Earth Day: Climate Tech: Recalibrating ESG Investing
For Earth Day we look here at how ESG investments can take a long-term view and invest in the highest potential clean technologies. To learn more about Earth Day please click here.
The notion that investors should take responsibility for the way they invest their money has been one of the most significant developments in finance as ESG/responsible investment/impact investment/stakeholder capitalism (take your pick of the terminology) becomes mainstream. The finance sector has realised that capital must be channelled towards long-term, impactful, and outcome-focussed projects.
In practice, however, ESG investment suffers from misleading or unverified certifications, overpriced bonds, and greenwashed marketing. This wayward practice in the new wild-west of ESG investing has the potential to be counter-productive in the long term. By preying on the rightful concerns of investors over the future prosperity of the planet, institutions issuing ESG bonds have contributed to short-term thinking, and without a view for impactful outcomes.
At techUK we are interested in championing ESG investment that goes beyond temporary fixes, and which isn’t fixed to en vogue market trends.
Channelling ESG investment into digital clean tech
Climate tech enables decarbonisation across the economy, not just in specific sectors. It achieves green outcomes through innovation, creating lasting solutions. Mobility, farming, land-use, and energy are all tied into the climate tech movement. Developing efficient batteries, water-saving irrigation practices, low-carbon forms of passenger aviation, and scalable tidal power generation are just some examples of how climate tech is looking to revolutionise the day-to-day to remove carbon from the equation.
Long term, climate tech investment could fund projects examining nuclear fusion, direct carbon capture, hydrogen fuel development, and green steel. The potential of this growing area of the tech sector is only limited by human ingenuity and the availability of capital.
Speaking of capital, investment in climate tech has increased by 23x in a little over a decade (2010-2021), and 2.5x compared to pre-pandemic levels. Start-ups in the climate tech space are receiving around $37B in funding globally according to Holon IQ’s start of the year report, up from just $1.6B in 2010. This is likely in response to intensifying governmental and private sector commitments to decarbonisation over recent years.
Pursuing ESG through climate tech investment allows us to put old, highly disputed ESG practices, such as carbon offsetting, to bed for good. Rather than investing in short term fixes, ESG should focus on producing bonds which focus specifically on funding climate tech start-ups and scale-ups. It is identified as a huge growth sector by PWC in their report State of Climate Tech 2021 and will be a growing focus for techUK in the years ahead.
We can reach the ambitious goal of carbon zero by 2050, but only if we double down on the tried and tested method of the past, innovation. A renewed focus on climate tech is half the battle. The other half would be shining a spotlight on cynical and misled ESG bonds which are muddying the waters for would-be investors and betraying the trust of those who buy into them.
If you wish to discuss, or find out more about our work at techUK, please visit our Climate Action Hub and click 'contact us'.
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