TBLI Weekly - March 21st, 2023


TBLI Weekly - March 21st, 2023

Your weekly guide to Sustainable Investment

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TBLI Better World Prize

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TBLI Investor Salon - 2023

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Educational Alpha Podcast - CAIA Association


Listen in on conversations in the Educational Alpha Podcast with host Bill Kelly, CAIA Association’s CEO, and an eclectic group of guests within the world of finance. Hear about their professional or personal journeys, career and life advice, and perspectives on the industry.

In this episode of Educational Alpha podcast Bill catches up with Robert Rubinstein, social entrepreneur and driving force behind TBLI Capital – the world’s leading impact investing authority and network focused on education, advising, and connecting investors. Listen in and hear what Robert means when he says, “I have full confidence in the greed of people”.

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Private equity in health care continues to grow

Key takeaways:

  • Private equity firms target health care because it is seen as a more stable investment.
  • Research on patient outcomes has shown mixed results, but some PE-owned hospitals have become more efficient by cutting costs and increasing revenue.

Private equity has had a long involvement with and continues to stay active in the business of health care.

In a panel discussion at the University of Pennsylvania’s Leonard Davis Institute of Health Economics, Rachel M. Werner, MD, PhD, executive director at the institute, said the number of private equity deals in health care has increased from 325 in 2010 to more than 1,000 in 2021.

“Private equity firms have invested nearly $1 trillion through thousands of deals to acquire hospitals and specialized practices in the last decade alone,” she said.

The driving force behind these deals, according to Sabrina T. Howell, PhD, associate professor of finance at New York University Stern School of Business, is the concentration of money in the healthcare sector.

“In 2021, U.S. health expenditures were 18% of GDP,” she said. “At the same time, the private equity industry has grown dramatically over the past couple of decades.”

According to Howell, the value of the portfolio companies owned by private equity leveraged buyout funds was more than $2.6 trillion in 2021. More than half of those investments were in the U.S. Howell said private equity in health care has increased more than 10 times between 2004 and 2021, when investments topped $150 billion.

Factors on both the health care and equity sides are contributing to the surge of deals, Howell said.

“Many health care providers are welcoming new capital sources as they’re facing financial pressures due to higher costs and lower reimbursements, particularly after COVID-19 started,” she said. “They are pressured to get funding to upgrade technologies or expand, and it’s getting harder for smaller, independent companies to get loans from traditional sources.”

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Swedish cleantech startup collects $20M to unlock fast, electric and sustainable waterborne transport

Stockholm-headquartered startup with electric hydrofoil technology, Candela, has raised $20 million in a funding round co-led by EQT Ventures and investor duo Joel Eklund (Fosielund Holding AB) and Svante Nilo Bengtsson (Marknadspotential AB) with the participation of Ocean Zero LLC, among others. The startup intends to use the capital to mass-produce Candela’s revolutionary foiling 30-passenger ferry, the Candela P-12 Shuttle, at the company’s new Stockholm factory.

Candela was founded in 2014 by engineer and business leader Gustav Hasselskog with the mission to accelerate the world’s transition to fossil fuel-free lakes and oceans by developing electric vessels that outperform those powered by fossil fuels. The startup’s revolutionary electric hydrofoil technology promises to help operators switch to sustainable electric vessels, by offering shorter travel times, frequent departures and more comfort than traditional ships while substantially decreasing operational costs.

Flying above the surface on computer-guided hydrofoils, underwater wings, P-12 Shuttle uses significantly less electricity; 80% less energy than traditional vessels, which translates into a record range of 60 nautical miles on one charge at a cruising speed of 27 knots.

When launching this summer, P-12 Shuttle will become the fastest and longest-range electric passenger vessel in the world. Most importantly, these exciting speeds do not come at the expense of the climate. A recent life cycle analysis by Stockholm’s Royal Institute of Technology concluded that a P-12 ferry will emit 97.5% less carbon dioxide over its lifetime compared to a diesel vessel of the same size – a stunning figure that includes emissions from production, operations over 30 years and recycling.

For operators, the real allure of Candela P-12 lies in its ability to cut operational costs by 50%, thanks to the low energy usage and maintenance.

