Is Sustainable Investment Becoming ‘the New Normal’?
The pandemic has definitely created something unprecedented. That is the overuse of the word ‘unprecedented’.
In these extraordinary times, there simply seems to be no other way of describing the crisis. The other overused cliche is of course ‘the new normal’. A broad-brush stroke claim about new behaviour that has now been established, shattering past certainties. But as economies start to reopen, how much real change are we likely to see? Is it going to be back to business as usual or is this a chance for a re-set and a focus on the goal of true sustainability? And will all the change be positive?
Certainly, people across the globe not in the front line, have all had more time to reflect from a professional and personal perspective on what is important to them. The more COVID continues, the longer we are in this situation, the more time there is to embed behavioural change in consumers. This ranges from a newfound appreciation of local businesses and food supplies to wanting to help others and appreciating brands positively contributing to society rather than just selling.
But while we may currently be marvelling at the reduction in CO2 levels, as economies reopen this clean air will become a distant dream amidst the petrol fumes returning. Equally, while families may have enjoyed times together in lockdown, offices reopening means people starting to commute back in. Could it be that present behaviours are in fact a necessary aberration to the real normal that will return?
Green shoots of recovery
For those of us who work in sustainable investing, the truth may prove less straightforward or black and white. The behaviour of investors can provide some early clues to what kind of world may emerge in the post-COVID era and encouragingly some green shoots are apparent. Angel investors are the lifeblood of the startup ecosystem, providing seed capital to support fledgling businesses. This ecosystem is of course now looking increasingly fragile as a result of COVID and caused the government to step in with the ‘Future Fund’ to support innovative early-stage businesses impacted by coronavirus.
Encouragingly for startups as a whole, a recent survey by Activate our Angels (AoA), regarding their investment strategies during the COVID-19 pandemic, found that over 65% of angel investors are continuing to invest in startups during lockdown. Many are completing more deals and actually increasing their cheque size by as much as 18%.
Despite this, the pandemic has reduced their total capital to invest in 2020 by just over 61%, while just under 60% think the effects of COVID-19 will negatively affect their ability to invest for the rest of 2020. So, it seems angel investors are being more choosy. Does this signal bad news for newer ESG categories? Encouragingly no. Analysing data from the Angel Investment Platform over the past few months we have seen some shifts in behaviour that point to investors anticipating a greener, more sustainable future.
Back in February, which feels like a lifetime ago, we revealed the findings of our annual state of the angel investment nation report. It was based on the data of more than 100,000 UK registered businesses looking for funding and 30,000 investors. We reported the stunning rise in interest for sustainable businesses. Searches for ‘Renewables’, ‘GreenTech’, and ‘environmental’ had shot up from nowhere to become popular search terms. The mood music had changed on the back of consumer activism and changes to government policy.
65% of angel investors are continuing to invest in startups during lockdown.
Searches for renewable businesses rocket
While it might have been expected that investors would be retreating from these categories in favour of safer investment opportunities, the exciting news is these are actually generating more interest from investors. Renewables are now the 11th most popular keyword for searches, up from 14th pre-COVID, which was in itself a rise of 34 places compared to 2018. This trend is being replicated by other popular keywords being used at the moment. GreenTech is now the 13th most popular keyword, up from 47th last year, a remarkable rise.
Tech remains the overall most popular search term but increasing numbers of innovative companies are fusing environmental solutions with deep tech to come up with incredible solutions to mankind challenges. These are some of the really exciting trends that have actually accelerated, rather than slowed down or been delayed due to COVID. This is mirrored in the global markets, where ESG funds have consistently outperformed traditional ones since COVID emerged.
Governments across the globe have become the key economic actor during the crisis with the return of Keynesianism and this necessary intervention to support businesses that have stopped trading. They, of course, have choices about how much they want to continue to support fossil fuel producers and on what basis. This crisis for all its challenges could represent a once in a lifetime opportunity to truly back green energy and sustainable solutions.
The shift to supporting sustainable businesses was already happening, but investors are now backing them with more energy, seeing the potential of these businesses for future growth. An example of a company winning backing, tackling a real issue through fusing tech and sustainability is AirEx, a smart ventilation control that uses algorithms to improve the energy efficiency of homes. Home insulation can be part of a green revolution creating jobs post COVID and tackling challenges we need to address. A win/win.
Meanwhile, another firm who have won investment on our platform includes Disruptive Plastics, who make food good polymers through recycling plastic bottles. Their aim is disrupting the plastics recycling industry with innovative technology and following a true circular economy model. The crisis has brought home the interconnectedness of the world. Businesses that recognise this and tackle these challenges can reap the rewards.
Food security is top of the agenda
Another interesting trend on the platform relates to searches for ‘agriculture’. This has been of increasing interest to investors, up four places to the 4th most searched for search term in the post-COVID period. There has been real fear around food security and companies tackling this will have a huge role to play. Suddenly that fear of our food supply being stripped away has made us appreciate how important it is. Intensive farming as an industry also runs the risk of causing future pandemics, with animals in close proximity increasing the likelihood of animal-to-human disease transmission. Encouragingly new tech startups are challenging this.
Hummingbird Technologies is an Artificial Intelligence business that provides advanced crop analytics to its customers by using satellite and drone data and proprietary machine learning algorithms. They allow customers to increase their yields, optimise chemical inputs, farm more sustainably and make earlier, more informed decisions.
Investors are seeing the opportunity for huge innovation with ag-tech and smarter food production so we can use technology to be more sustainable. While agriculture has perhaps been one of the slower sectors to embrace disruptive thinking, coronavirus represents a unique opportunity to tackle this.
Increasing consumer demand will also help to drive change. Farm Drop is a thriving business which offers home delivery of fresh organic veg, fruit and meat from local farmers. It’s a way of supporting food producers in a sustainable way, ensuring a fair price. With lockdown lasting months, many consumers have now become used to receiving their produce in this way.
It seems certain that we will need to think innovatively and greener to tackle the specific challenges COVID creates. Angel investors will follow the signals and look to businesses that will lead the future and provide rich returns. They also understand that businesses will need to step up to understand what consumers will want in the future.
Meanwhile, governments have the power to set the parameters and infrastructure to support a truly sustainable business climate. This includes electric charge points, modernising homes and favourable incentives for investors and sustainable businesses. This will ensure we really can talk about ‘a new normal’. We all have a role to play in making it happen and ensuring it is not just a cliché. That really would be unprecedented.