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Private capital a must in climate change battle; the ESG price of oil and gas

S&P Global Market Intelligence offers our top picks of global private equity news stories and more published throughout the week.

The battle to tackle climate change is "not going to work without a lot of private investment," and governments must create policy to incentivize private capital to invest, Lord John Browne, former chief executive of BP PLC and chair of General Atlantic Service Co. LP's BeyondNetZero, which targets growth equity investments related to climate change, told listeners at the British Private Equity and Venture Capital Association Ltd. summit Oct 7.

"Some of the things that we need to do are so risky for the private sector that the government has to intervene," Browne said, but added policy should not provide windfall profits for the private sector.

The private sector has not done enough, "but we've demonstrated, I think, that the private sector can clearly respond to the right signals and to the right market circumstances," he said.

Discussing venture capital and clean technology in particular, Browne said there are plenty of people experimenting with new products "that will serve for the future," including innovations relating to hydrogen production, changes to the way we eat, and farming innovation. "They won't all work and some [companies] which may be better, they won't work because the legacy is too strong and it's tough to get in the space."

Describing climate change initiatives as a "horizontal sector going right across all sectors," Browne said the missing element right now is how to go from late-stage venture to powered growth. "At what stage do you take an idea and grow it for the future? Because that's what we've got to do reasonably quickly, and we do have to take some risks in that area."

There is an issue around greenwashing as "everybody is jumping on a band wagon ... I can say that because I've been accused of it and I understand, I'm part of the club. I don't believe I've done it, but I understand why people accuse others of doing it," he said, adding "that's not good because what it does is, we're all tested by the weakest members of our club." This must be solved with "real targets," Browne said. "There are great ways of setting targets nowadays, not just talking about it."

CHART OF THE WEEK: ESG pressure on oil and gas sales and lending

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⮞ The market for oil and gas assets is warming up, but sellers need to reduce emissions from their wells and pipes to achieve quick sales at high prices, according to energy investment bankers.

⮞ "The private equity markets changed," NGP Energy Capital Management LLC principal Peter Ray told an audience of industry executives Sept. 29 in Dallas. "We were unable to sell our businesses to equity investors for cash." Now public equity investors and financiers want "good assets," Ray said. "We need to be able to sell this asset in the future — so we need to clean up the emissions profile," he added.

⮞ Banks, too, are taking a closer look at emissions profiles as they are now being judged by their lending habits, Selenite Energy Partners LLC Managing Partner and CFO Margaret Franks said. "It is going to be increasingly important for borrowers to be able to track emissions and to be able to point to a strong ESG track record."

FUNDRAISING AND DEALS

* A KKR & Co. Inc. affiliate wrapped up its acquisition of a 20% interest in Sempra Infrastructure Partners from Sempra, which will retain an 80% stake in its subsidiary. The buyout giant also obtained $4.3 billion for KKR Real Estate Partners Americas III SCSp, its latest opportunistic real estate fund that primarily invests in the U.S.

* EQT AB (publ) is divesting its majority stake in outsourcing service provider VFS Global to Blackstone Inc. in a deal slated to close by the first quarter of 2022. EQT will continue to own a minority interest in the company, alongside the Kuoni and Hugentobler Foundation. The firm is also purchasing a 50% stake in Dutch fiber-to-the-home telecommunications infrastructure operator Delta Fiber Nederland BV from Stonepeak Infrastructure Partners LP through the EQT Infrastructure V fund in a transaction expected to be completed in December.

* Apollo Global Management Inc. and Brookfield Asset Management Inc. are among the suitors that submitted first-round bids for a stake in Saudi Aramco's natural-gas pipeline network, which seeks over $15 billion, people familiar with the matter told Bloomberg News.

* Thoma Bravo LP finalized its acquisition of e-commerce shipping solutions company Stamps.com Inc. for approximately $6.6 billion in cash.

ELSEWHERE IN THE INDUSTRY

* Sun Life Financial Inc. is acquiring Medicaid dental benefits provider DentaQuest Group Inc. from majority shareholder CareQuest Institute for Oral Health Inc. and minority investor Centerbridge Partners LP in a roughly $2.48 billion deal.

* Thomas H. Lee Partners LP raised $5.6 billion for Thomas H. Lee Equity Fund IX LP, the middle-market investor's latest flagship fund.

* Cressey & Co. LP made a significant investment in Guardian Life, which will contribute the fresh capital to its dental, vision and hearing benefits provider Avēsis.

* Summit Partners LP closed the Growth Equity Fund XI at $8.35 billion.

FOCUS ON: RENEWABLE ENERGY

* Blackstone has invested $11 billion in recent years in solar, wind, water and other green energy assets, said President and COO Jonathan Gray at the Bloomberg Invest Global virtual summit. The green energy transition offers investment opportunities, but it also comes with technology and regulatory challenges.

* Funds managed by Ares Management Corp.'s subsidiary Ares Infrastructure and Power Group agreed to buy a majority interest in Apex Clean Energy Inc.

* Concentric Equity Partners LP and Northaven Capital Partners LLC exited renewable energy operations and maintenance solutions provider Airway Services Inc. in a deal with Apollo-backed Takkion Holdings LLC.

* I Squared Capital Advisors LLC established a renewable energy platform called Cube Green Energy, which will develop and operate wind and solar farms initially in continental Europe.