The rise of ESG investing
The past years have seen a rise in awareness towards social and environmental issues, spanning from climate change to the gender pay gap. Several industries, including the financial sector, are adapting their operations to fulfil new environmental standards that have emerged for this discourse.
In 2020, a spike in ESG funds’ inflows (over $5bn in monthly investments), highlighted a growing appetite for greener and more ethical investments. ESG Funds are portfolios of equities and/or bonds related to companies or governments that meet specific environmental and social standards. They represent one of several examples of how the financial industry is adapting to meet the public’s higher sensitivity towards more ethical issues. New regulations, especially in Europe, are having an impact as well, with big US firms being required to disclose climate, diversity, and governance data for investments in funds marketed within the EU. This has pushed many American companies, including those that do not champion sustainability, to increase their effort in pursuing a more environmentally conscious approach to business. Furthermore, the SEC is also advocating for stricter rules concerning this matter by setting up a task force to pursue misleading ESG disclosures.
According to JPMorgan Chase & Co, nearly $7.2tn were invested according to ESG guidelines in 2020, up from around $3tn last year, of which 80% in Europe alone.
2021 saw record investments in green metals
Another late trend in ESG investing is the recent rise of the shares in global lithium and battery ETFs, with an average increase of 170% YOY. Lithium producers were also able to raise more than $2 billion from investors during the past months. These two phenomena are consequences of investors betting that the global shift towards electric vehicles will create a super-cycle in the price of metals used for battery manufacturing, as predicted by analysts at Goldman Sachs and JPMorgan. Vision Blue, a fund centered around investments in battery metals, was launched in February 2021 raising over $54m, of which $30m were pumped in a graphite production project, with the latter being one of the core elements of lithium-ion battery production. Similarly, Lithium Americas, which is leading the construction of a lithium mine in Nevada, managed to raise $400m of investments to expand its operations. Indeed, Lithium is expected to be the next commodity to see a price surge as supply has failed to keep up with a rise in demand; Albemarle, the world’s largest producer of lithium, expects demand to surpass 1m of tons a year by 2025.
All the aforementioned examples clearly show a significant shift towards greener and more eco-friendly investments that will, in turn, favor the ecological transition.
Boutique banks lead M&A activities in clean energy
Based on the Bloomberg League Tables 2020 (Figure 3), boutique banks have an overwhelming presence in M&A activity for clean energy. In this section, we will explore the top 2 acquisition advisors: boutique banks’ Greentech Capital Advisors (“Greentech”) and Marathon Capital LLC.
Greentech is a prominent boutique investment bank focused on supporting clients within the sustainable technology and infrastructure sector. Founded in 2009, It has offices in New York, San Francisco, Chicago, and Zurich. Since 2017, Greentech has been the leading M&A advisor in clean energy and energy-smart technologies (Figure 4).
In its 2019 annual report, Greentech reported a record 23 deals, with Disclosed Deal Values ranging from $500m to $720m. This remarkable performance was almost matched the following year with 22 disclosed deals, and values ranging from $72m (converted from €60m) to $9,855m. The transactions fell within the first’s “sustainable sectors of impact” (Figure 5).
On 1 April 2020, it was announced that Nomura Holding America Inc completed the acquisition of Greentech. Its businesses will be rebranded “Nomura Greentech” and integrated into Nomura’s Global Investment Banking franchise.
Founded in 1999, Marathon Capital is the leading investment bank operating in the USA and Canada, with a focus on renewable energy, global energy, and infrastructure markets. The services provided include M&A advisory, corporate and project financing, tax equity to restructuring. Marathon Capital was named the "M&A Adviser of the Year" (2019) in Power Finance & Risk's Annual Power Finance Deals and Firms Awards.
In 2020, Marathon Capital advised 17 transactions, almost doubling the 9 deals of 2019. Transaction Segments include Solar, Wind, Geothermal, Biomass, Biofuels, and Energy technology and services.
Earlier this year, Marathon Capital looked to expand its client and investor base within Europe’s robust energy ecosystem, by appointing a Senior Managing Director and Head of European Investment Banking.