{"id":12776,"date":"2021-07-08T14:05:40","date_gmt":"2021-07-08T10:05:40","guid":{"rendered":"https:\/\/pressreleasenetwork.com\/site\/?p=12776"},"modified":"2021-07-11T12:59:51","modified_gmt":"2021-07-11T08:59:51","slug":"green-financing-of-corporate-breakthroughs","status":"publish","type":"post","link":"https:\/\/pressreleasenetwork.com\/site\/2021\/07\/08\/green-financing-of-corporate-breakthroughs\/","title":{"rendered":"Green Financing Of Corporate Breakthroughs"},"content":{"rendered":"\n

Corporates understand the vital importance of becoming more sustainable, both to unlock growth and to create\u00a0corporate\u00a0strategic\u00a0advantage.\u00a0Meeting\u00a0this\u00a0sustainability\u00a0challenge\u00a0requires\u00a0three\u00a0building\u00a0blocks\u00a0\u2013\u00a0technology,\u00a0scale-up\u00a0capabilities,\u00a0and\u00a0capital\u00a0 \u00a0all\u00a0working\u00a0together\u00a0to\u00a0start\u00a0the\u00a0flywheel\u00a0spinning,\u00a0as\u00a0outlined\u00a0in\u00a0a\u00a0recent\u00a0Arthur\u00a0D.\u00a0Little\u00a0Prism<\/a>\u00a0article<\/a>.\u00a0Previously,\u00a0capital\u00a0has\u00a0often\u00a0been\u00a0lacking\u00a0for\u00a0quick\u00a0and\u00a0impactful\u00a0breakthroughs,\u00a0but\u00a0now\u00a0the\u00a0range,\u00a0options,\u00a0and\u00a0availability\u00a0of\u00a0green\u00a0finance\u00a0forcorporates\u00a0are\u00a0increasing\u00a0rapidly,\u00a0helped\u00a0by\u00a0historically\u00a0low\u00a0interest\u00a0rates,\u00a0a\u00a0greater\u00a0investor\u00a0appetite\u00a0for\u00a0risk,\u00a0and\u00a0expanded\u00a0and\u00a0more\u00a0sophisticated\u00a0subsidies\u00a0and\u00a0government\u00a0incentives.\u00a0Options\u00a0span\u00a0traditional\u00a0and innovative green financing methods, both for the funding of green assets and technology development.<\/p>\n\n\n\n

Corporates\u00a0may\u00a0learn\u00a0from\u00a0techniques\u00a0that\u00a0have\u00a0evolved\u00a0within\u00a0sustainable\u00a0finance\u00a0to\u00a0support\u00a0the\u00a0scale up\u00a0of\u00a0clean\u00a0technology.\u00a0This\u00a0Viewpoint\u00a0explains\u00a0the\u00a0green\u00a0financing\u00a0landscape\u00a0and\u00a0how\u00a0to\u00a0determine\u00a0the\u00a0best\u00a0option\u00a0for\u00a0your\u00a0needs.<\/p>\n\n\n\n

Previously,\u00a0transformational\u00a0change\u00a0in\u00a0sustainability\u00a0was\u00a0limited\u00a0due to a lack of available funding to support often long and\u00a0costly\u00a0innovation\u00a0roadmaps.\u00a0Without\u00a0funds,\u00a0corporates\u00a0cannot\u00a0successfully\u00a0leverage\u00a0the\u00a0existing\u00a0building\u00a0blocks\u00a0of\u00a0winning\u00a0technology and scale-up capabilities. While\u00a0investors have\u00a0increasingly\u00a0considered\u00a0green\u00a0opportunities\u00a0(with\u00a0a record\u00a0US\u00a0$580\u00a0billion\u00a0of\u00a0global\u00a0climate\u00a0finance\u00a0flows\u00a0in\u00a02019,\u00a0according\u00a0to the Climate Policy Initiative), there has been a mismatch\u00a0between\u00a0their\u00a0priorities\u00a0and\u00a0the\u00a0available\u00a0options.<\/p>\n\n\n\n

Four\u00a0trends\u00a0have\u00a0transformed\u00a0this\u00a0picture\u00a0over\u00a0the\u00a0last\u00a0year:<\/p>\n\n\n\n

