“[T]he next 1,000 unicorns, or start-ups worth at least $1 billion, will be involved in climate technology.” – Larry Fink, CEO of BlackRock
Precisely, they’ll be businesses developing green hydrogen, green agriculture, green steel and green cement.
We agree.
I have written articles about how greenwashing is readily apparent within the impact-focused investing world and how there’s an existing macro-issue with many institutional asset managers in how they market their products to investors. Specifically, I referenced some of the recent activity at BlackRock, the world’s largest asset manager, and admit I did give a decent amount of criticism. While I may present opposing views in certain circumstances, I am in complete agreement with the overall theme that the next wave of unicorn companies will be “green” companies.
Within this article, I will demonstrate that the companies of the future, the ones that will receive material investment dollars, will be those focused on green technologies and green business operations. Interestingly here, many of the financial institutions that claim they want to invest in these businesses really do want to do just that, but that they don’t have the opportunities available to make those placements today. Smaller investors who do not have to manage such large amounts of capital just may have those opportunities already, as we will see.
The world is awash with capital at the moment, specifically capital that can be tied to climate-focused green investing if given the opportunity. Companies that position themselves within this space in the coming decades will have the capital raise opportunity of a lifetime at their fingertips. Early-stage company accredited investors should be focusing some of their investment capital towards the companies that they see as early and likely successful movers here.
The capital is ready and available, but no one is at the wheel
One of the anomalies that exists in the impact investing world today is that we all seem to know that we want to invest in successful “green” businesses, but no one seems to know how to do it.
For example, an article in Fortune that addressed some of the discussion around this green investing topic at the COP26 conference in Glasgow recently grabbed attention. The conference was specifically focused on climate change. All the most powerful global politicians of course were there to show their support for climate-related action and the same was done by the reigning monarchs of the investment world.
Per Fortune, at the conference “financial firms managing $130 trillion commit[ted] to net-zero goals, but no one [could] agree on what that really means.” Interesting. Everyone knows that they want something, but they can’t even define it. Who will shine some light here? Whoever does will receive a lot of investment capital.
Forbes recently ran a similar article, reciting the same $130 trillion under management figure, but stated that the firms’ investment goals would generally be agreed to that of the Paris Agreement. It seems that at the moment that none of these large financial firms has one, consolidated “green” or “ESG”-focused impact investing framework to utilize. Everyone is just kind of winging it as they go while at the same time trying to not fall behind.
Regardless of the investment rubric, I want to wrap our heads around the investment dollars into green businesses being discussed. Both media firms are stating that $130 trillion dollars are searching for business investment into sectors that can solve and/or adapt to an increasingly warming global climate. To put this in perspective, per Statistica, global GDP (i.e., the value of all goods and services produced on a global level) will be just $93.8 trillion in 2021 in comparison. Even throughout the forecast period of 2026, future annual global GDP will only be $122.3 trillion. Basically what these articles are saying is that the entire world of wealth creation, both literally and figuratively, is looking for green investments. They just need a proper home for the money.
Focusing on green investment is smart business for large financial firms
It is incredibly clear that Blackrock sees climate change as a future driver of profits. Specifically, the firm states that “climate change is a business opportunity, because addressing it will require that virtually every segment of industry will have to be reinvented.” This is simply a smart business decision on the behalf of BlackRock.
Clients are directly telling Blackrock that they want to invest in these green sectors, all Blackrock needs to do is what their clients instruct them to.
“As an asset manager at the nexus between owners of capital and companies and assets we invest in on behalf of them, we see this playing out every day. Asset owners are looking for investment opportunities that will come from this historic transition to net zero.” – Larry Fink, Blackrock CEO
From my own reading on impact investing, I have never seen a leader of any large financial institution come out and say that green investing is a bad idea or that their firm won’t pursue it in the future. That would be a death toll to the firm as a whole. The vast majority of these firms’ clientele care about these issues and want to direct money towards the problem as long as the businesses solving these problems create profits for the investors.
These firms benefit in other ways as well: if there is a moral cause tied to an investment, investors are often less demanding with respect to financial returns, which provides some breathing room for the money manager, and, since these portfolios are actively-managed, these money managers can justify higher fees than their traditional ETF, passive investment products.
“Nobody really knows what that means”
It is important to note the general confusion that exists in the “green” investment market today (and also the massive investment opportunity that comes with this confusion).
Every financial firm is telling their audiences that they want to invest in green companies and I generally believe that they are telling the truth.
Business leaders recognize that solving these climate issues has huge demand in the investing populus, and if their portfolio companies can scratch this itch then they will be the future leading enterprises of the world. The old guard wants in, of course.
But how can these large financial firms balance their current return requirements with future uncertain growth? Upon reading the articles above, you will notice contradicting statements from BlackRock compared to statements Larry Fink made during his speech, as reported by CNBC. Larry Fink is saying that the future of huge value companies will be in the impact or “green” investing space. They will focus on solving or adapting to a changing global environment and these companies will solve the world’s most pressing problems, primarily related to climate change. In return for their service to humanity, they will be rewarded with gigantic business valuations, unlimited capital and supposedly swaths of accolades.
