By: Flemming Jacobsen, Vice President, Head of Group Treasury & FP&A at European Energy
Since the market took a dive and the Ukraine war induced an energy crisis, climate investors naturally worried that green investment would go down with the ship. Not only did those fears not materialize, but climate-related private market investment actually outpaced the broader market when looking at deal flow.
Green technology and infrastructure have a gigantic leg up on other industries since it’s an industry that has virtually guaranteed demand for the foreseeable future — making it an ideal investment venue also in a recession.
The 60,000 commercial vessels out at sea worldwide account for 2.89% of global CO2 emissions. Aviation accounts for 2.5% of global CO2 emissions but contributes approximately 3.5% to climate change. In Europe, trucking accounts for 15% of the continent's CO2 emissions; in America, the corresponding figure is 26%. Heavy industry is responsible for nearly 40% of global carbon dioxide emissions. With numbers like these, it's easy to understand why greenifying these industries and sectors is vital in the fight against climate change.
Climate-focused technology and infrastructure are essential to tackle the emissions challenge of those “hard-to-abate” sectors. While the green industry isn’t as new and shiny as artificial intelligence or blockchain, it’s an industry where you still have the opportunity to get in on the ground floor.
Maersk has already ordered 19 ships that run on e-methanol, which is a great start. However, it's a small first movement in upgrading global commercial vessels. Sweden, Europe’s largest iron ore producer, wants to use green hydrogen for steel production. If it succeeds, the move would be a game changer, but it’s only within one substrate of heavy industry. These are important but still small steps compared to the leaps which the green transition requires.
Investors can still become early birds into a multi-trillion-dollar industry by taking on an aggressive climate-friendly investment strategy. And, decades later, they can pat themselves on the back for having had the foresight of investment gurus. However, already today, green capital flexes its muscles as a strong investment venue.
The canary in the coal mine for the current global economic downturn was tech, with startups feeling the drying up of liquidity early in 2022 already.
Still, even last year, climate startups in the United States raised nearly $20 billion, topping 2021's high of $18 billion and nearly tripling 2020's $7 billion, according to Crunchbase. At least 83 climate-focused companies worldwide are worth more than $1 billion, according to the research firm HolonIQ.
From 2021 to 2022, climate-focused investments grew 7%. You can juxtapose that with the fact that overall private-market equity deal volume shrunk 24%, Put together, these numbers support how 'recession proof' is a well-earned title.
Economic cycles may affect green companies less since they often base business models on long-term sustainability and environmental goals rather than short-term financial gains.
Furthermore, green companies are often at the forefront of innovation. They are poised to lead with new products and services that drive economic growth and could innovate society out of its rut.
But what's more likely is that significant policy support is breathing life into the climate industry. In Europe, the climate programs are almost a dime a dozen; The European Union's Green Deal (2019), Fit for 55 (2021), RePowerEU (2022), and now the Green Deal industrial Plan. The Inflation Reduction Act (IRA) will deploy $370 billion in tax credits and other subsidies toward new energy solutions in the United States.
Policymakers, investors, and lenders are showing the world that climate technologies have tremendous potential and can reach the necessary economies of scale at significantly lower cost of capital.
Undoubtedly, investing in green and promoting a flourishing planet will feel good with vast intrinsic value. But it’s likely also a timely investment decision with a great potential payoff.
About the author: Flemming Jacobsen is Vice President, Head of Group Treasure and FP&A at European Energy, a company that develops and constructs renewable energy projects. At the beginning of 2023, European Energy owned more than 1 GW of green energy projects and has 23 offices in 18 countries.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.