1.\u00a0\u00a0Increased government action<\/strong>, through greater regulatory\u00a0activity and focus on building back greener post-pandemic\u00a0economies.\u00a0Billions\u00a0of\u00a0dollars\u00a0of\u00a0funding\u00a0have\u00a0been\u00a0made\u00a0available by initiatives\u00a0such as the\u00a0EU Green Deal\u00a0and\u00a0national\u00a0and\u00a0supranational\u00a0organizations\u00a0such\u00a0as\u00a0export\u00a0credit\u00a0agencies and development banks \u2013 but only to projects that\u00a0demonstrate\u00a0a\u00a0positive impact\u00a0on\u00a0sustainability.<\/p>\n\n\n\n

2.\u00a0\u00a0Greater investor interest in, and\u00a0<\/strong>funding for, green<\/strong>\u00a0initiatives<\/strong>.\u00a0These\u00a0allocations\u00a0are\u00a0often\u00a0coupled\u00a0with\u00a0an\u00a0appetite\u00a0for\u00a0higher risk\u00a0opportunities\u00a0in\u00a0an\u00a0era\u00a0of\u00a0low\u00a0returns\u00a0from\u00a0other\u00a0asset\u00a0classes.<\/p>\n\n\n\n

3.\u00a0\u00a0Higher involvement of industrial\u00a0companies<\/strong>. Corporates are becoming more familiar with the breadth of potential green technologies to adopt and are increasingly looking at novel financing routes to enter the market or scale up their ambitions to meet sustainability and net zero objectives.<\/p>\n\n\n\n

4.\u00a0\u00a0Rapidly widening ecosystems<\/strong>.\u00a0Green innovation is\u00a0transforming the traditional ecosystems corporates operate\u00a0in, bringing new players, partners, and opportunities for\u00a0collaboration. A good example is the Alliance to End Plastic\u00a0Waste, a nonprofit founded by companies that make, use,\u00a0sell,\u00a0process,\u00a0collect,\u00a0and\u00a0recycle\u00a0plastics.\u00a0Its\u00a0members\u00a0aim\u00a0to\u00a0invest\u00a0$1.5\u00a0billion\u00a0over\u00a0five\u00a0years\u00a0to\u00a0develop\u00a0solutions\u00a0that\u00a0minimize and manage plastic waste, to catalyze additional\u00a0investments,\u00a0and\u00a0to\u00a0promote\u00a0solutions\u00a0such\u00a0as\u00a0reuse,\u00a0recycling, and\u00a0recovery.<\/p>\n\n\n\n

The\u00a0green\u00a0finance\u00a0ecosystem<\/strong><\/p>\n\n\n\n

Corporates looking to leverage green investment now have\u00a0a widening choice of both traditional and innovative green\u00a0financing\u00a0options\u00a0available\u00a0to\u00a0them,\u00a0backed\u00a0by\u00a0greater\u00a0capital\u00a0from multiple private and\u00a0public sources. To explain the\u00a0ecosystem and its players, we have\u00a0split these options into\u00a0two\u00a0categories:<\/p>\n\n\n\n

1.\u00a0\u00a0CAPEX\u00a0funding\u00a0of\u00a0assets\u00a0(e.g.,\u00a0a\u00a0wind\u00a0farm\u00a0or\u00a0a\u00a0plastics\u00a0recycling\u00a0facility).<\/p>\n\n\n\n

2.\u00a0\u00a0DEVEX\u00a0funding\u00a0of\u00a0new\u00a0technology\u00a0until\u00a0first\u00a0commercial\u00a0construction\u00a0(e.g.,\u00a0next-generation\u00a0solar\u00a0technology\u00a0or\u00a0the\u00a0development\u00a0of\u00a0new\u00a0plastic\u00a0recycling\u00a0processes).<\/p>\n\n\n\n

The green financing radar (see figure overleaf) illustrates how\u00a0private and public funding may complement corporates\u00a0in\u00a0financing green innovation ecosystems. (Note\u00a0that investor\u00a0categories\u00a0are\u00a0diverse,\u00a0and\u00a0relative\u00a0positions\u00a0may\u00a0vary\u00a0widely.)<\/p>\n\n\n\n

Aimed\u00a0at\u00a0both\u00a0developing\u00a0and\u00a0mature\u00a0investors,\u00a0they\u00a0provide focused funding for projects that were previously\u00a0overlooked. However, due to their niche nature, blue bonds\u00a0can\u00a0be\u00a0difficult\u00a0to\u00a0incorporate\u00a0into\u00a0wider\u00a0investor\u00a0approaches,\u00a0leading\u00a0them\u00a0to\u00a0be\u00a0bypassed\u00a0in favor\u00a0of\u00a0other\u00a0options.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0ESG-linked finance<\/strong>. As well as green\/blue\u00a0loans\/bonds\u00a0related\u00a0to\u00a0a\u00a0specific\u00a0project\/purpose,\u00a0there\u00a0is\u00a0a\u00a0growing\u00a0number of ESG-linked\u00a0loans\/bonds. Here funding\u00a0is not\u00a0linked to a specific\u00a0purpose, but ESG KPIs are defined\u00a0and\u00a0if\u00a0they\u00a0are\u00a0met\u00a0the\u00a0interest\u00a0rate\u00a0reduces.<\/p>\n\n\n\n

