Aligning private investment with environmental impact

Private markets, especially private credit, are emerging as key vehicles for green investments. They play a vital role in financing the transition to a low-carbon economy, particularly in developing countries. Between 2020 and 2024, private finance for nature grew elevenfold. We’ve seen private equity and venture capital firms increasingly back biodiversity, regenerative agriculture and ecosystem services-related projects. Contractual arrangements between investors and companies are key to transforming climate and nature goals into real-world projects. Matteo’s clause helps enable these partnerships by offering free, standardised terms for impact investment contracts.

Why private markets are ideal for green investments

Public markets play a critical role in funding the energy transition, especially through tools like green bonds that offer transparency and scalable financing solutions. However, they also face structural challenges, such as short-term performance pressures and regulatory hurdles. These blockers risk delaying the shift towards green finance and hindering progress on large-scale climate action.

On the other hand, private markets offer greater flexibility and a long-term outlook, making them well-suited for green investments. Goldman Sachs estimates that private markets could supply 60% of the USD 300 trillion needed for global decarbonisation by 2050. As traditional lenders fall short, private finance is poised to fill critical funding gaps, making it essential to drive the climate transition forward.

Impact investors operating in private markets are uniquely positioned to accelerate green investments thanks to their active involvement and flexible financing models. Their hands-on approach supports a wide range of sustainable projects, including renewables, sustainable infrastructure, ecosystem services, clean transport, carbon storage technologies and sustainable agriculture. The direct relationship with investee companies allows for customised financing terms and ambitious sustainability targets, often going beyond regulatory requirements.

How contracts unlock impact in green private finance

In green private finance, the private nature of negotiations between impact investors and companies makes it crucial to carefully design contractual terms. Investors focused on environmental goals need to ensure that project companies commit to specific, measurable targets, track their positive impact and provide regular progress reports.

Therefore, financing agreements must include contractual provisions that align with environmental objectives and legally bind the investee company to these commitments. Such clauses transform sustainability goals into enforceable obligations, ensuring that ambitions lead to tangible and measurable environmental impact. 

The Chancery Lane Project (TCLP) advances the integration of environmental objectives into financial arrangements by developing practical, free and ready-to-use legal clauses parties can use in their contracts.  Organisations such as New Zealand Green Investment Finance and leading law firms have adopted and tailored TCLP clauses to hold investee companies legally accountable for achieving sustainability outcomes. This demonstrates that legal tools can drive real change and support the shift to a low-carbon economy.

Climate and nature impact investing terms

Matteo’s clause is a model set of contractual terms designed for climate and nature impact investing. It sets clear terms for financing agreements between companies and investors (or their intermediaries) committed to delivering a positive environmental impact. By embedding robust environmental governance and accountability into private sector project financing, the clause aligns company activities with global sustainability frameworks. These include the objectives of the Paris Agreement and the UN Sustainable Development Goals – particularly UNSDG 13 (Climate Action).

The terms establish clear, sustainable goals that the financed project must achieve. These include achieving net zero emissions, promoting reforestation, enhancing biodiversity footprint, reducing air and water pollution, increasing renewable energy production and more. Science-based environmental targets are set as benchmarks, with ongoing monitoring and reporting mechanisms in place to measure project impact. 

To ensure continuous or improved environmental performance, Matteo’s clause prohibits any modifications that would diminish the ambition or effectiveness of these goals, targets, or management standards. Investors are also empowered to conduct comprehensive environmental due diligence prior to disbursement and to request information necessary for ongoing monitoring. Additionally, optional provisions encourage investors to provide non-financial resources, such as training and knowledge sharing, to support companies in meeting their sustainability targets. These measures also help foster a collaborative approach.

Key takeaways

As the world accelerates toward a low-carbon future, private markets are proving indispensable in bridging the green finance gap. With their long-term orientation and flexible arrangements, they are well-positioned to lead the charge in aligning capital flows with global climate and nature goals.

Tools like Matteo’s clause are critical in translating environmental ambitions into enforceable, impactful actions. Embedding science-based governance, transparency, and accountability into investment contracts sets new standards for impact investors and private companies. It allows them to deliver genuine, measurable climate and nature-positive outcomes.