Bridging the Missing Middle: A New Approach to Climate Investment

At a recent panel discussion at IPEM, alongside distinguished investors from Generation Investment Management, Summa Equity, and Ambienta, I had the opportunity to discuss one of the most critical gaps in today's climate investment landscape: the "missing middle" of capital allocation.

The Investment Gap in Climate Solutions

While climate investment has surged in recent years, most capital flows concentrate on addressing Scope 1 and 2 emissions—direct emissions from companies' operations and purchased energy. This focus, while important, leaves a massive gap in funding for the more complex but equally critical challenge of transforming entire value chains.

The "missing middle" represents Climate Pure Play Private Equity buyouts that specifically target:

• Scaling solutions beyond proof-of-concept stages
• Aligning SMEs to decarbonization trajectories
• Targeting Scope 3 emissions across entire value chains

This represents not just an investment opportunity, but a systemic necessity for achieving meaningful climate impact.

The Horizontal Value Chain Approach

At Ardabelle Capital, we've developed what we call a "horizontal value chain investment approach." Rather than focusing on individual companies in isolation, we look at how to transform entire ecosystems of interconnected businesses.

"We pioneer a horizontal value chain investment approach. It's about sustainable shift, and it's about efficiency."

This approach recognizes that true climate impact requires coordinated transformation across multiple players within value chains. It's not enough to make one company more sustainable if their suppliers, distributors, and customers continue operating under the old paradigm.

From Grey to Green: Systemic Transformation

Our strategy focuses on transforming portfolio companies "from grey to green" through a combination of:

Private Equity Expertise: Deep experience in scaling mid-market companies and driving operational improvements.

Operational Knowledge: Understanding how to implement sustainability practices that create real business value, not just compliance checkboxes.

Sustainability Focus: Expertise in addressing the full spectrum of environmental challenges, including biodiversity, nature, waste, and water—not just carbon emissions.

Accelerating Consumer Brand Transitions

One of the most promising applications of this approach is in accelerating the sustainability transitions of consumer brands. These companies often have complex supply chains with significant Scope 3 emissions that remain largely unaddressed by traditional climate investments.

By investing in the mid-market companies that form the backbone of these supply chains, we can drive transformation at scale while creating value for all stakeholders involved.

Beyond Carbon: A Holistic Environmental Approach

While carbon reduction remains central to climate investing, our approach recognizes that environmental sustainability encompasses much more. We focus on companies addressing:

• Biodiversity preservation and ecosystem restoration
• Nature-based solutions for climate resilience
• Waste reduction and circularity in materials flows
• Water conservation and quality across operations

This holistic perspective is essential because environmental challenges are interconnected, and solutions that address multiple issues simultaneously create more sustainable and valuable outcomes.

The Systemic Challenge Ahead

Transforming entire value chains remains one of the major systemic challenges of our time. It requires patient capital, deep expertise, and a willingness to work across traditional industry boundaries.

But the opportunity is immense. The companies and investors who successfully bridge this "missing middle" will not only generate strong financial returns—they'll play a crucial role in building the sustainable economy of tomorrow.

The question isn't whether this transformation will happen, but who will lead it. At Ardabelle Capital, we're committed to being part of the solution.