The Green Transformation and its Investment Opportunities in Europe

Tackling the climate crisis requires an enormous effort from politics, society and entrepreneurship. Entrepreneurs have repeatedly shown that they can initiate broad disruptions with technical innovations. We need these disruptions now more than ever, but: In the climate tech sector, particularly in Europe, there are still major financing gaps. We created World Fund to narrow this gap.

When Larry Fink, the founder and head of Blackrock, said at the end of 2021 that the next 1,000 unicorns would be in climate tech, it didn‘t just make waves among financial experts. The head of Blackrock, the world‘s largest asset manager, also emphasized the above-average return potential of climate tech. The topic has long since entered the mainstream of the investment world.

Climate tech are technologies tackling the climate crisis by significantly reducing greenhouse gas emissions. Climate tech startups are companies that offer such technologies. The term is intentionally broad to reflect the wide range of technologies used to combat GHG emissions and the wide range of industries in which they are used.

Venture capitalists are crucial to the success of many companies.

Decisions about which companies succeed with their ideas and technologies are not made in politics or in the arena of public discourse. In the USA, more than two-thirds of the 500 largest companies are or were supported by venture capitalists. These, therefore, play a key role in deciding which companies really mature into major players.

This makes the investment gap in Europe in climate tech all the more astonishing: The EU spends the most money worldwide on research and development in this area, almost 30% of all global climate tech patents are registered here, and no other startup sector is growing faster. However, a look at the absolute figures shows that only a fraction of VC investments ends up in European climate tech. In its ?State of Climate Tech Report 2021“, the consulting firm PWC analyzes that the corresponding investments in the USA were recently around three times as high as in the EU. Although the total venture capital invested has recently increased worldwide, it is still significantly lower than in many other sectors.

Climate potential and return opportunities go hand in hand.

We believe climate tech is a structural growth chance, much like digital technology – a theme permeating all areas of business and society. We believe in the transformative power of venture capital to change the future for people and the planet.

Our goal: provide innovative climate technology startups, especially in Series B investment rounds and later, with sufficient capital and know-how to contribute to fundamental transformation with their technology and business model.

To succeed in our mission, we need to identify the companies that have great potential to tackle the climate crisis and promise superior returns. On the positive side, we are moving toward a world where both goals are becoming increasingly congruent.

To find the companies that meet these criteria, we rely on a two-step process. In the first step, we analyze which possible deals theoretically have the potential to achieve the climate impact we are aiming for. This reduces the number of companies we analyze further to around one-fifth. In the second step, we move into the deeper, classic analysis.

Our core financial KPI: the Climate Performance Potential (CPP)

One uniqueness of World Fund is our potential analysis. To this end, we use a new indicator, the Climate Performance Potential (CPP). We only invest in companies that can reduce annual greenhouse gas emissions by 100 Mt of CO2 equivalent or more by 2040 at the latest – one-seventh of Germany‘s current greenhouse gas emissions.

What makes the CPP special is that it combines the goals of a regenerative economy and the expected financial returns. On the one hand, nothing has as significant an impact on climate change as the GHG we emit worldwide. On the other hand, the ambitious target of 100 Mt reduction ensures that we focus on companies whose products or services we see at least a potential global sales market.?After all, no local market can achieve such high GHG reductions.

The aim is not only to promote sustainability but also to generate financial returns. With the CPP key figure, we are looking far into the future. We do not want to calculate how many GHGs a technology has already saved or can currently save but rather what additional potential it offers for the future.

Example 1: the solar industry

According to CPP, companies that install solar modules on private houses would no longer be a worthwhile investment target. The reason is to look at future expected performance, not the current market. In 2022, a company would need to install solar panels on around 20 million roofs in Europe to reduce GHGs by 100 Mt – ambitious but potentially feasible. Looking ahead to 2040, the math looks quite different. In 18 years, we expect Europe to have a completely different electricity mix that is significantly more decarbonised than today. Accordingly, a sufficient CPP would no longer require around 20 million roofs but rather 80 million. The CPP automatically ensures that the focus is on companies that address a sufficiently large market and can be expected to impact climate positively.

To stay with the solar example, the World Fund analysis focuses on integrated solutions instead of private solar roofs: How can storage solutions, e-vehicles or heat pumps be combined as effectively as possible and operated with sustainably generated energy? This market, we are convinced, offers greater GHG savings potential and better return opportunities in the long term.

Example 2: Quantum Computing

Quantum technology could be worth up to $850 billion worldwide over the next 15 to 30 years if it is scaled and accuracy and stability are improved – according to 波士顿谘询公司 . Quantum computing is an enabling technology with extreme speed advantages over any supercomputer for certain computations. It has great potential for areas such as drug discovery, encryption, and more accurately predicting movements in financial markets. Google announced in 2019 that a quantum process they developed completed a calculation in 200 seconds that would have taken the world’s fastest supercomputer 10,000 years. Since its founding, IQM Quantum Computers ' goal has been to contribute to societal progress with its own technology, which explicitly includes helping to address the climate crisis. There is great potential here for quantum computers because they can model solutions that are impossible with the computing power of classical computers. According to 麦肯锡 , climate technology developed using quantum information can reduce CO2 emissions by 7 Gt per year by 2035 – many times our CPP target. Using our much more conservative method, we are getting to a CPP of more than 600 Mt per year in 2040.

Example 3: Juicy Marbles

Around 58 million tons of beef are currently produced worldwide each year. No other type of meat produces as many greenhouse gases. Conservatively calculated, these 58 million tons of meat cause almost 700 Mt of CO2-equivalent greenhouse gases. Companies like Juicy Marbles offer an attractive alternative for those who don’t want to give up the taste of beef. Based on soy grown in Europe, the company has developed a vegan food that not only smells and tastes very similar to a fillet steak but also looks and has a similar texture. The CPP was also decisive in addition to the classic company analysis: Although Juicy Marbles is currently still too small for a corresponding GHG reduction, the product could save many times the targeted 100 Mt per year worldwide, well before 2040.

Summary: Climate tech as an investment opportunity

By thinking globally and screening its target companies to see if they think the same way, World Fund can invest specifically in those players that will potentially have the most significant positive climate impact. This broad approach also offers opportunities for investors. The excellent response to our concept and the confidence shown by existing investors show that we are not alone in this assessment. We have already invested in more than ten startups (some to be disclosed soon) and are constantly looking for the next company with a convincing management team, strong product and CPP.

(A similar version of this article was published in the Financial Yearbook Germany/EU 2023; FYB.de Financial YearBook Publishing )