Not only is there a growing demand for ESG stocks. According to Marc Deschamps, co-founder of DAI Magister, the investment performance enjoyed by funders of sustainable investing has consistently beaten the market.
Investment bank DAI Magister advises international technology and climate companies, developing and executing growth financings and strategic sell-side mergers and acquisitions. And he’s never been so busy.
Backed by global development firm DAI, he offers comprehensive transaction advisory services in the climate tech, fintech, trading and communications technology sectors across the UK and Europe. Africa/MENA, North America and emerging markets.
To achieve a culture change, the request must come from the C suite
Deschamps told RBI: “The growing demand for ESG actions is coming from shareholders. Investors demand that companies be ESG compliant. It’s not just because it’s good for the planet. ESG issues that arise become cost elements for companies just as the climate is a cost for governments and a cost for shareholders.
“And the demand coming from the shareholders comes into the company through the C-suite. If you want something as difficult as a change in culture, the demand has to come from the top.
Deschamps notes that just a decade ago, software and technology-based businesses were considered risky by debt financing providers. The so-called classic companies still dominated the investment landscape. Fast forward to 2023 and the outlook couldn’t be more different. Today, many of the most valuable companies in the world are tied to technology. Deschamps argues that a similar investment revolution is happening in Climate Tech.
Sustainable investing: Europe leading the way
GlobalData, publisher of Retail Banker International, reports that sustainable fund assets have nearly tripled in recent years, reaching $2.8 trillion at the end of the first quarter of 2022, from $1 trillion in 2019.
In terms of assets under management (AUM) and product development, Europe is the undisputed leader, far behind the United States. Together, they represent 94% of sustainable fund assets and house 86% of sustainable funds.
However, as demand grows across the world, other regions are catching up. In Q1 2022, Europe and the US accounted for 65% of new sustainable fund launches globally. Asia (excluding Japan) and Canada increased their share in Q2 to 12% and 11% respectively.
Over the next decade, companies offering climate-related technologies are expected to garner the same attention from financiers as technology companies.
Deschamps adds, “When it comes to returns, climate tech has a superior return model to non-ESG returns, even in today’s complicated economic climate.”
While climate technology is only one, albeit important, part of ESG investing, Deschamps highlights some compelling numbers.
Investment in climate technologies: very high growth rates on the horizon
“In 2021-22, some €12-15 billion was invested in the UK and Europe alone, around double the amount invested in 2019-20. Meanwhile, investments in other areas such as enterprise SaaS or fintech have fallen by up to 40% in some cases.
As investors see improved returns, often well above expectations, by investing in climate technology, more funds will flow into the sector as a result.
“Said Deschamps: “We can expect continued growth in the short to medium term and very strong growth in the long term.”
A report from the research arm of the London Stock Exchange suggests that the market capitalization of green stocks has grown from less than $2 billion in 2009 to more than $7 billion by 2021, nearly doubling its share of the global market investments of 4% to 7%. Debt financing generally lags behind equity financing because businesses are created through venture capital before accessing any form of debt financing.
Companies that harness renewable energy or electric power to replace traditional fossil fuels and reduce carbon emissions or that support clean water, environmentally friendly packaging and the circular economy, from fashion to l Electronics, to name a few, are all gaining in popularity. Deschamps asserts that technology and innovation are now firmly seen as a force for good and that image is further reinforced when applied for the good of the planet and humanity.
As for next steps, Deschamps says the banking sector is not yet where it should be, especially when it comes to meeting net zero targets.
DAI Magister will continue to be busy, promoting climate technology investment banking globally, but with a heavy focus, given the economic reality of the position, in emerging markets.
“We are helping to bring private, corporate and government funding to climate technology and that is a big part of the solution. We’ve had a busy year and we’re heading into a busy year. There are a lot of good companies, growing companies, looking for funding. And we are seeing levels of growth in climate technology that we saw many years ago in technology.
Video Interview: RBI Editor-in-Chief Douglas Blakey and DAI Magister Co-Founder Marc Deschamps