokers such as Marsh have innovation units (e.g. Marsh’s New Energy Risk team) that helped create performance insurance for battery projects. By involving them early, an investor can significantly lower downside risk. As the EDF’s Market Forces blog noted, “insured solutions” can offload specific risks and make projects easier to finance. A recommendation is to form a working group with a leading insurer to identify 1-2 portfolio companies or projects that could be test cases for new coverage (e.g. a warranty insurance for a novel industrial process). This not only de-risks those investments but also builds underwriting knowledge for future deals.
Collaborate with Government and Green Banks: Reach out to the DOE Loan Programs Office and state-level green banks (such as NY Green Bank, California Infrastructure Bank, etc.) to co-finance pilot projects. These public entities are often eager to bring in institutional co-investors and can offer credit enhancements. For example, an institutional investor could propose a pilot fund alongside DOE LPO where the LPO provides a partial guarantee or first-loss piece on a portfolio of emerging climate infrastructure projects. This arrangement would let the investor deploy capital with protection, and in return LPO achieves more leverage of its guarantees. Similarly, the new Greenhouse Gas Reduction Fund (GGRF) administered by the EPA (part of IRA 2022) is capitalizing nonprofit green banks – many of which will be looking for private capital partners to amplify impact. By engaging with these programs, investors can shape underwriting criteria that balance public and private needs. Climate Policy Initiative experts have even advocated developing “shared underwriting criteria” among GGRF recipients and private co-investors to streamline deal evaluation. Being at that table can ensure an institutional perspective is built into the standards from the start.
Join Forces with Prime Coalition and Impact Investors: For early-stage climate tech, institutional investors could set up a co-investment or sidecar fund with organizations like Prime Coalition, Elemental Excelerator, or other impact-oriented accelerators. This allows exposure to breakthrough innovations with the comfort that a seasoned impact investor is conducting mission-aligned diligence. For example, a large foundation or a university endowment could partner with Prime on an “impact-first” pocket of capital – possibly structured as recoverable grants or subordinated loans – to support a cluster of high-impact startups. The learnings from these pilots (e.g. how to assess gigaton-scale impact vs. commercial viability) can then inform the investor’s broader portfolio. Prime and others also often seek “follow-on” partners: once a startup graduates from their portfolio, they want mainstream capital to take over. By staying close to Prime’s network, investors can be first in line when an opportunity is de-risked enough to invest on commercial terms. This kind of pipeline partnership is a win-win: the climate startups get continued funding, and the institutional investor gets vetted dealflow and the imprimatur of Prime’s impact stamp. Additionally, collaborating on impact measurement frameworks (like piloting the use of Impact-Weighted Accounting for climate impact) with these players can help develop tools that later scale to the whole industry.
Engage Asset Managers and Fund-of-Funds with Climate Expertise: If an institution is not ready to directly underwrite individual climate tech projects, a good approach is to allocate to fund-of-funds or multi-manager platforms that focus on climate. Firms like Cambridge Associates have been increasingly building mission-related portfolios for endowments that include climate tech funds. There are also new platforms (for example, Carbon Direct or Carbon Equity in Europe) that let investors get exposure to a basket of climate tech funds. By working with these intermediaries in a pilot program, investors can outsource some of the due diligence while still shaping the strategy. For instance, an asset owner could commit a small amount to a climate tech fund-of-funds and request detailed quarterly reports, thus learning what data points are most relevant across managers (IRRs, but also carbon metrics, tech milestones, etc.). They could even ask the FoF manager to simulate a dedicated climate allocationusing historical data to address internal questions about risk/return. The recommendation is to start with a small pilot allocation – say 0.5% of the portfolio to a climate tech multi-manager product – then increase to 2% once comfort and governance processes are established.
Coordinate with Industry Initiatives and Peers: There is strength in numbers when convincing mainstream capital to enter a new field. Reaching out to consortiums like Ceres Investor Network on Climate Risk, the Institutional Investors Group on Climate Change (IIGCC), or GIIN’s Investors’ Council can provide a forum for co-developing best practices. For example, a group of pension funds could launch a joint task force to define a “Climate Tech Investment Framework” that sets out common due diligence questions, expected return ranges by sub-strategy, and standardized impact metrics. This could be analogous to how ILPA (Institutional Limited Partners Association) creates standards for private equity due diligence – here it would be for climate tech funds. By sharing resources, they reduce each investor’s burden to research from scratch. Pilot projects could include doing a mock portfolio allocation exercise among a few pensions to see how 2% climate tech would affect their outcomes, then publishing the results. Also, engaging with GFANZ (Glasgow Financial Alliance for Net Zero) sub-committees that are exploring portfolio alignment solutions can keep investors updated on broader climate finance trends that affect climate tech attractiveness. The recommendation is to not go it alone: build a coalition with a few like-minded asset owners to learn and perhaps invest together (e.g. via a club deal into a climate infrastructure project, to gain direct experience).
Leverage Corporate Offtakers and First-Loss Capital in Pilots: To directly underwrite a first-of-kind climate project, consider structuring a pilot where a corporate or public entity takes some risk. For example, a university endowment could back a new geothermal heating system on campus as a pilot investment – the university (as offtaker of the energy) commits to purchase the energy, ensuring a revenue stream, and perhaps takes a first-loss equity piece; the endowment provides the majority of capital as debt or preferred equity. This way the endowment is effectively investing in its own decarbonization infrastructure, learning by doing, and creating a template that can be shown to other campuses or companies. Corporate-sourced deals (like Amazon’s Climate Pledge Fund investing in tech that Amazon will use, or Google signing offtake agreements for clean energy) often make great pilots because the demand risk is mitigated by the corporation’s involvement. Institutional investors can tie up with such corporate initiatives – for instance, co-invest alongside First Movers Coalition companies who are buying low-carbon products (steel, cement, fuels) from startups. This arrangement provides real-world validation and reduces risk, making it easier to underwrite. So a recommendation is: identify a sector where your portfolio has exposure (say, aviation) and partner with companies in that sector to invest in a climate tech pilot (like sustainable aviation fuel production), with the company signing a contract to buy the output. This aligns interests and is a prudent way to test the waters.
In conclusion, moving climate tech into a core portfolio allocation will require iterative learning and partnership. By starting with pilot investments and collaborations – whether through insured risk-sharing deals, public-private co-investments, or multi-manager funds – institutional investors can build up the information base and confidence needed. Every pilot is an opportunity to refine underwriting criteria, demonstrate success, and create the track record that climate tech presently lacks. The recommendations above aim to both de-risk the first steps and accelerate knowledge transfer from climate finance pioneers to the broader market. With the right information and tools in hand – robust data on risk/return, standardized frameworks, and credible partners – mainstream capital allocators will be empowered to treat climate tech not as an outlier or a charity case, but as a strategic, core component of their portfolios positioned for the economy of the future.
Sources:
Climate tech financing interview (Barclays/Environmental-Finance) environmental-finance.com
EDF Market Forces blog on insurance for climate tech blogs.edf.org
AXA XL on insurability frameworks axaxl.com
DOE Loan Programs Office guidance grantmanagementassoc.com
Barclays climate tech risk mitigation (offtake, validation) ib.barclays
Columbia Climate Allocation Compass (multi-asset strategy) ccsi.columbia.edu
Prime Coalition briefing primecoalition.org
Breakthrough Energy criteria businessabc.net
SEC climate disclosure rule sec.gov
GIIN IRIS+ taxonomy s3.amazonaws.com and additional cited references throughout.
