Sovereign wealth and the energy transition: a converging interest

This is article 14 of 14 in the Impact Capital series. Here is article 13.

General characteristics

Sovereign wealth funds (SWFs) have become increasingly relevant actors in impact investing in emerging markets and developing economies, although their participation differs structurally from that of foundations, DFIs or commercial asset managers. SWFs are state-owned investment vehicles mandated to manage national wealth over long time horizons, often derived from commodity revenues, foreign exchange reserves or fiscal surpluses. Their primary objectives remain capital preservation and intergenerational wealth transfer, but over the past decade many SWFs have explicitly integrated sustainability, development and climate considerations into their investment strategies.

Globally, sovereign wealth funds manage assets exceeding USD 13-14 trillion as of mid-2025. Only a small proportion of this capital is deployed into explicitly labelled impact funds, but in absolute terms SWF commitments are often large and influential. Unlike foundations, SWFs rarely accept concessional returns, yet their long-term horizon and balance sheet strength allow them to invest in sectors, geographies and asset classes that are inaccessible to more short-term investors. As a result, SWFs tend to focus on scalable impact themes such as climate transition, infrastructure, financial inclusion and inclusive growth.

SWFs typically invest through externally managed funds rather than building dedicated impact investment platforms in-house. This reflects both governance constraints and a preference for established specialist managers with deep sector and regional expertise. In impact fund structures, SWFs usually enter at senior equity or infrastructure equity level, often alongside pension funds, insurers and DFIs. Ticket sizes are substantial, frequently exceeding USD 50–100 million per fund, which naturally biases SWF participation toward larger, later-stage vehicles.

Geographically, SWFs from Asia, the Middle East and Europe are the most active in EMDE impact funds. Asian funds such as Temasek and GIC have been early movers in financial inclusion and growth equity strategies, while Middle Eastern funds increasingly prioritise climate, energy transition and infrastructure. European state funds, particularly those with explicit domestic development mandates, often combine commercial objectives with measurable economic and social impact.

Investment cases

The following case studies illustrate how sovereign wealth funds translate long-term national capital into exposure to impact-oriented investment strategies in emerging markets and developing economies through externally managed funds. In contrast to DFIs or foundations, sovereign wealth funds typically engage at scale and at later stages of fund development, favouring managers with institutional-grade governance, proven deployment capacity and the ability to absorb large ticket sizes. Across the examples below, sovereign wealth funds appear as cornerstone or anchor investors in climate, infrastructure, financial inclusion and inclusive growth funds, relying on independent asset managers to provide origination, local execution and impact measurement while retaining a clear commercial return orientation.

Temasek, Singapore's SWF, made a landmark USD 500 million strategic partnership with LeapFrog, marking what was (in 2021) described as the largest-ever commitment to an impact investor. LeapFrog, founded in 2007 and headquartered in South Africa and Australia, is one of the world's largest private equity firms dedicated exclusively to impact investing in emerging markets, with a focus on financial services, healthcare, and climate solutions across Africa and Asia. The multi-fund investment by Temasek anchored LeapFrog's future funds and included a minority equity stake in the LeapFrog management company itself, demonstrating an unusually deep strategic commitment. Temasek subsequently became a cornerstone investor in LeapFrog Emerging Consumer Fund IV, which closed at USD 1.02 billion in 2024 with additional support from institutional investors including AIA, Prudential Financial, and the International Finance Corporation. For Temasek, the investment aligned with its geographic focus on Asia and its stated commitment to impact investing that generates both financial returns and measurable social and environmental outcomes. LeapFrog's proven track record regarding its annual portfolio company growth while reaching over 200 million people with essential services offered a compelling "Profit with Purpose" model that resonated with Temasek's investment philosophy. The partnership also provided Temasek with access to LeapFrog's deal flow and operational expertise in some of the world's fastest-growing consumer markets. This relationship represents a core pillar of Temasek's impact investing strategy, reflecting the sovereign wealth fund's belief that impact capital can be mobilized at scale to address pressing global challenges while delivering sustainable long-term returns.

