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2024: A good year for early stage climate investing in the “white heat of revolution”

12 January 2024

Unpredictable Financial Markets vs. Climate Investment Trends: Navigating the Certainties of Climate Change in 2024

History is littered with financial events that took the investment experts by surprise. We are used to financial performance predictions being quite like the weather forecast – patchy.  Market forecasts for financial investment sectors seem to owe more to the dark arts of futurology than any real science.

However, predicting climate investment trends is an exception. They are likely to increase because the effects of climate change are certain to increase. And our world, our entire global economy, its financial foundations, and the application of its funding to investment that will provide a return, is no longer in a position to ignore it.

2024 is less than a month old. So far, we have been greeted by exceptional flooding events throughout the Midlands and South-West of England; the news that 2023 was the second warmest recorded year in the UK, 2022 being the warmest, and the warmest year ever recorded on the entire planet; the relative certainty that 2024 will be warmer still; and a barrage of news around the world, such as the drought conditions causing the Panama canal to dry up to such an extent that trade is expected to contract by 40% in the coming months. The largest shipping which usually relies on passage through the canal can no longer expect adequate water depths for the draft of their hulls.

Photo by Justin Sullivan/Getty Images

 

Global shift: Navigating uncharted terrain as COP28 paves the way for phasing out fossil fuels and creating investment opportunities in renewable energy 

Our world is now changing faster than we can manage, and we have to do something about it. The good news for all of us is that we are doing something. Our national leaders and representatives have been debating what to do for three decades, during which more and more progress is made. The annual climate change COPs are now capable of stimulating international consensus on the most important issues for climate change.

At the top of this agenda is the use of those finite fossil fuels, the polluting effect of which has done so much to create the problem in the first place. We know we cannot beat climate change without arresting and reversing the accumulation of carbon in the atmosphere. It is now above 420 parts per million, an unprecedented level in the history of the human race. It is this particular greenhouse gas which, above all, is responsible for regulating the temperature of the planet. It has hovered between 250 and 300 ppm for the bulk of our time on Earth.  At 420, the impact on global temperature is off the scale of our experience. We are in unknown territory.

Graph source

 

International consensus reached a new pinnacle at the latest conference, COP 28, in Dubai.  There is finally, and for the first time, universal agreement enshrined in the treaty concluding the conference that Oil & Gas must be phased out completely. It is still far from an accomplished fact, and there will be many bumps on the road to this destination. But it is at last recognised to be the goal for all to aim at.

The consequence of the growing political, media and public attention is also good news for the investment community, especially the early stage investment sector. Consider the energy sector itself. Oil & Gas have to be replaced by new sources of energy. The key word here is “new”. Anything new in the economic system is a business opportunity and hence an investment opportunity. There is a new opportunity to make money from the demand generated for something new.

 

Financial Paradigm Shift: UK’s FCA Mandates Sustainability Disclosures and Consumer Duty, Transforming Investment Landscape for Social and Environmental Impact

The investment opportunity is being recognised by the financial regulators themselves. Here in the UK, the FCA has introduced a new framework which will become obligatory for all financial institutions and advisors within the coming months.  On the one hand, the FCA has introduced what it is calling Sustainability Disclosure Requirements, which all those companies and institutions selling financial products must meet. These will consist of a set of labels which identify the environmental and social impact of the products. In other words, for the first time investment funds of all kinds must declare the real world effect of the companies whose products and services are promoted by their investment finance.

On the other hand, the FCA is introducing a set of rules called Consumer Duty, which impose on all financial advisors and their institutions a duty of care for their clients. These advisors have a duty to notify their clients of the sustainability rating of the investments they are recommending, and their clients are considering. Once again, for the first time financial professionals are being obliged to confront the real world consequences of the products being promoted by the support of their investment funding.

The reality of the world we live in, and the changes brought into play by the ways in which we have lived in it, is being brought to the attention of the investment community and the financial world, and this professional body is being required to take responsibility for its role in selecting products and services not just for profit but also for the benefit of the wider community.

