ESG outlook: Vantage point of the early stage capital provider

August 18, 2021 - 3 minutes 30 seconds
Close-up of an electric vehicle charge-pump
The cleantech sector has seen a tremendous amount of growth in recent years. Approximately US$50 trillion is expected to be spent on decarbonization globally by 2050. Global venture capital funds have increased fivefold over the last decade; and environmental, social and governance (ESG) mandated assets under management are expected to grow 50% annually between now and 2025.

What does this mean for the early stage capital investor?

"Capital providers have access to a diverse and sophisticated list of disruptive companies that are looking to apply their technologies to pave the way for a low-carbon economy" says Juan Jarrah, Director, Global Energy, Corporate & Investment Banking, TD Securities. "With energy transition now a mainstream area of focus for global investors and financial institutions, early stage companies have increased access to more diversified and sophisticated capital to fund the next wave of disruptive technologies in energy transition and ESG."

Many of these early stage companies were represented at our recent 'The Disruptors' conference, where we explored different ways the cleantech sector is building a decarbonized economy. Two of our panels focused on the role capital providers play in these transformative ventures, including providers who invest capital across multiple disruptive areas such as clean energy, energy efficiency and storage, the circular economy, advanced materials, mobility, agriculture and carbon capture.

Featuring representatives from ArcTern Ventures, BDC Capital, bp ventures, Cycle Capital, Longbow Capital and MKB, key takeaways from the panels include:

Identifying disruptive trends in the cleantech sector

According to our panelists, the most impactful areas in the cleantech sector are associated with how fast the technology can be developed and adopted.
  • Short-term trend - Electric vehicles (EVs): We've seen strong growth for EVs, including more affordable production costs. Government policies are in place to help support development and major automotive industry participants are producing more affordable models.
  • Medium-term trend - Renewable power and battery production: More efficient energy storage will drive down the cost of EVs even further. Affecting more than just the transportation sector, battery production needs to improve to target emissions meaningfully. More advancements are being made in this space, but our panelists believe that Canada can achieve its goal that all new car sales will be zero-emission vehicles by 2035.
  • Long-term trend - Artificial Intelligence (AI): AI has the potential to significantly transform our entire economy similar to the industrial revolution. However, the technology is still about a decade away and there will likely be economical and geopolitical hurdles to navigate through.

The impact of disruptive trends on early stage capital providers

The biggest impact these trends will have on early stage capital providers is timelines. Many investments in the cleantech sector aren't measured in increments of five years, but in decades. Capital providers may need to wait longer to see the effects of their investments, and for returns, as the technologies will take time to become commercially available.

Another large impact within cleantech is the amount of capital being funneled into this space. Previously, it was a challenge trying to find the right strategic corporate investors. Now, there are more private and public companies available to connect to the right venture. The result of this increase in capital and resources has led to a greater competition for deals and, in some cases, an increase in valuations.

How can early stage capital providers impact positive change?

A more selective process in choosing the right opportunity puts the focus less on valuations and more on partnering with the right team. If the sustainability of a valuation is called into question, this could potentially result in a loss of opportunity if the pricing isn't appealing.

Focusing on partners who have the technologies to get a solution off the ground, deploy the technology across mass adoption, and transform a given industry can be the difference in making a positive change supporting decarbonization.

Even with the influx of capital into the cleantech sector, there is still a need for more capital in this space. For investors to diligently weigh their options, it may be wise to consider a mentality of collaboration first and competition later. Otherwise, the world may be in a very tough position in the future.

Headshot of Juan Jarrah

Director, Global Energy, Corporate & Investment Banking, TD Securities

Headshot of Juan Jarrah

Director, Global Energy, Corporate & Investment Banking, TD Securities

Headshot of Juan Jarrah

Director, Global Energy, Corporate & Investment Banking, TD Securities

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