Asset\u00a0recycling\u00a0platforms<\/strong><\/p>\n\n\n\n

Proven\u00a0options\u00a0from\u00a0capital-intensive\u00a0clean\u00a0infrastructure:<\/p>\n\n\n\n

Across both categories, risk appetites and the players\u00a0themselves vary, depending on investment\u00a0horizons, asset\u00a0maturity, and technology\u00a0readiness levels (TRLs). For example,\u00a0early-stage, high-risk DEVEX funding often comes from\u00a0government grants or seed funding. When the technology\u00a0develops, it attracts venture capital backing before appealing\u00a0to\u00a0lower-risk\u00a0investors\u00a0such\u00a0as\u00a0private\u00a0equity\u00a0in\u00a0its\u00a0mature<\/p>\n\n\n\n

phase. These investors come into play in midrange commercial\u00a0readiness stages once technology\u00a0risks and early commercial\u00a0hurdles\u00a0(such\u00a0as\u00a0proof\u00a0of\u00a0market\u00a0viability)\u00a0have\u00a0been\u00a0overcome.<\/p>\n\n\n\n

Innovative\u00a0green\u00a0asset\u00a0financing\u00a0options<\/strong><\/p>\n\n\n\n

Alongside traditional funding options such as debt or equity\u00a0investment, project financing, and the creation of investment\u00a0funds and trusts, there is a\u00a0growing range of innovative green\u00a0financing\u00a0options\u00a0for\u00a0corporates\u00a0and\u00a0large\u00a0family\u00a0offices\u00a0looking\u00a0to accelerate green projects and technology, provided\u00a0by\u00a0specialists\u00a0and,\u00a0increasingly,\u00a0by\u00a0commercial\u00a0banks.\u00a0Focused on\u00a0sustainability,\u00a0these\u00a0include:<\/p>\n\n\n\n

Sustainable\u00a0bonds<\/strong><\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Green loans\/bonds<\/strong>. Also known\u00a0as climate bonds, these\u00a0are long-term fixed-income financial instruments that\u00a0have positive sustainability, environmental, and\/or\u00a0climate\u00a0benefits.\u00a0Aimed\u00a0at\u00a0mature\u00a0investors,\u00a0they\u00a0raise\u00a0finance\u00a0for\u00a0climate change\u00a0solutions\u00a0and projects.<\/p>\n\n\n\n

On the positive side\u00a0they increase the funding available for\u00a0green projects but bring higher levels of project scrutiny.\u00a0Demonstrating\u00a0their\u00a0growth,\u00a039\u00a0bonds\u00a0were\u00a0issued\u00a0in\u00a02020\u00a0through the\u00a0London Stock Exchange green bonds initiative,\u00a0raising\u00a0$18\u00a0billon.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Blue loans\/bonds<\/strong>. These bonds focus solely\u00a0on raising\u00a0finance\u00a0for\u00a0certified\u00a0and\u00a0tracked\u00a0solutions\u00a0and\u00a0projects\u00a0within\u00a0the blue economy, assisting better stewardship\u00a0of oceans\u00a0and associated industries. For example, the Seychelles\u00a0government\u00a0issued\u00a0a\u00a0$15\u00a0million\u00a0sovereign\u00a0blue\u00a0bond.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Capital recycling<\/strong>. An emerging vehicle, capital recycling\u00a0repurposes funds toward greener initiatives by selling or\u00a0leasing an entire asset (or a\u00a0stake in it) when it reaches\u00a0a\u00a0lower\u00a0risk\u00a0phase.\u00a0The\u00a0capital\u00a0is\u00a0then\u00a0recycled\u00a0by\u00a0investing\u00a0in new green projects. For example, a wind farm developer\u00a0could sell a stake in a specific project to a mature investor,\u00a0such\u00a0as\u00a0a\u00a0corporate\u00a0infrastructure\u00a0company\u00a0or\u00a0government,\u00a0when it\u00a0begins\u00a0operations.<\/p>\n\n\n\n