The Government Pension Fund Global, Norway's SWF, managed by Norges Bank Investment Management, committed USD 1.5 billion to Brookfield Global Transition Fund II in 2025, marking NBIM's first-ever investment in a dedicated energy transition fund. Brookfield Asset Management, headquartered in New York with over USD 1 trillion in assets under management, has established itself as a leading global investor in renewable power and climate transition infrastructure. The Global Transition Fund series focuses on accelerating decarbonization in emerging markets through investments in renewable energy, sustainable solutions, and business transformation across Asia, Latin America, and other developing economies. For Norway's SWF, which manages the country's petroleum revenues for future generations and holds stakes in approximately 1.4% of all listed companies globally, the Brookfield commitment represented a strategic alignment with its climate objectives and net-zero commitments, building on a broader mandate it received from Norway's Ministry of Finance in 2019 to invest in unlisted renewable energy infrastructure. The fund has been under increasing pressure to demonstrate leadership on climate action while maintaining its mandate to generate strong financial returns, making professionally managed climate transition funds an attractive vehicle. Brookfield's track record in renewable energy development, its operational capabilities, and its ability to deploy capital at scale in emerging markets infrastructure offered the combination of climate impact and risk-adjusted returns that the Norwegian fund required. The investment also provided exposure to growth markets where energy transition needs are greatest and where significant capital deployment opportunities exist beyond the more saturated developed markets. By partnering with an established infrastructure manager like Brookfield rather than making direct investments in less familiar emerging markets, Norges Bank could access these opportunities while benefiting from Brookfield's deep operational expertise and local market presence.

The State Oil Fund of the Republic of Azerbaijan (SOFAZ), Azerbaijan's SWF, established to manage Azerbaijan's oil and gas revenues, became an anchor investor in the IFC Catalyst Fund alongside the governments of Canada and the United Kingdom, collectively investing approximately USD 50 million in this innovative fund-of-funds structure. The IFC Catalyst Fund, managed by IFC Asset Management, invests in private equity funds, platform companies, and co-investments focused on providing capital to renewable energy projects and resource-efficient, low-carbon companies in emerging markets. The Catalyst Fund offers investors exposure to a diversified portfolio of climate-focused fund managers rather than direct project investments, thereby spreading both geographic and manager risk. For SOFAZ, which manages assets derived from hydrocarbon exports and faces the dual challenge of diversifying its economy while addressing climate concerns, the IFC Catalyst Fund represented an attractive entry point into climate finance and impact investing. The structure allowed SOFAZ to gain exposure to multiple specialized fund managers and climate solutions across various emerging markets without requiring the internal expertise to evaluate individual climate technology companies or renewable energy projects. IFC's role as manager provided institutional credibility, rigorous due diligence standards, and access to the World Bank Group's extensive network and knowledge of emerging market opportunities. The investment also aligned with Azerbaijan's own economic diversification objectives and its commitments under international climate frameworks, allowing SOFAZ to demonstrate leadership in climate finance while maintaining appropriate risk management through the fund-of-funds structure. By investing alongside development finance institutions and OECD governments, SOFAZ positioned itself within a coalition of climate-conscious investors while accessing the emerging markets climate investment opportunity through a professionally managed, diversified vehicle.

The Public Investment Fund (PIF), Saudi Arabia's SWF, is an anchor investor in TPG Rise Climate Fund, managed by TPG. PIF was among the institutional investors in the fund's first close of USD 5.4 billion in July 2021, with the fund ultimately reaching a hard cap of USD 7 billion by year-end 2021. TPG Rise Climate focuses on five climate sub-sectors: clean energy, enabling solutions, decarbonized transport, greening industrials, and agriculture and natural solutions, investing across growth equity to infrastructure strategies in both developed and emerging markets. The fund employs Y Analytics, TPG's proprietary impact measurement framework, to assess and quantify environmental and social outcomes alongside financial returns. For PIF, the commitment aligned strategically with Saudi Arabia's Vision 2030 economic diversification objectives and the kingdom's ambition to position itself as a leader in the global energy transition despite its oil-dependent economy. TPG's decades of private equity experience, combined with its Impact Platform's track record and the fund's institutional scale, provided PIF with professionally managed exposure to climate solutions without requiring internal expertise in early-stage climate technologies. The fund's sectoral approach and global reach offered diversification across different climate transition pathways and geographies. Additionally, participation in the TPG Rise Climate Coalition, comprising over 25 multinational corporations as co-investors, provided PIF with access to a network of climate innovation insights and co-investment opportunities across the energy transition landscape.

