The OnePlanetCapital flagship fund is an EIS fund that focuses on early-stage companies combating climate change. In this article, OnePlanet Capital’s Co-Founder and Director, Matthew Jellicoe, tells us why he believes there are currently significant investment opportunities in this space.
One of the key challenges in educating investors about the fund is to explain how the impact driven nature of the fund combines with the strong investment returns which are possible from the space we invest in.
Investors tend to think of ‘impact’ in an altruistic sense – as something separate from investor returns. However, the climate change space in an area where you genuinely have both.
What I do not want to do in this article is detract from the underlying seriousness of this sector with commercial messages reiterating the commercial opportunity of investing in climate change – this undermines the gravity of the situation and what is unfolding. So, I will briefly spell out the environmental trends as per the most recent IPCC report and then put this into an investment perspective.
Main takeaways from the IPCC UN 2022 climate impacts report;
Climate change is hurting our health – large increases in mortality and morbidity are predicted from everything from food poverty, flooding, displacement, stress related illnesses and smoke inhalation from wildfires. Many things are being lost forever – whether ecosystems, habitats, or even homes – by 2050 up to 1 billion people will be at risk of losing their homes due to supercharged flooding and storms. Whilst the IPCC reports cites adaption as a key strategy, this can only be done up to a point.
Although everyone is affected by climate change, not everyone is affected equally, with poorer communities, women, children, indigenous people all projected to be the most vulnerable as the century progresses. Today, 3.3-3.6 billion people live in “contexts that are highly vulnerable to climate change”, a figure, again, that is projected to rise. Although it is too late to do much about some climate impacts, virtually every projected risk becomes more dangerous the higher the temperature rises.
Unsurprisingly given this backdrop, commitments to mitigate climate change are more ubiquitous than ever, and companies, asset managers and governments have been at the forefront of this over the last year.
Worldwide emissions must fall by half by 2030 and reach net zero by 2050 to have any chance at keeping global temperature rise under 1.5°C. Ultimately, global cooperation between governments is required to address the full scope of this threat. Increasingly this target is looking unreachable.
President Biden re-joined the Paris Agreement on his first day in office, the Net Zero Asset Managers Initiative gathered steam, and milestone gatherings such as COP26 sought to catalyse global collaboration to address the climate crisis. At the same time, the market saw increasing demand from investors who want to take climate action in their portfolios.
The investment background of climate change
From an investment perspective climate change represents a megatrend of sorts. I.e. changes that are required so substantially and so quickly that they will impact almost every aspect of society.
Unsurprisingly this has been seen on a global scale in terms of investment, as of December 2021, there were 860 climate funds with collective assets under management of $408 billion worldwide. Global assets have doubled in one year, boosted by continued fund flows and an accelerated pace of product development. Over the year, flows into the European climate fund universe amounted to an all-time high of more than $108 billion, up 61% from the previous record in 2020.
However, at a macro scale, these climate funds are what I would term passive in terms of climate change impact. In other words, they are composed of companies that are committed to net zero and emissions curbs at a general level. If investors are looking for companies that are providing solutions to climate change this is a harder task and likely one that suits venture capital funds as there is so much early-stage technology and service businesses coming into the space with the capacity for huge growth.
It is hard to generalise about the space in terms of what investors should look for as climate change is affecting almost every level of society and energy production – whether it is companies developing innovative solutions to mitigate the damage, such as carbon capture technologies and renewable energy markets to transport and new products and services.
A couple of examples illustrate the kinds of growth that are available in the sector. In the UK for example EVs are predicted to have 50% market share by 2030 – obviously largely driven by regulation. But the hypergrowth of a sector growing at 300% per annum impacts demand across the battery supply industry, the global charging infrastructure as well as the whole car industry generally.
Likewise, the battery storage market in the USA is predicted to grow from a nascent industry to $426 billion over the next 10 years. Looking at carbon mitigation, one of our portfolio companies (Earthly.org) operate in the nature-based carbon offset market – Mckinsey recently reported on this market growing 15 x by 2030 up to $50bn in value) and 100 x by 2050.
There are massive growth opportunities across the sector – however due to the relative immaturity of companies coming to market with genuine solutions for the climate change crisis the appropriate investor channel is likely venture capital funds with a focus on climate change.