Capital recycling unlocks new funding for green projects, although asset control is lost and there can be sensitivities if released funding is not used for green projects or assets are transferred from the public to private sector.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Farm down<\/strong>.\u00a0Also known as \u201casset rotation\u201d or \u201cbuild-sell-\u00a0operate,\u201d equity stakes in a project are sold progressively to\u00a0long-term\u00a0investors,\u00a0such\u00a0as\u00a0investment\u00a0funds,\u00a0investment\u00a0banks,\u00a0or\u00a0private\u00a0investors.\u00a0This\u00a0reduces\u00a0CAPEX\u00a0and\u00a0the\u00a0investment burden on project developers building clean\u00a0energy\u00a0infrastructure\u00a0while\u00a0delivering\u00a0stable,\u00a0ongoing\u00a0returns\u00a0for investors.<\/p>\n\n\n\n

As\u00a0with\u00a0capital\u00a0recycling,\u00a0this\u00a0results\u00a0in\u00a0the\u00a0loss\u00a0of\u00a0control\u00a0of\u00a0the\u00a0underlying\u00a0asset\u00a0and\u00a0can\u00a0lead\u00a0to\u00a0systemic\u00a0risk\u00a0if\u00a0multiple investors rely overly on the investment returns\u00a0generated\u00a0by\u00a0infrastructure\u00a0assets. An\u00a0example\u00a0is\u00a0EDP\u00a0Renewables\u2019 $975 million asset rotation deal for European\u00a0wind\u00a0farms.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Asset platforms (or yield companies)<\/strong>. An asset platform is\u00a0a listed or unlisted\u00a0company formed by a group of investors\u00a0to own green, de-risked operating\u00a0assets that produce a\u00a0predictable cash flow and returns, primarily through long-\u00a0term contracts. Investors include corporate companies with\u00a0an energy\/renewables\u00a0focus, investment managers, and\u00a0investment\u00a0banks. A successful example is NextEra Energy\u00a0Partners.<\/p>\n\n\n\n

Asset platforms provide corporates with a high\u00a0price for\u00a0their\u00a0developed,\u00a0mature\u00a0assets\u00a0while\u00a0retaining\u00a0greater\u00a0value\u00a0compared\u00a0to\u00a0simply\u00a0selling\u00a0them\u00a0off.\u00a0However,\u00a0yield\u00a0cos\u00a0<\/p>\n\n\n\n

have a need to continually acquire new assets and require\u00a0frequent access to capital to fund growth and investor\u00a0distributions. Listed\u00a0yield cos\u00a0must also\u00a0meet additional\u00a0compliance\u00a0and\u00a0corporate guidance\u00a0regulations.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Special\u00a0purpose\u00a0acquisition\u00a0companies\u00a0(SPACs)<\/strong>.\u00a0A\u00a0SPAC\u00a0is\u00a0a company formed and funded via initial public offering (IPO)\u00a0solely\u00a0for\u00a0the\u00a0purpose\u00a0of\u00a0acquiring\u00a0a\u00a0target\u00a0company,\u00a0which\u00a0it\u00a0then takes public. This\u00a0dramatically shortens the route to IPO\u00a0(from one to two years to five to six months)\u00a0while raising\u00a0funding\u00a0for capital-intensive startups.<\/p>\n\n\n\n

Founders, early investors, and corporates benefit\u00a0from\u00a0earlier, profitable\u00a0exits, while still retaining upside potential.\u00a0For\u00a0example,\u00a0electric\u00a0utility\u00a0Engie\u00a0decided\u00a0to\u00a0spin\u00a0out\u00a0EVBox\u00a0(a startup specializing in electric vehicle [EV] charging,\u00a0which it acquired in 2017) publicly via a SPAC. At a valuation\u00a0in\u00a0excess\u00a0of $1.4\u00a0billion,\u00a0this transaction\u00a0will\u00a0allow Engie<\/p>\n\n\n\n

to\u00a0monetize\u00a0its\u00a0investment\u00a0returns\u00a0much\u00a0sooner\u00a0than\u00a0otherwise\u00a0possible.<\/p>\n\n\n\n

SPACs raised over $80 billion in 2020 alone, with a particular\u00a0focus on acquisitions in the\u00a0energy, tech, and EV\/battery\u00a0sectors. However,\u00a0SPACs are higher risk and are normally\u00a0pre-profit \u2013 not always an easy fit with the expectations of\u00a0investors in listed companies. The currently saturated\u00a0market\u00a0also means SPACs are chasing fewer viable investment\u00a0opportunities and may need to return cash to shareholders\u00a0instead.<\/p>\n\n\n\n