Obviously, Blackrock wants to participate in the growth and subsequent capital appreciation of these green enterprises. But stated abruptly after these comments, Fink noted that BlackRock would not be divesting from hydrocarbon companies. Rather, Fink often states that his firm needs to own the S&P 500, including substantial positions in Exxon and other “non-Green” companies, but that they will use their influence to push for reduced climate impact within their portfolio. We´ll see.
Hydrocarbon companies are obviously the poster child for anti-green business. Why would BlackRock maintain these legacy positions that are not in line with the future investment framework of the firm? Even investment veterans like Bill Gates are weighing in on the subject, predicting that oil companies will be worth very little in 30 years. He expects that many of these giants will fail – most notably the ones who don’t actively transition to a green energy future.
The answer to keep a “business as usual” strategy for BlackRock and other large money managers is simple: until the next round of companies go “green” and they have a better investment option, they have to place capital somewhere. Profit is the current goal, the future goal and the only goal. It always will be. There is no green alternative to hydrocarbon companies in the short-term at a scale that BlackRock can migrate to. Essentially there is no Green ExxonMobil to divert resources to today. These firms have to place trillions of dollars, not millions. When someone has a green energy enterprise in which Blackrock can invest 10 figures, Fink’s minions will be ready with their pens. But until that time, large money managers will retain their profit-first duty to their shareholders even if that means a less than full commitment to green investment.
We hope that some of our investors find these green opportunities before BlackRock does. They will get a huge payday if they can once these businesses grow and become acquirable by larger financial players.
Conclusion and Author’s Final Words:
There is literally unlimited capital available for companies that are attempting to change the way the world operates in relation to climate change.
Climate change-focused companies have the world looking to them for answers and the capital will follow. Every financial firm wants exposure to these businesses. The companies themselves just need to operate at a sufficient scale and level of impact for these institutional players to take interest. This new green investing world is being written as speak.
The leaders of global financial institutions are not scientists, they can’t predict the future of the world. But they can make bets on which they think will make the most profit. The capital is there for investment and these firms really do desire to deploy it. It’s only a matter of time before they come up with an intelligent structure as to how to deploy it more efficiently. That day will come. When it does, the capital movement will be potentially the largest in human history.
Accredited investors should look to invest in green companies before the big boys get to them.
There is a huge gap between a start-up company and a company the size of which BlackRock would look to take a bite. Once BlackRock, or any of its peers for that matter, has an interest in investing in a company there is almost zero probability that individual investors will be able to get in on that deal. The opportunity will be gone from that point forward. BlackRock and their peers manage the wealth of nations, quite literally. Once a company gains institutional interest, the courting process with the large institutions will result in an institutional capital placement nearly 100% of the time if 9 or 10-figure checks are required to move the business forward.
This inherently provides an opportunity for accredited investors and a strategy to look for when placing their own capital. Accredited investors should look to participate in seed or early stage funding rounds of companies with this kind of potential before the institutions come in. Look to green companies who have the expertise, the business model and the aspiration to go public or do a large corporate divestment one day. These same large financial institutions could be your large value exit opportunity in the future.
Investors should look for early stage investment opportunities within the green industries that BlackRock is also pursuing.
Although a simple statement from Larry Fink within his CNBC article, it is inherently wise within its brevity. The three industries Fink describes above of clean energy, green construction & real estate and sustainable agriculture are at the top of our list as well at Legacy Group. While we currently focus primarily within the agricultural space with our portfolio company, the Green Coffee Company, we are strategically looking to implement clean energy and green construction solutions within our business model. These green innovations are the techniques and practices of the future, that’s guaranteed.
Eventually these green options will be seen as the norm. Until that day comes, accredited investors should look to get ahead of the curve in their investment portfolios. Opportunities for early-stage investment into companies operating within these industries have the potential to provide life-changing returns to investors. We highly recommend investors start honing in on these green investments early.
About Legacy Group
Legacy Group is distinguished by a singular tradition of service to our portfolio partners; the mutual commitment to, and the seamless collaboration of, a true partnership; formidable financial and legal talent across multiple disciplines and jurisdictions; and shared professional values that focus on client needs.
We provide experience and investment to a wide range of private companies spanning many industries, including real estate, hospitality, tourism, agriculture and technology. Contact us to learn more and to discuss current investment opportunities available to you in our portfolio companies.
*This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of our clients.
Sources:
https://fortune.com/2021/11/03/net-zero-finance-coalition-cop26-mark-carney/
https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
https://www.statista.com/statistics/268750/global-gross-domestic-product-gdp/
https://legacy-group.com/currentofferings
https://legacy-group.co/measuring-impact-a-modern-critique-of-the-current-state-of-impact-investing/
