Not only is there a growing demand for ESG stocks. The investment performance enjoyed by backers of sustainable investing consistently beat the market, says Marc Deschamps, co-head of DAI Magister.
The investment bank DAI Magister advises international technology and climate companies, developing and executing growth financings and strategic sell-side M&A. And it has never been busier.
Backed by global development firm DAI, it offers full advisory services for transactions within climate tech, fintech, tech-enabled commerce and communications tech sectors across the UK, Europe. Africa/MENA, North America and the emerging markets.
To achieve culture change the request has to come from the C-suite
Deschamps tells RBI: “The increasing demand for ESG stocks is coming from the shareholders. Investors require that companies be ESG compliant. This is not only because it is good for the planet. ESG issues that are popping up are becoming cost items for companies just as climate is a cost for governments and a cost for shareholders.
“And the demand coming from the shareholders comes into the company via the C-suite. If you want anything as difficult as a culture change, then the request has to come from the top.”
Deschamps notes that software and technology enabled businesses were considered risky by debt finance providers a mere decade ago. So called classic companies still dominated the investment landscape. Fast forward to 2023 and the outlook could not be more different. Today many of the world’s most valuable companies are related to technology. Deschamps argues that a similar investment revolution is now coming to Climate Tech.
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Sustainable investing: Europe leads the way
GlobalData, publishers of Retail Banker International, report that sustainable fund assets have almost tripled in the past few years, rising to $2.8trn at the end of the first quarter of 2022 –up from $1trn in 2019.
In terms of assets under management (AUM) and product development, Europe is the clear leader, with the US a distant second. Together, they account for 94% of sustainable fund assets and are home to 86% of sustainable funds.
However, as demand grows across the world, other regions are catching up. In Q1 2022, Europe and the US accounted for 65% of the world’s new sustainable fund launches. Asia (excluding Japan) and Canada upped their Q2 share to 12% and 11% respectively.
Over the next decade, it is expected that companies offering climate related technology, will garner the same attention from financiers as technology companies have enjoyed.
Deschamps adds: “When it comes to returns, climate tech has a returns pattern that is higher than non ESG returns, even in the current complicated economic climate.”
While climate tech is just one component, albeit an important component of ESG investing, Deschamps highlights some persuasive numbers.
Climate tech investing: very strong growth rates on the horizon
“In 2021-2022, some €12bn-€15bn was invested in just the UK and Europe, roughly double the amount invested in 2019-2020. Meantime, investment in other areas such as corporate SaaS or fintech dropped by up to 40% in some cases.”
As investors see enhanced returns, often far higher than forecast from investing in climate tech, more funds will flow in the sector as a result.
“Says Deschamps: “We can expect continued growth in the short to medium term and very strong growth long term.”
A report from the London Stock Exchange’s research arm, suggests the market capitalisation of green equities ballooned from under $2trn in 2009 to over $7trn by 2021, almost doubling its share of the global investable market from 4% to 7%. Debt financing typically lags equity financing as companies are created through risk capital before accessing any forms of debt finance.
Companies harnessing renewable energy or electric energy to replace traditional fossil fuels and reduce carbon emissions or supporting clean water, environmentally friendly packaging, and the circular economy from fashion to electronics to name a few are all gaining significant momentum. Deschamps says that technology and innovation are now firmly seen as a force for good and this image is further enhanced when it is applied for the betterment of the planet and humankind.
As for next steps, Deschamps says that banking sector is not yet where it should be, in particular as regards complying with net zero targets.
DAI Magister will continue to be busy, promoting investment banking in the field of climate tech worldwide but with a big focus, given the economic reality of the position, in the emerging markets.
“We help to bring private and corporate and government financing to climate tech and that is a big part of the solution. We have had a busy year and are going into a busy year. There are a lot of good companies out there, growth companies, looking for financing. And we are seeing growth levels in climate tech that we saw many years ago in technology.”