On day two of COP26’s ‘World Leader’s Summit’, Finextra attended European finance consultancy Oxera’s ‘Economics of Climate Change’ session, which brought to life the role that both investors and greentech startups can play in delivering decarbonisation.
The session introduced six guest CEOs and founders of some of the fastest-growing startups tackling climate challenge today, and demonstrated how economics can provide the toolkit for harnessing the multi-disciplinary skills that will ultimately make decarbonisation possible.
According to Jon Wallace, fund manager, Jupiter Green Investment Trust, over two thirds of the emissions gap can be bridged with existing technologies. This includes established technologies, as well as those that are relatively early in their lifecycle, yet already commercially viable.
The remaining third, however, need to be supplied with sufficient capital to get to market, as a matter of urgency. “Innovation will likely come from like-minded businesses, working collaboratively together,” said Wallace. In time, we will start to see global emissions reduced as the greentech space takes off.
As delegates gather at COP26 in Glasgow, the investment world is looking for powerful signals from businesses that are ready to address climate change.
Geo-mapping climate risk exposure
The first key greentech explored was climate intelligence platform and geo-mapping firm, Cervest.
According to Dr Min Shi, head of litigation, Oxera, in order to build a more resilient future, we need up to date and accurate data on how climate change is impacting the assets we rely on. To meet this challenge, Cervest has developed an artificial intelligence (AI)-powered tool - called EarthScan - which quantifies the historical current and future climate risk for buildings, factories, transport networks, and power plants.
Iggy Bassi, founder and CEO of Cervest argued that increasingly volatile environmental events will continue to present significant hazards - costing trillions of dollars. As such, adaptation and resilience are critical for economic growth and human security, and must be built into all organisations; addressing not only transitional risk, but the physical risks that are already locked into our climate system.
EarthScan enables organisations to manage these risks by bringing together data modelling and machine learning (ML), to provide on-demand climate intelligence, explained Dr. Benjamin Laken, head of innovation, Cervest. “Changes in risk can be analysed from 1970 to 2100,” he said. Once vulnerabilities - or emerging opportunities - are pinpointed, portfolios and insights can then be shared with stakeholders.
Looking ahead, technologies like EarthScan will prove key to not only de-risk business decisions and support adaptation strategies, but also to meet Task Force on Climate-Related Financial Disclosures (TCFD) financial disclosure guidelines.
The importance of capital to help tools like this scale is hard to underestimate. In H1 this year, Cervest announced that it raised a $30 million Series A round led by Draper Esprit, which enabled the company to move aggressively into the US and European markets, and help even more enterprises, financial services companies, and governments quantify climate risk down to the asset level.
The power of the oceans can also be harnessed to address our food, climate, and biodiversity crisis.
Simply Blue Group, for instance, creates blue economy projects, floating offshore wind farms, and utilises wave energy, and low impact aquaculture. “These initiatives also create new economic opportunities for local communities,” said Sam Roch-Perks, co-founder and managing director, Simply Blue Group.
The oceans have for too long been exploited to meet our demands for energy, food, and waste deposit. “With technologies like Simply Blue Group’s, said Dr. Leonardo Mautino, head of regulation, Oxera, “we can meet these needs in an environmentally friendly manner, and forge a sustainable aquaculture.”
Low-carbon freight delivery systems
Another challenge to be tackled by greentech is people’s increasing demand for small deliveries to their homes, around-the-clock. Andrew Meaney, head transport, Oxera, noted that “this will come at a great cost to the environment, and therefore needs to be planned for in terms of air pollution and traffic congestion.”
To help decarbonise our roads and communities is Magway - an all-electric, zero-emissions, low-footprint, high-capacity delivery system. This integrated, open access delivery system looks to connect cities, towns and communities through a network of underground tunnels and remote-controlled delivery vehicles. The technology, when scaled up, has the potential to remove up to 90% of online delivery vehicles from our roads.
Nigh-infinite battery power
As populations and economies grow, demand for energy continues to rise. Cost-effective and easily deployable green technologies will therefore be critical to unlocking growth in a way that limits environmental damage, said Christopher Davis, principal, regulatory economics, Oxera.
Infinite Power is a greentech firm that has developed a cell which generates enough energy to power major infrastructure, 24/7, for up to a century - and with a zero-carbon footprint and zero waste. According to Steve Whitehead, COO, Infinite Power Company, the technology works in a similar way to solar cells - except it uses a radioisotope as the energy source. “It can power a phone, or light the world,” he added.
At a cost base of two cents per kWh, it is one of the most cost-effective green energy solutions available today, and can be applied in any quantity, anywhere around the world.
Driving carbon offset quality
The demand for carbon offsets is also set to increase substantially in the coming years, as more of us look for ways to reach net zero. Not all offset projects, however, are of equal quality and effectiveness. They vary considerably in terms of the carbon reduction or sequestration they achieve. Consumers need to know the difference.
“We need accessible information and standards to be able to analyse projects, and have confidence in the offset market,” said Michelle Granastein, head of aviation, Oxera. To address this challenge, carbon offsets platform, Sylvera, seeks to provide clarity on the quality of many offset projects.
“While the natural environments that provide the world’s greatest carbon sinks are not valued in our financial system, they will continue to be destroyed,” said Sam Gill, co-founder and COO, Sylvera.
With the right approach, however, land can be a net carbon sink - it has the potential to remove 20-years’ worth of CO2 at 2018 levels. The protection of these environments is therefore critical to the future of the planet, but the economic incentives to destroy them remain larger than incentives to renew them. “Such are the stark realities of the economics of climate change,” said Gill.
The carbon market exists to finance projects that protect and restore the carbon that is stored in ecosystems - buying the world vital time to deliver the technological breakthroughs needed to deliver complete decarbonisation. However, to realise this potential, carbon markets must scale. And markets need data to do so.
“Poor quality offsets can lead to reputational damage, and accusations of greenwashing,” said Annalise Downey, ratings associate, Sylvera. “But perhaps more critically, it stops them from reaching net zero.” Indeed, responsible buyers will no longer stand for sub-standard offsets, and they are demanding greater transparency when it comes to performance.
Sylvera plugs the data gap by putting boots on the ground in remote tropical forests, capturing satellite data, and working with proprietary GIS and machine learning models, explained Bilal Hussain, quantitative analyst, Sylvera. This work enables the firm to measure forest environments in 3-dimensional detail - from the ground up.
These learnings are then compiled to provide buyers with a mechanism to compare project quality and performance across several criteria.
According to Gill, independent data verifiers, free from conflicts of interest inherent in the broker-led model, have the potential to catalyse billions of dollars of investment into nature restoration and protection.
Supporting innovation now and in the future
Economics is a study of positive trade-offs that is key to bringing vital solutions and technologies to market.
Clearly, the greentech needed to achieve net-zero goals is already available. The key is finding mobilising the finance to deploy them to the wider market. These innovative solutions need financial backing - at all stages of the product lifecycle - in order to fulfil their potential to tackle the climate challenge. Investment trusts like Jupiter - which have been investing in sustainability and environmental solutions since 1988 - are key players in fuelling the green revolution.
In the words of Margaret Thatcher, we do not own this planet - we borrow it for the next generation, on a full repairing lease. The seemingly insurmountable challenges that confront the financial sector must be reduced, by investors and GreenTech, to a tighter swim lane of opportunity.