 

Green Innovation Revolution: Unleashing Economic Growth Through Early-Stage Investments in Climate Solutions Across Diverse Sectors

This means that greater and greater returns will be generated by the sectors this favours.  As the sums invested in these sectors will increase, so too will the revenues and profits of companies in the sectors.

This starts with the early stage opportunities, and their growth potential, because the reality of the need can only be met by innovation. Remember the key word: “new.” We are doing something in our economic life which has never been done before. We have a desperate need for multiple new technologies on a scale which has never been seen before.

These cover every aspect of our economic life, each of which has to transition from a hydro-carbon dependence to a non hydro-carbon dependence. We are looking at companies developing innovations requiring funding on a daily basis, each of which can contribute to the changes in our daily lives required to provide us with what we need, while removing the harmful carbon emissions causing the climate to change so dramatically.  I started a list of the most notable sectors in which Green Angel Ventures has and is investing, but space does not allow a complete account of our growing contribution:

    1. Domestic heat: We are searching for companies innovating to enable a transition from gas boilers as a matter of urgency. We have energy efficiency companies, working in the specially harmful social housing sectors, led by AirEx and its pioneering smart ventilation bricks – conceptually simple but practically transformative – but we need so much more.
    2. Aviation: We have invested in satellite data, and looked at drone companies, attempting to replace aviation practices, but these have been disappointing in their impact to date.  We believe innovation is proceeding within the aviation industry itself, but not fast enough.  We would like to see more innovation, from more agile companies, accelerating the trend to decarbonise air travel and transport.
    3. Concrete: The award-winning concrete replacement material developed by Low Carbon Materials is a first-class example of the innovations Green Angel Ventures seeks for investment.  Our involvement with LCM is especially gratifying.
    4. Eco-systems. We cannot beat climate change without ecosystem regeneration.  But this is the hardest sector to engage in commercial enterprise, because nature has no tradeable value.  Green Angel Ventures has maintained its investment in NatureMetrics as it has grown, delivering the most effective natural monitoring system for animal and plant life (biodiversity) by means of ground-breaking DNA data gathering and analysis.  It has made other investments in what are now called Nature-based Solutions, but again, we need more.
    5. Food & Agriculture: This is one of the most important sectors, because its impact on ecosystems means its influence extends much beyond the issue of food production itself.  We are seeing a lot of good innovation here, and supporting as many as we can, such as Albotherm (maximising Greenhouse crop yields, minimising energy costs, by means of glass coating innovation) and Glaia (maximising natural crop yields, minimising environmental impact, through the application of nanotechnology to photosynthesis).
    6. Construction: This is a very important sector for Green Angel Ventures, because it is crucial for the reduction of carbon emissions.  Our investments include Qualis Flow (reducing construction waste) and Mykor (pioneering carbon negative construction materials).  This sector is well represented in the deal flow we are seeing.
    7. Automotive: Automotive is also well represented in our deal flow.  We expect Green Angel Ventures to make many more investments in the sector. 3ti is our most recent, a delightful design for integrating solar powered charge points into car parks.

Try making your own list of our sector needs. In each field you care to mention, and many you will not think of; in every area under threat from hazards of fire, water and natural disaster; in the sourcing of every resource we need for life; innovation is required sufficient to create a revolution.

But we can do this. We created Green Angel Ventures to enable it, and with the gathering pace and scale of investments in our portfolio, we are seeing the revolution in technology innovation coming to life. We can do it collectively, all working together.

“He began by reflecting on the pace of technological change and its implications for industry. Drawing his remarks towards their conclusion, he warned his audience that if the country was to prosper, a “new Britain” would need to be forged in the “white heat” of this scientific revolution” (Matthew Francis, University of Birmingham). 

Who was he? Not Rishi Sunak, nor Boris Johnson. Not James Dyson or Richard Branson. It was Harold Wilson, sixty years ago, in 1963, opening the first Labour Party Conference in Scarborough since he became Prime Minister.

The “white heat” of revolution is what we need now. We have been there before, and that’s why we know we can do it now.

Written by Nick Lyth, 12th January 2024.

 

Featured Image by Karsten Würth on Unsplash.