Lord Sarfraz: Think the growing interest in green technology is just another bubble? Think again
November 25, 2020
Investment Week
Last week, Prime Minister Boris Johnson laid out an inspiring Ten Point Plan for a Green Industrial Revolution, one year before the UK hosts the UN Climate Change Conference in Glasgow. His vision includes “turning the UK into the world’s number one centre for green technology and finance” with significant announcements of investment into technology and R&D.
There has never been a better time to be a green entrepreneur in the UK - the prize has never been bigger - and for technology venture capitalists, sustainability is a necessary theme across any portfolio.
Investors who lost money in the infamous cleantech bust 15 years ago remain sceptical and cautious. I hope they give it a second shot because this time the landscape is completely different.
The political will is there. In the UK, there has never been stronger political support for a green revolution than there is today. We have a Prime Minister who deeply cares about the environment, and in Zac Goldsmith, an environment minister who has championed the cause long before it was popular to do so. Significant resource and support are available to entrepreneurs tackling climate change, including a £1bn Net Zero innovation portfolio and a substantial increase in R&D spending to 2.4% of GDP by 2027. The national vision for Net Zero is a powerful rallying call for entrepreneurs.
The old economy is on board. In the first cleantech wave, entrepreneurs struggled to engage with the customers and partners they needed: utility companies, oil and gas firms, mining companies, chemical makers, the auto industry, and pretty much everyone else. It is the opposite today - each of these industries is in the process of transformation. A report published this month by Transition Pathway Initiative states that over 75% of utility companies had senior management buy-in, and the required executive capability, to transition to low carbon models.
Reporting is to be made mandatory. Earlier this month, the UK government announced that disclosure recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) would be made mandatory. Companies of all types across the UK will be required to introduce climate change reporting over the coming years, something that management, boards and shareholders will not be able to ignore.
The market makes sense. There is far more M&A and IPO activity today in sustainable businesses than the first time around. Fifteen years ago, nobody could have imagined a young electric car maker with a market cap of almost $470billion. Those who allocate to the private markets through venture capital managers - foundations, pension funds, insurance companies, endowments, HNWI’s, and even sovereign wealth funds - now tend to care about sustainability as much as financial returns. It is no different in the public markets.
Consumer sentiment has shifted. Attitudes towards sustainability are stronger than ever before. A recent BCG study reports that 95% of consumers thought their personal actions could help tackle climate change, and a recent Deloitte paper states that 84% of millennials think it’s their generations responsibility to change the world. This represents a seismic market shift which has been accentuated by the Covid crisis. There are no more “tree huggers” - we are all individual activists in this movement.
Finally, there should be no such thing as a cleantech fund anymore. It is no longer a standalone investment theme. Instead, sustainability will be a core part of every fund’s investment strategy. Necessary lessons were learnt in Cleantech 1.0, just like lessons were learnt in the dot com bubble - but that didn’t stop billions of dollars of subsequent investment into internet companies, the emergence of the FANGs, and the internet being a fundamental part of our lives.
So to those who think this is another bubble - it’s not. It’s the future.
Lord Sarfraz is a Conservative member of the House of Lords
