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    INVESTMENT BANKING | 3 POINT PERSPECTIVE | SOLVING SUSTAINABLE

    Three trends powering climate technology financing

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    Contributors: George Erikson
    18 Mar 2024

    Climate technology is on a high growth trajectory, and across the spectrum of capital suppliers, investment in climate technology companies and the broader energy transition is both increasing and evolving. George Erikson, Co-Head of Americas, Energy and Climate Technology Investment Banking, outlines three climate technology financing trends entrepreneurs need to know.

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    GO TO SECTION

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    1. Momentum is building in climate technology financing

    Climate technology is becoming increasingly crucial to the global energy transition. Consequently, climate technology investment has rapidly evolved over the past several years.

    Global investment across the energy transition landscape has scaled materially since 2019, spurred by enhanced investor focus and various governmental policy initiatives. Concurrent investment in climate technology, including companies advancing energy, mobility and industrial applications, has increased in both number and size. Although technological, commercial and geopolitical headwinds may impact the near-term rate of change, investor interest could continue to grow for companies that provide the right balance between technological advancement and investor returns.

    2. Cost of, and access to, capital is closely tied to commercial and technology risk

    Given the frenetic evolution in the global effort to address climate change, risk surrounding technological execution and commercial adoption is paramount. Today’s solution can rapidly become obsolete with tomorrow’s advancement. Therefore, capital-seeking climate technology companies should either provide compelling evidence of technological validation and commercial viability or adequately compensate potential investors for the enhanced risk profile.

    Novel technology risk can be managed through multiple pathways, including comprehensive evaluation, a measured scale-up strategy and credible third-party validation. The commercial risk profile can be improved via a targeted “go-to-market” strategy that may include compelling strategic partnerships, executed memorandums of understanding (MOUs) with key customers and / or, when available, binding commercial offtake agreements.

    Although this process may advance through stages, a thoughtful early approach to managing these fundamental risks could validate the market opportunity, enhance investor confidence and reduce a company’s life cycle cost of capital.

    3. A solid commercial strategy requires a robust, secure supply chain

    The COVID-19 pandemic, increasing global geopolitical tensions and ongoing pressure to decarbonize have brought supply chain security into increasing focus. Early stage climate technology companies are at particular risk given their ever-evolving needs, emerging commercial relationship, and limited market power. Investors typically expect a thoughtful supply chain de-risking strategy with substantive, measurable milestones that are consistently met on time and as expected.

    A credible upstream and downstream supply chain derisking strategy may include:

    • Ensuring that there are multiple accredited suppliers for identified services and materials
    • Developing both primary and alternative logistics strategies in key geographies
    • Confirming that a reliable, well-supported workforce exists across supply chains
    • Developing access to low carbon power supplies, as necessary

    Companies that secure a reliable, affordable and green supply chain are more attractive to prospective investors.

    Although investment in climate technology supporting the energy transition has grown rapidly, investor expectations have also evolved. Climate technology innovators should carefully identify, evaluate and mitigate key technological and commercial risks to attract necessary capital including project financing at a compelling cost.

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    About the expert

    George Wm. Erikson

    Co-Head of Energy & Climate Technology

    George Wm. Erikson, Jr. is Co-Head of Energy & Climate Technology at Barclays. Based in New York, Mr. Erikson has led the firm’s coverage efforts for a broad range of global energy companies over his 20-year career in investment banking. Prior to investment banking, Mr. Erikson worked as a corporate and securities attorney in Washington, D.C. He holds an MBA from the University of Virginia Darden Graduate School of Business, a JD from the Vanderbilt School of Law and a BA in History from the University of Virginia’s College of Arts & Sciences.

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