Technology\u00a0financing\u00a0options<\/strong><\/p>\n\n\n\n

Corporates\u00a0looking\u00a0at\u00a0investment\u00a0options\u00a0for\u00a0DEVEX\u00a0financing\u00a0can access a wide range of potential sources,\u00a0depending on\u00a0the TRL\u00a0of their project. That makes it key to select the right\u00a0partners\u00a0for\u00a0the\u00a0right\u00a0stage\u00a0when\u00a0it\u00a0comes\u00a0to\u00a0investment\u00a0in\u00a0the\u00a0TRL\u00a0journey,\u00a0and\u00a0particularly\u00a0vital\u00a0to\u00a0understand\u00a0how\u00a0nontraditional\u00a0partners, such\u00a0as investors,\u00a0can assist.<\/p>\n\n\n\n

Along the TRL curve and time horizons, potential investment\u00a0partners\u00a0and\u00a0green\u00a0opportunities\u00a0for\u00a0corporates\u00a0include:<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Government\/public funds<\/strong>, delivering early-stage grant\u00a0investment\u00a0and\u00a0support\u00a0for\u00a0innovative\u00a0projects.\u00a0For\u00a0instance,\u00a0the\u00a0EU\u2019s\u00a0Just\u00a0Transition\u00a0Mechanism\u00a0supports and provides grants, loan facilities, and private investment.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Government-backed<\/strong>venture<\/strong>funds<\/strong>,\u00a0providing investment into green technology ventures complementing private venture capital. The European Circular Bioeconomy Fund, for example, is backed by the European Investment Bank<\/p>\n\n\n\n

and aims to be an important financial instrument in achieving the European Green Deal goals of making Europe climate neutral by 2050.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Venture\u00a0capital\u00a0<\/strong>and\u00a0other\u00a0early-stage\u00a0investors,\u00a0typically\u00a0aimed at equity financing for startups and emerging\u00a0companies with high-growth potential.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Institutional investors<\/strong>, such as commercial banks\u00a0and\u00a0pension funds, also play an important role. Large players\u00a0such as Norway\u2019s sovereign\u00a0wealth fund and US-based\u00a0asset manager BlackRock explicitly promote sustainable\u00a0investment.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0SPACs<\/strong>,\u00a0providing\u00a0large-scale\u00a0funding\u00a0for\u00a0innovative\u00a0technologies.<\/p>\n\n\n\n

\u25a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Industrials<\/strong>,\u00a0working\u00a0with\u00a0companies\u00a0within\u00a0the\u00a0supply\u00a0chain\u00a0to share risk and investment by pooling funds and building\u00a0consortia. For example, Dow, LyondellBasell,\u00a0and NOVA\u00a0Chemicals created the Closed\u00a0Loop Circular Plastics Fund\u00a0to invest in scalable recycling\u00a0technologies, equipment\u00a0upgrades,\u00a0and\u00a0infrastructure\u00a0solutions.<\/p>\n\n\n\n

Success\u00a0factors<\/strong><\/p>\n\n\n\n

Adopting the right green funding option will of course vary\u00a0depending\u00a0on\u00a0an\u00a0individual\u00a0corporate\u2019s\u00a0requirements,\u00a0objectives,\u00a0and circumstances. However, corporates can\u00a0learn from the\u00a0experience\u00a0of\u00a0other\u00a0sectors\u00a0when\u00a0it\u00a0comes\u00a0to\u00a0sustainability\u00a0finance. Whichever options are\u00a0chosen there are three common\u00a0key\u00a0success\u00a0factors:<\/p>\n\n\n\n

1.\u00a0\u00a0Solution ecosystem<\/strong>. Green technology ecosystems\u00a0bring together a widening number of partners, often from\u00a0previously unconnected industries and technologies.\u00a0Corporates therefore need to create a sustainable\u00a0ecosystem that brings together technology,\u00a0scale, and\u00a0capital to spin the flywheel (see figure below) and achieve\u00a0their investment aims. Large, diversified companies will\u00a0typically participate in two or more such ecosystems.\u00a0In\u00a0some,\u00a0they\u00a0may\u00a0be\u00a0enablers\u00a0or\u00a0contributors,\u00a0such\u00a0as\u00a0with\u00a0a\u00a0new\u00a0recycling\u00a0technology.\u00a0In\u00a0others,\u00a0they\u00a0will\u00a0need\u00a0to\u00a0co-initiate\u00a0and\u00a0orchestrate\u00a0to\u00a0realize\u00a0their\u00a0strategic\u00a0ambitions\u00a0and extract\u00a0maximal value.<\/p>\n\n\n\n