Investor Briefing: Investing in Industrial Cleantech

PM Theresa May earlier this year launched a consultative green paper outlining an approach to building a modern industrial strategy for Britain in a post-Brexit era. The proposed strategy consists of 10 pillars, one of which is described as the delivery of affordable energy and clean growth. The intention of this pillar is to lower costs for businesses and to secure the economic benefits of a transition towards a low-carbon economy.

The OECD estimates that global resource consumption doubled in the 25 years to 2015; the expectation is that this will double again up to 2050. Businesses are waking up to the fact that there is a real risk that supply may not keep up with demand. Businesses must therefore look at lowering costs and introducing efficiencies in order to stay competitive in an increasingly uncertain macroeconomic environment. This briefing will explore the resulting investment themes: reducing costs and adding value to the bottom line.

Companies in the vanguard of sustainability are setting goals to achieve a net positive impact on the environment in the next 20 - 30 years. Such goals go well beyond offsetting and behaviour change and run to the core of the business strategy and models. A reliance on virgin raw materials will have to be replaced by a circular economy supply chain, so that the old products are returned and the materials reused. Energy intensive processes will need to be re-engineered, industrial collaboration and clustering will return as a new norm, plant floor waste will return to the store room or become part of another business’s supply chain and output will be measured in the context of energy and resource expended, as well as cost. The innovations that will support this transition will be all about dismantlable design, raw material substitution, recycling technologies, low energy methods, positive environmental chemical processes, biomaterials and biomimicry, locally-sourced inputs and resource identification, segregation and processing technologies. The leaders in this space can cause fundamental market disruption and the returns for investors could be substantial.

Demand for such solutions within industry creates demand for innovations which can provide relevant solutions. Such innovations could in theory cut across any vertical, from material use in the construction industry to mining to efficient robotic manufacturing methods in the automotive industry. Given the widespread demand for such solutions within industry, investors will benefit from rigorous commercial and business models. However, how do investors reconcile relatively capitally intensive opportunities which may take longer than expected to bear fruit with the need to generate sufficient returns for their LPs?

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