The New Mexico State Investment Council (NMSIC), SWF of the US state of New Mexico, is an investor in climate-focused venture capital funds managed by Lowercarbon Capital. NMSIC, the second-largest US state sovereign wealth fund with approximately USD 67 billion in assets under management, committed USD 300 million to Lowercarbon Capital in 2024 as part of a broader USD 1 billion deployment into climate technology fund managers. Lowercarbon Capital invests in companies addressing climate change through carbon emissions reduction and removal technologies, spanning renewable energy, clean transportation, industrial decarbonization, and climate adaptation solutions across both developed and emerging markets. The fund focuses on scaling commercially viable climate technologies that have been incubated by research institutions and early-stage investors, targeting growth equity and venture capital opportunities. For New Mexico's SIC, which derives its wealth from oil and gas revenues, this commitment aligned strategically with the state's economic diversification imperative and recognition that renewable energy represents the future growth sector as fossil fuel dependence becomes unsustainable. The substantial USD 300 million anchor commitment provided New Mexico with leverage to attract climate technology companies and research facilities to the state, exemplified by Lowercarbon portfolio company Pacific Fusion locating a USD 1 billion nuclear fusion R&D facility in Albuquerque creating 200 jobs. Lowercarbon's specialized expertise in identifying and scaling breakthrough climate technologies allowed the SIC to access deal flow in cutting-edge sectors like advanced nuclear, carbon capture, and sustainable materials without requiring internal deep-tech assessment capabilities. Additionally, the NMSIC's co-investment rights alongside other Lowercarbon LPs and its relationships with other climate tech VCs (DCVC, UP.Partners, Lightspeed) created a network effect enabling New Mexico to position itself as an emerging hub for climate innovation and attract further venture capital and startup activity to the state.

Taken together, these examples show that sovereign wealth funds occupy a distinct position in the EMDE impact investing ecosystem. They are neither purely catalytic nor purely opportunistic investors, but long-term allocators that can materially shape market outcomes through scale, signalling and patience. By investing through independent impact asset managers, sovereign wealth funds combine their balance sheet strength with specialist execution capabilities, enabling capital to flow into sectors and geographies that require sustained investment horizons. While their participation remains concentrated in larger, later-stage funds, the growing presence of sovereign wealth funds in impact-oriented vehicles suggests an increasingly important role in closing financing gaps in climate, infrastructure and inclusive growth across emerging and developing economies.

Current trends

Looking ahead, sovereign wealth funds are expected to play a growing role in impact investing in emerging markets, particularly in climate, energy transition and infrastructure. One key trend is the increasing formalisation of sustainability and impact frameworks within SWF governance, moving beyond ESG exclusion toward proactive capital allocation.

A second trend is scale concentration. SWFs prefer large, institutional-grade funds capable of absorbing significant capital, which reinforces the dominance of a small number of global impact fund managers. This creates challenges for smaller, early-stage impact funds but enables rapid deployment at scale in priority sectors.

A third trend is deeper collaboration with DFIs and blended finance platforms. SWFs increasingly rely on public risk-sharing mechanisms to enter frontier markets while maintaining commercial return expectations.

Despite these shifts, SWFs remain cautious investors. Political accountability, reputational considerations and capital preservation remain paramount. As a result, their impact investing footprint will likely expand selectively rather than broadly. Where SWFs do participate, however, their long-term capital and scale can materially influence the depth and direction of impact fund markets in emerging and developing economies.

illuminem Voices is a democratic space presenting the opinions of leading Sustainability Thought Leaders, their views do not necessarily represent those of illuminem.

The world needs sustainability knowledge. At illuminem, no interest group or shareholder can influence our work. Thank you for supporting our mission to make high-quality and independent sustainability information free for all. Every contribution helps. Thank you for donating today.