The rising tide of clean technology investments

According to the World Energy Outlook 2023 report,[1] released by the International Energy Agency in October 2023, the global average surface temperature is already around 1.2°C above preindustrial levels.

The terms ‘clean tech’ or ‘climate tech’ refer to those innovative solutions that tackle the effects of climate change or aim to accelerate the transition to a low-carbon world. Statista’s collection of reports on global clean tech investments highlights the fact that the sector has become increasingly attractive to venture capital investors looking to make a positive impact while still focusing on generating returns.[2] As the report shows, the sector has seen a huge increase in annual global investment, exceeding USD1 trillion in 2022, but the prediction is that this will need to quadruple by 2050 for the world to remain below the 1.5^oC threshold.

One firm backing this ticket is Earth Capital Limited (ECL), a clean technology thematic investor co-founded by Stephen Lansdown and Gordon Power in 2008. Backed by a Guernsey-based family office, the investment group focuses on the three core sectors of energy, food and water, which are in desperate need of innovation and funding due to the dual impacts of climate change and population explosion. According to Avent Bezuidenhoudt, chief executive of Earth Capital, these three sectors are suffering from resource scarcity, damage to natural capital, increasing insurance losses and fossil fuel depletion, while stakeholder pressure for positive impacts continues to increase. As Bezuidenhoudt puts it: ‘There is clearly great need and where there is need, there is opportunity to make both a positive financial return and a positive impact on the world.’

The Guernsey position

This is where Guernsey comes in. Ready to embrace the next generation of wealth owners' changing financial goals, the island offers bespoke services for single- or multi-family offices. Innovative financial products such as the third route to the private investment fund are complemented by decades of experience and a robust code of corporate governance. This combination allows families to intertwine their individual goals, ensuring they can make both a positive impact and a financial gain.

Earth Capital is a clear example of this. In line with its energy, food and water sector focus, it manages investments in a range of companies offering innovative solutions, such as SoftIron, a manufacturer of low-energy-use IT infrastructure; Ace Aquatec, a welfare-led innovator of aquaculture technology solutions; and Propelair, the low-water flush toilet for commercial use that reduces water use by up to 84 per cent, compared to standard toilets. Each one on its own will not change the world, but as they utilise investment funds to grow and expand globally, their positive impact will be felt both financially for investors and on the environment by everyone.

Earth Capital works closely with its portfolio companies to ensure their continuous sustainable improvement over the life of the investment. In Bezuidenhoudt’s words:

‘It is important to understand that no investment is purely “positive” – its aim may be to deliver positive benefits but use of raw materials, manufacturing processes and global transportation will always have a negative environmental impact. It is therefore critical for investors to ensure that the positive benefits always outweigh the negative impacts. At Earth Capital we use our inhouse tool, the Earth Dividend,™ to manage the sustainability of our investment portfolio by driving continuous ESG improvements. For us, this is a value creation lever that we employ to enhance the sustainability of our portfolio companies across the E, the S and the G to deliver stronger returns.’

But for Earth Capital it is not just about what they invest in that is important, it is also how they invest and they see a clear need to align business models with a just transition to a low-carbon world. As Mark Carney, former governor of the Bank of England, said: firms that fail to adapt may well cease to exist.

Although climate change is the core investment thesis for Earth Capital, Bezuidenhoudt expresses the need for the company to go wider in its due diligence, investment and portfolio management processes to consider all environmental, social and governance (ESG) factors relevant to a specific company or industry. For Earth Capital, these ESG considerations focus on doing business in a way that is less damaging, more respectful and more transparent. According to Bezuidenhoudt:

‘ESG factors emphasise the inherent value of a well-run business that prioritises long-term sustainability over short-term profit taking and it is ECL’s core belief that the more sustainable a company is, the more valuable it will ultimately be. If a management team is prepared to underpay its staff, fails to implement appropriate governance measures, or dumps untreated water into rivers, would you trust them with your investment funds?’

Moving forward

For those investors that remain unconvinced about the need to focus on ESG impacts, irrespective of their core investment focus, one needs only to look at the results of getting it wrong. Companies neglecting ESG considerations now face increased legislation, class action litigation, value erosion and the loss of investors who simply cannot risk the reputational damage of being linked to such an investment. Bezuidenhoudt expects the market to change over the next five years as the effects of climate change escalates and predicts a future where all investors embrace sustainable practices as the norm, due to increasing stakeholder demands. She believes that as the world faces increasing pressures to combat global issues, the path towards sustainable investing will become an inevitable choice for all stakeholders.