Why climate change investing is such an interesting growth space over the next decade

Investment Returns Versus Impact

The One Planet Capital flagship fund is an EIS fund that focuses on early-stage companies combating climate change. One of the key challenges in educating investors about the climate change EIS fund is to explain how the impact-driven nature of the fund combines with the strong investment returns which are possible from the sustainability space we invest in. EIS investors tend to think of “impact” in an altruistic sense – as something separate from investor returns. However, the climate change investing space is an area in which you genuinely have both. 

Megatrends - The Investment Background of Climate Change

From an investment perspective, climate change represents a megatrend of sorts, in that quick and substantial changes are required that will impact almost every aspect of society.

Unsurprisingly, this has been seen on a global scale in terms of investment, specifically sustainable investing. As of December 2021, there were 860 climate funds with collective assets under management of $408 billion worldwide. Global assets have doubled in one year, boosted by continued fund flows and an accelerated pace of product development. Over the year, flows into the European climate fund universe amounted to an all-time high of more than $108 billion, up 61% from the previous record in 2020. 

However, at a macro scale, these climate funds are arguably passive in terms of climate change impact. In other words, they are composed of companies that are committed to net zero and emissions curbs at a general level. If investors are looking for companies that are providing solutions to climate change, this is a harder task and likely one that suits venture capital funds, as there are so many early-stage technology and service businesses coming into the space with the capacity for huge growth. Specifically, climate change EIS funds and climate change SEIS funds allow investors to disperse their funds into specific areas and industries. 

Type of Sectors Experiencing Hyper Growth

It is hard to generalise about the space in terms of what investors should look for as climate change is affecting almost every level of society and energy production – where it is companies developing innovative solutions to mitigate the damage, such as carbon capture technologies and renewable energy markets to transport and new sustainable products and services. 

A couple of examples illustrate the kinds of growth that are available in the sector. In the UK, for example, EVs are predicted to have a 50% market share by 2030 – obviously largely driven by regulation. The hypergrowth of a sector (300% per annum) impacts demand across the battery supply industry, the global charging infrastructure, as well as the whole car industry generally. Likewise, the battery storage industry in the USA is predicted to grow from a nascent industry to a $426 billion one over the next 10 years.

Looking at carbon mitigation, one of our climate change EIS investments (Earthly) operates in the nature-based carbon offset market – McKinsey recently reported on this market growing 15x by 2030 up to $50 billion in value, and 100x by 2050.

There are massive growth opportunities across the sector – however, due to the relative immaturity of companies coming to market with genuine solutions for the climate change crisis, the appropriate investor channel is likely to be venture capital funds with a focus on climate change. Climate change-focused EIS and SEIS funds allow investors to put their funds in specialised industries. With people looking to give back and make a difference in the environment, climate change venture capital has been thriving. Climate change investing as a whole has seen massive growth in the UK, with London climate tech investments growing 672% from 2018 to 2022. One Planet Capital is working to develop the climate change VC space, and we expect the industry to grow even further in the coming years.