J. Christopher Mizer, a 25-year alternative investment industry veteran, is President and CEO of Vivaris Capital, LLC and VICAN Fund.
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Sustainability issues are at the top of the priority list for many CEOs, according to a McKinsey & Company report. In addition to viewing sustainability as essential to business success, many CEOs plan to embed sustainability into their core business strategies in the next decade. Clearly, tomorrow’s successful companies will understand the importance of saving the planet.
According to a Goldman Sachs report, the total investment opportunity will reach $56 trillion by 2050 on the path to global net zero. Overall, the average annual investments in decarbonization between 2021 and 2050 are projected to reach $1.9 trillion, with a peak in 2036.
Whether you’re new to climate tech investing or a seasoned veteran, here are five things to consider.
1. Climate Tech Is Critical
With one estimate offering that climate tech technologies could expand to $1.5 trillion to $2 trillion by 2025, the number of projects is increasing. With that in mind, investors need to learn and understand how to navigate the industry. Among the promising areas are:
Electric vehicles, buildings and industry: Electric vehicles reduce the use of energy and carbon as do low-energy buildings and other industrial applications.
Agriculture/AgTech: AgTech investments received $7.8 billion in allocations in 2021, including precision agriculture, indoor farming, soil engineering and biotech.
Clean energy: Emerging clean energy technologies are geared to energy production, power harvesting, energy recovery and storage.
Hydrogen: Green hydrogen can be a significant source of clean power and energy storage, resulting in decarbonization.
Carbon capture: Carbon capture, use and storage (CCUS) includes biological and physical technologies to drive net negative emissions.
2. Regulatory Issues Are Front And Center
Pressure to adopt climate technologies is increasing, and this likely will continue as company stakeholders, including customers, shareholders and the government, lobby for change.
The SEC issued a proposal in March 2022 to require that climate risk be highlighted in corporate reporting. This move would affect 4,000-plus U.S.-listed companies and would allow investors to compare companies more easily in terms of their sustainability initiatives. Essentially, corporate annual reports would need to disclose how the company manages climate-related risks.
Also under consideration is an SEC requirement that companies disclose how boards and managers deal with climate-related risks, how these risks materially affect short- and long-term financial statements and require reporting of corporate transition plans.
3. Companies Are Already Scaling Up Climate Tech Initiatives
Reports indicate that approximately $130 trillion in investment is required between now and 2027 to fund projects to decarbonize and renew critical infrastructure. Fortunately, many companies already have committed to fighting climate change and are ramping up new projects. As a result of increased focus on sustainability, CEOs and their boards already have experience in this area and a robust supply chain that represents their shared commitment. They’re not chasing trends or “greenwashing,” but are instead prepared to deliver projects that meet tomorrow’s environmental challenges.
They realize that projects need to be implemented in a way that optimizes capital spending, meets business challenges, navigates supply chain issues and aligns with the long-term corporate vision. Best practices use the latest available data and systems as the basis for action. As a result, the future is now brighter than ever before.
4. Sector-Specific Climate Tech Opportunities Abound—And Require Careful Due Diligence
Once you’ve determined if climate tech investing is a good fit for your portfolio, it’s time to decide how to proceed, including a decision as to which sectors, structures and fund managers to consider. Options include investing in emerging climate tech startups led by passionate entrepreneurs determined to make a difference for humanity long-term. Investing in listed companies is another option.
There are numerous investment options in areas such as carbon trading, carbon removal, clean agriculture, clean goods and services, insure tech (climate change insurance) and electric vehicles. An example is Vivaris Capital’s partnership with United Cities to develop sustainable real estate projects and deploy climate technologies including carbon credit platforms, applications of AI, electrification products, hydrogen and clean energy storage technology, and reforestation that result in “net negative” impact.
5. The Time For Climate Tech Investing Is Now
During Covid-19, investors pursued climate-friendly activities such as working from home, prioritizing innovation, utilizing intelligent mobility, funding startups, insisting on technological advances and prioritizing the environment. As an extension of these areas, new technologies such as digital finance and currencies, and Web3, present climate tech investing opportunities.
Investing in core emission reduction technologies and innovation is critical. Promising technology solutions need to be supported for them to advance to commercial readiness. Governments, as well as the private sector, need to be involved at many levels to support climate change initiatives.
In summary, climate tech is now a mature asset class that offers the opportunity to earn financial returns while having an environmental and social impact. To meet the demand for sustainable investment opportunities, fund managers can now offer new ways for investors with a mission in mind to support approaches to solving social needs while protecting the principal.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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