Investing in sustainable assets has become increasingly popular over the last few years. The growth of sustainable investing has led to many investment directors setting up sustainability-focused funds, focusing on sustainability-related issues and opportunities when making sustainable investment decisions. These funds are part of a seismic shift in the investment world, where sustainable investing is becoming mainstream.
Sustainable Investments Go Mainstream
Sustainable investing has come a long way—once considered niche, it is now mainstream practice, with an ever-increasing number of institutional investors prioritising assets with strong ESG propositions in their portfolios. In 2021, 65 per cent of deal makers said ESG is important when considering an investment. Similarly, in 2022, ESG investing was still high up on the agenda—a report published in October found that ESG assets are set to constitute 21.5 per cent of total assets under management in less than five years.
In Q3 of 2022, ESG faced its first significant test, as making returns became more of a challenge. However, things are heating up on several fronts, which means sustainable investing should stay buoyant. First, it’s likely that there will be a more significant push for sustainability disclosures, meaning companies would have to actively monitor, manage and disclose ESG performance. For companies targeting consumers, the general public’s attitudes towards sustainability will make adhering to ESG practices non-negotiable. Across all sectors, there will likely be an increase in the number of bolt-on acquisitions to improve ESG propositions. To summarise, sustainable investing is here to stay and will continue to proliferate as investors and consumers place more emphasis on sustainability.
Which Sectors Are on the Sustainable Investment Radar?
Institutional investors are interested in sustainable investments broadly, but several key areas are on their radar: agritech and sustainable energy.
One area of sustainable investing that investors have their eye on is agritech. This interest is in response to the intensifying food security crisis. The World Food Programme found that a record 349 million people across 79 countries face acute food insecurity, up from 287 million in 2021. As a result, several promising start-ups have appeared, hoping to offer agritech solutions to feed the earth’s growing population.
2022 was a record-breaking year for European agritech investment, with investors pouring $1.4 billion into the sector. Investors keen to focus on sustainable investments are interested in agritech companies, as many are ripe for investment. Indeed, several agritech companies have received significant investment over the past couple of years, including GreenLight Biosciences, AgriProtein, BluWrap, Intelligent Growth Solutions, WeFarm and many more. However, the current economic headwinds, characterised by high inflation and energy costs, have meant that some agritech companies will view selling themselves as an exit route. As a result, an uptick in M&A activity in this area is expected.
One of the United Nations Sustainable Development Goals is to ensure access to affordable, reliable, sustainable and modern energy by 2030. However, the current pace of progress means that the target will sadly not be hit. However, there is still plenty of M&A activity in this area as companies and investors are keen to make progress. As more renewable energy sources become available to decarbonise power generation, acquiring renewable energy companies is an increasingly attractive option to sustainability-focused firms.
The energy and natural resources industry relies on M&A to facilitate the energy transition. Companies are making deals to reduce carbon production from their operations in order to meet net-zero targets. Some companies are going a few steps further by building green energy hubs to change production processes or pivot to new products entirely. M&A is also being used to accelerate shifts in company portfolios, either through divestments of high-carbon assets or investments in assets relating to green energy. As a result, we expect plenty of M&A activity on sustainable energy deals this year.
Validate Sustainable Investments With Onefourzero
The current economic and geopolitical headwinds have resulted in more investor caution. Naturally, investors are searching for ways to increase the likelihood of higher returns on future deals.
The solution lies with data. Many assume that a data-led approach is only relevant to consumer deals, but this is not the case. Data-led diligence can be applied seamlessly across all sectors and the entire M&A lifecycle to validate potential investments. Investors need robust, forensically accurate insights into target assets. This will allow them to take advantage of sustainable investing opportunities without too much risk exposure.
That’s where onefourzero comes in. We provide three distinct services that help investors validate and create value in assets:
- Our data-led, tech-enabled approach to commercial and digital diligence enables us to deliver robust and reliable insights on both the buy and sell side.
- Our up-to-the-minute data monitoring tool, threesixty, provides companies with an aggregate view of any sector, brand, product or service alongside key competitors.
- Our value creation services span digital transformation, data maturity audits, IT and technical consulting and commercial headroom strategies to roadmap the strategies, skills and infrastructure required to enable brands to hit ambitious KPIs.
So if you’re investing with an ESG focus and struggling to get a steer on some niche sector market sizes, understand that data can assist and add layers and numbers behind expert opinion.
Contact us to learn more about how we can validate investments for your firm during these uncertain times.