The private equity (PE) sector is actively seeking innovative avenues for growth while aiming to generate both social and financial impacts. Central to this exploration is thematic investing, a strategy that is gaining traction among industry leaders.

Summa Equity’s Impact Investment Strategy

Reynir Indahl, the founder and managing partner of Summa Equity, a prominent Sweden-based private equity firm, has highlighted the efficacy of using a “theory of change” framework in their impact investment strategy. This approach revolves around two significant themes: resource efficiency and technology-driven transformation.

By fostering collaboration among various stakeholders and investing within targeted, coherent themes, Summa Equity has successfully established one of Europe’s largest impact funds. According to Indahl, “We believe systemic investing will unlock more returns.”

The Genesis of Summa Equity’s Philosophy

Indahl traces the foundation of Summa Equity’s investment philosophy back to the 2008 financial crisis. Concerned about numerous converging crises—environmental, social, and political—he reflected on the implications of his investments and sought ways to contribute positively.

This introspection led to the realization that traditional PE strategies, focused largely on short-term company improvement, often overlooked vital external challenges. He argued that contemporary investment approaches must consider broader systemic issues and promote collaboration among diverse industries to create significant value.

Evaluating Investments Through a Thematic Lens

In evaluating potential investments, Summa Equity adopts a thematic lens that prioritizes impact. Indahl explained their evaluation criteria, which focuses on:

• Identifying the problem being addressed
• Assessing alignment with solutions
• Measuring the resulting improvements

This distinct focus sets them apart from traditional environmental, social, and governance (ESG) investing, which often emphasizes compliance with ESG criteria over tangible societal impact.

Linking Thematic Investment to Decarbonization

Indahl’s approach also aligns closely with efforts to decarbonize high-emitting industries, particularly in sectors like materials and waste management, which account for a significant portion of emissions in Europe. Innovative technologies have the potential to dramatically reduce emissions and enhance material efficiency

With an estimated investment of around €230 billion by 2040, the transition could yield substantial financial returns—projected at between €1 trillion and €2 trillion—while advancing global climate objectives.

Challenges to Thematic Investing Adoption

Despite its potential, thematic investing has not yet been widely embraced across the industry. Indahl notes that successful execution requires deep understanding of interconnected industries and value chains. Moreover, many traditional PE firms are structured around industry-specific focus, making it challenging to adopt a thematic approach.

However, Indahl remains optimistic, stating that he sees an increasing number of new thematic investors emerging, noting that Summa Equity’s historical approach has consistently focused on scalable, commercially viable businesses.

Benefits of Systemic Investing in Current Markets

In a climate where private equity fundraising and deal-making face obstacles, Indahl asserts that systemic investing can yield superior returns by leveraging a comprehensive understanding of market dynamics and collaboration across different asset classes.

“With a theory on how certain problems need to be solved and addressed, PE firms can guide investments across asset classes,” he explains, advocating for greater cooperation between private equity firms and corporate entities, fostering profitable partnerships and investment opportunities.