The Rise of Sustainable Investment
The 21st century has witnessed a dramatic shift in investment priorities, from purely profit-driven models to those that also factor in the planet and people. According to a report by the Global Sustainable Investment Alliance, global sustainable investment reached an impressive $35.3 trillion at the start of 2020, marking a 15% increase from 2018. This trajectory aligns with the projections of the International Energy Agency, which asserts that clean energy investments need to triple by 2030 to keep global warming below 2 degrees Celsius. A real-life example of this is Tesla, which has seen a substantial increase in its share price due to its innovative and sustainable electric vehicle technology.
The Appeal of Sustainable Investments
Numerous studies, including one from Morgan Stanley’s Institute for Sustainable Investing, suggest that sustainable investments can perform as well as or even better than traditional investments. Sustainable funds have not only provided comparable returns to traditional ones but have also served to reduce investment risk. Another report showed that 88% of impact investors were meeting or even exceeding their financial return expectations, according to a 2020 Global Impact Investing Network survey. For instance, The Green Century Equity Fund, a U.S.-based sustainable fund, has historically outperformed the S&P 500, providing proof of the potential of sustainable investments.
Identifying Promising Sustainable Tech Companies
Yet, it’s not just about the financial metrics. To pinpoint the sustainable tech companies with true potential, investors must conduct a holistic analysis, which includes financials, but also scrutinizes the company’s business model, technology, team, and commitment to sustainability.
Additionally, the business model should reflect a sustainable value proposition, which means that the company’s operations, supply chain, and end products or services must all align with sustainability principles. They should also have a clear path to profitability, showing how the company’s sustainable practices can lead to financial gain. One example of this is Beyond Meat, a company that successfully commercialized plant-based meat substitutes, with a business model that targets both sustainability and profitability.
The technology the company is developing or using should be innovative, scalable, and contribute positively to sustainable development goals. Scalability ensures that the solutions offered by the company can grow and expand to maximize impact, while innovation keeps the company competitive and relevant in the dynamic tech sector.
Criteria for Investment: Team and Commitment to Sustainability
A talented, dedicated team is essential for any company’s success. However, in sustainable tech companies, the team should also show a clear commitment to sustainable practices and goals. This can manifest in various ways, from the company’s culture to its strategies and objectives.
Lastly, the commitment to sustainability should be more than just lip service. It needs to be ingrained in the company’s strategy, ethos, and culture. Investors should look for tangible evidence of this commitment, such as certifications, partnerships with environmental or social organizations, or significant investments in sustainability initiatives. IKEA, for example, has made substantial investments in renewable energy and aims to become climate positive by 2030.
As Warren Buffett once said, “In the 21st century, I believe the mission of business will be broadly interpreted to include responsibility to stakeholders far beyond those who hold shares.” Investing in sustainable tech companies is not just about financial returns. It’s also about investing in a future where technology serves not just economic growth but the wellbeing of our planet and its inhabitants. While identifying promising companies in this sector can be challenging, it is not impossible. Investors need to look beyond the noise and conduct comprehensive due diligence to identify the real gems in the sustainable tech landscape, much like those who saw potential in Tesla, Beyond Meat, Proterra, Patagonia, or IKEA, and invested early. As the world’s financial gaze continues to shift towards sustainable investments, particularly within the tech industry, the subject becomes an increasingly critical point of debate among renowned investors and tech industry leaders. The upcoming 139th PIFW, titled “Beyond the Hype: Identifying Sustainable Tech Investments for 2023,” promises to be a pivotal forum in these discussions. This global event will offer an unparalleled opportunity for these leaders to dissect, debate, and delve into the nuances of identifying promising sustainable tech companies. To secure your spot at the event, be sure to register here.