Press Release: Sompo Expands into Europe with an investment in Isomer Capital
Sompo Expands into Europe with an investment in Isomer Capital Japanese Sompo Holdings invested in…
There has been a lot of attention on climate change recently, particularly around the COP26 conference in Glasgow. As we followed the discussions and outcomes, we wondered, what does it mean for entrepreneurs and the venture capital investors backing them? Here are our 5 key takeaways from COP 26 and the climate opportunity.
? Ambitious Targets Require Governments And The Private Sector To Collaborate
It was encouraging to see 197 countries agree to continue working towards a net zero world in 2050 and keeping the 1.5 degree celsius target. It is however obvious that they will need help in achieving these goals. At COP15 in 2009, participating countries agreed they would contribute $100bn a year by 2020 to climate finance. This goal was unfortunately not met, and is now delayed to 2023. Governments need to step up, of course, but the sheer extent of the work required to reduce our carbon emissions highlights the significant role that the private sector needs to play.
? Private Capital Can Drive Major Impact
There was a strong focus in Glasgow on mobilising private capital. One highly mentioned initiative is the Glasgow Financial Alliance for Net Zero (GFANZ). Led by Mark Carney, UN Special Envoy on Climate Action and Finance and former governor of the Bank of England and the Bank of Canada, GFANZ brings together 450 banks and asset managers from 45 countries. During COP26 they committed a staggering $130tn to support the efforts towards net zero by 2050. Whilst there has been some criticism of GFANZ due to some of its member institutions’ continued funding of fossil fuels, we believe that the group is sending a strong message that can inspire others. The ongoing shift in thinking from investors and corporations, driven by a mix of regulation as well as demand from their employees and customers, will go a long way in changing some of the most carbon-intensive behaviours.
? We Need Technology Innovation To Get To Net Zero
42 countries representing 70% of global GDP agreed on a set of technology goals. The “Glasgow Breakthroughs” set out five targets for 2030, which would cover more than 50% of global emissions:
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Power: Clean power becomes the most affordable and reliable option worldwide
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Road transport: Zero-emission vehicles become the new normal and are accessible, affordable and sustainable in all regions
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Steel: Near-zero emission steel is the preferred choice in global markets, with efficient use and near-zero emission steel production established and growing in all regions
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Hydrogen: The aim is for affordable renewable and low carbon hydrogen to be globally available
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Agriculture: Climate-resilient, sustainable agriculture becomes the most attractive and widely adopted option for farmers everywhere
Though there are currently products and services supporting those goals, it is estimated that existing technologies can drive only half of the reduction in C02 emissions needed by 2050. We need new innovations in areas like energy efficiency, hydrogen fuels, and carbon capture to reach a net zero world.
European entrepreneurs are all too aware of this and are leveraging their technology expertise in service of our planet. Examples from the Isomer portfolio include:
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Meatable who are developing cultivated meat in a bid to eliminate the need to raise and slaughter cattle to meet the world’s increasing appetite for animal protein. Livestock production accounts for 70% of all agricultural land use, takes up 30% of the planet’s land surface and is responsible for 18% of greenhouse gas emissions.
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Cowboy’s connected electric bikes are providing a clean and efficient way to get around cities.
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Tulipshare brings activist investing to the masses, enabling users to put pressure on companies to drive ethical change.
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Worldfavor brings companies full transparency on their supply chains and helps drive a sustainability agenda.
? Venture Capital Plays A Crucial Role In Building The Technology We Need For A Net-Zero World
New technologies require early believers who can provide capital and support. As with many breakthrough innovations from personal computers to the Covid-19 vaccine, venture capital funding can bring technology from the lab to the market. Investors are already paying attention: Pitchbook data suggests that over $40bn has gone to climate tech companies from January 2020 to August 2021, a 37% increase on the total invested in 2018 and 2019.
Similarly, more capital is going to sustainability-focused funds. In Europe they’ve raised $1.8bn this year, according to Sifted, a meaningful amount representing nearly 10% of the total raised in 2020. We’ve noticed a sharp increase in the number of European early stage VC firms focused on climate; we’re currency tracking over 30 of them. It was a hot topic at the recent SuperVenture conference in Berlin, which interestingly took place at the same time as COP26. Out of 15 meetings we had with venture capital firms, 6 were climate specialists.
Generalist investors are also actively looking at climate tech, in particular those who are experts in deep tech. Though we haven’t (yet) backed a climate-focused fund, we note that over half of our portfolio managers have done at least one deal related to climate goals, in areas like solar energy, carbon emissions tracking and offsetting, battery technology, smart cities and the circular economy.
? Environmental Impact Needs To Be Accounted For
Just as double-entry bookkeeping has supported economic growth for the past 600 years, it is clear that companies must measure and account for their environmental impact if we aim to reach a net-zero world. During COP26, the IFRS announced the new International Sustainability Standards Board (ISSB) in an effort to bring consistent standards. ISSB will set a global baseline for sustainability reporting, complementing existing sustainability standards like the GRI and SASB.
As with most ESG-related matters, the EU is leading the world’s regulatory efforts and is proposing ambitious targets in the Corporate Sustainability Reporting Directive (CSRD). Meanwhile, European financial institutions are already subject to the Taxonomy Regulation and EU Sustainable Finance Disclosure Regulation (SFDR), which bring absolute performance measurements to sustainability to increase transparency.
As targets become increasingly important, measuring impact will become the new norm. But how can we do this? Companies like Normative are providing specialised carbon accounting and reporting tools. For early stage startups and their investors, where environmental impact is not always clear, initiatives like Leaders for Climate Action are providing useful tools to measure and reduce carbon footprint. As for broader ESG topics, standardisation is needed to help investors report in a meaningful way and avoid greenwashing. Initiatives by institutions like the PRI and Invest Europe, as well as VentureESG, a group of European VCs and LPs, are underway to bring guidance and harmonisation to assessment and reporting.
We’re inspired and excited by the potential for technology’s potential to create a greener future. The need for new solutions creates an unprecedented opportunity for founders and investors alike.
