By Matt Jellicoe, Co-founder and Director at OnePlanetCapital
Amid the current market volatility, it is worth spelling out why the climate tech sector that OnePlanetCapital specialises in is very different from most investment sectors.
1. Climate tech is a diverse sector
Firstly let’s define what we mean by climate tech – what we are talking about is companies in energy, transport, built environment, supply chain, consumer facing sustainability, carbon removal and agricultural technology. These companies will have products and services which fundamentally lower C02 and/or methane emissions at scale.
The climate tech sector is broad and offers genuine diversity. A typical climate tech fund portfolio will include; B2B Saas companies, construction companies, transport solutions around electrification, battery technology solutions and businesses focused around carbon solutions and carbon accounting.
By investing into a fund with so many different growth sectors, investors should be protected from large shocks to any one industry.
2. Growth is backed by regulation
The reason this sector is so markedly different from others is that the long term parameters are fixed in terms of where this market is going. Unfortunately the world is careering to 1.5c of warming in the short term, possibly 3c in the long term, the wildfire season is in full swing and the overarching crisis gets worse. What we are seeing in the UK in July 2022 will be many times worse by 2050.
Climate change doesn’t care about inflation or market turmoil and the drivers are increasing every year. If we translate this into human action – net zero targets are in place, corporations and governments alike are rushing to meet them and the transition to a low carbon economy has a regulatory infrastructure in place in most economies. So to a large extent the climate tech locomotive is running and gathering momentum all the time, it is unlikely to change course and we are only at the beginning of this journey.
At OnePlanetCapital we believe that climate tech is a long term, high growth sector as so many of the drivers are backed by increasing levels of government policy and regulation.
3. Climate Tech is a Mega Trend
Climate change represents a megatrend. I.e. It is one of the defining events of our time. Mark Carney famously said in June 2021 ‘’Addressing climate change is an amazing commercial opportunity. It is about turning an existential risk into the greatest opportunity in our time. The opportunity is unprecedented’’.
Let’s look at global trends and requirements in terms of this megatrend. If we look at BPs latest global energy report shows that renewables have grown at a massive rate over the last 2 decades. Solar and wind now represent 10% of total global energy supply. Photovoltaic solar for example has an incredible compound growth rate of 34.5%. ie it is pretty much doubling every 2 years – actually growing much faster than most economists have predicted. The fact that renewables are now cheaper than almost every other form of energy drives massive change from the bottom up.
In the associated battery storage industry, Goldman Sachs have forecast a 10-fold increase in battery demand up to 2030. The CAGR for battery storage is 27% per annum ($4.4bn in 2022 to $15.1bn in 2027).*
On top of this, automakers are planning $515 billion to be invested in the next 10 years to transition away from engines**. The overall point is that the market trends are very powerful and show no sign of slowing down – they are backed by regulation, consumer demand and the fundamental building blocks of cheap renewable energy.
4. Climate Tech in a time of geopolitical risk
The current war in Ukraine and the associated gas crisis has brought renewable energy into the spotlight as a security issue. Many countries that were moving sluggishly in terms of transitioning away from oil and gas such as Germany have announced massive programmes to accelerate this transition – the acceleration towards solar and wind power boosts the whole ecosystem of supply companies and Saas businesses that supply the climate tech space. We are likely to see CAGR of solar and wind power in Europe increase over the next decade.
It is worth noting that climate tech is not completely insulated from market turmoil. Supply chain issues are driving up costs – for example Bloomberg recently reported that the cost of building wind farms has increased 7% year on year with similar increases across battery storage and solar. However, the price gap between wind, solar and conventional systems continues to widen.
Overall the fundamental drivers of the climate tech space are powerful, existential and largely predetermined. The sector’s growth is enshrined in law which strengthens all the time and makes it very hard to pull back on investment. Unfortunately the key driver – the climate crisis – gets more serious and trickier to manage every year we get into it.
From an investment perspective the space presents a rare opportunity to get access to real long term growth and genuine diversity of risk and create impact in the biggest existential threat of our lifetime. Of course for many investors this may be the main reason to invest – i.e. for our own sakes and for generations to come we can’t afford not to!
If you would like more information on how to invest into climate tech take a look at https://www.oneplanet.capital/ or please get in touch with our team at firstname.lastname@example.org
*Source Goldman Sachs.
**Source Goldman Sachs