Candela is in sales discussions with more than 180 interested parties about the P-12 Shuttle systems. The first operator will be the Region of Stockholm, moving commuters between the suburb of Ekerö and central Stockholm. Travel times will be cut from currently 55 minutes by car, bus or conventional diesel ferry to just 25 minutes in the P-12. Since the vessel creates zero wake, it has received an exemption from the 12-knot speed limit on Stockholm’s urban waterways, resulting in more frequent departures compared to traditional ferries.

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Does sustainable investing work?

The jury's still out on the cost of capital for companies and the change created

As more and more capital flows into sustainable investing, there are two burning questions: one, does this lower the cost of capital for the underlying companies; and two, do these companies go on to affect the change investors are expecting to see (alongside financial performance)?

With both these questions in mind, is sustainable investing the biggest lever an investor has in creating a better future for people and planet?

In 2020, Alex Edmans, professor of finance at London Business School, stated that the first question’s answer isn’t a simple yes or no. He argued that the relationship between sustainability performance and the cost of capital is complex and depends on several factors. These included the level and nature of systemic risk, the amount of risk aversion in a company, and the cyclical behaviour of public trust in business, notwithstanding the nature of the business itself and the role of other factors in either managing risk or creating risk.

A different paper by the Multidisciplinary Digital Publishing Institute in 2022 found that while better ESG performance is associated with a lower cost of equity, the relationship is positive regarding the cost of debt. In other words, equity investments reward sustainability, fixed income investments don’t. Yet, the authors also found that the channels of a firm’s cost of capital composition also acts differently in response to changes in sustainability performance.

The answer to the first part of the question, therefore, is likely yes in equity markets (subject to the complex factors that can influence this cost) and in debt, no (again, subject to the complex factors that can influence this cost).

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Canada at 'crucial crossroads' for clean tech investments

OTTAWA, March 20 (Reuters) - Canada must boost investments in the green transition in the federal budget to be presented next week, or else it risks losing out on a one-time opportunity to boost jobs and economic growth, Finance Minister Chrystia Freeland said on Monday.

Canada's 2023-2024 budget will include a "serious investment" in clean technologies, Freeland said in a speech in Oshawa, Ontario, without providing details, though she also promised fiscal restraint in the face of high inflation.

"Investments in our economic capacity are fiscally responsible," Freeland told reporters after her speech, saying not making those investments at what is a "crucial crossroads" would be "reckless" and "irresponsible."

"We ... can invest aggressively in the clean economy of the 21st century in a smart, focused, Canadian way. Or we can be left behind," she said.

Countries across the globe are trying to take advantage of a rapid shift to low-carbon energy, and the passage in the United States of the Inflation Reduction Act (IRA) last year provides massive incentives for those who invest there.

Canadian Prime Minister Justin Trudeau has set a goal of net-zero carbon emissions by 2050, and all new cars sold from 2035 must be zero emissions. Car manufacturers in the U.S. and Canada, which are already highly integrated, are in the process of pivoting toward building more electric vehicles (EVs).

Greater cooperation on critical minerals used to make EV batteries is going to be a topic of discussion between Trudeau and U.S. President Joe Biden, who is visiting Canada later this week, officials in Ottawa said.

China now dominates the world's supply of critical minerals for EV batteries.

Russian President Vladimir "Putin and the pandemic have cruelly revealed to the world's democracies the risks of economic reliance on dictatorships," Freeland said.

Since Canada has limited financial firepower compared with the United States, it will focus on increasing the electricity grid's capacity, battery manufacturing and mass timber construction, said a source familiar with the budget plans.

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The EU unveils plans to boost its shift to green energy: Here's what you need to know about the global energy transition this week

The European Commission has unveiled one of the centrepieces of its energy transition strategy in an attempt to ensure the EU can compete with the US and China in making clean tech products and accessing raw materials. Its Net-Zero Industry Act and Critical Raw Materials Act are part of its Green Deal Industrial Plan.

The Commission says global investment in the energy transition is set to triple by 2030 from $1 trillion last year. "The bottom line is that we want to be leaders in the green industries of the future," Vice-President Valdis Dombrovskis said.

The EU's executive branch has set targets for the region to mine 10% of the critical raw materials it consumes – including lithium and, for the first time, copper and nickel – with recycling adding a further 15%. It also aims to increase processing to 40% of its needs by 2030.

The EU has also set a target for 2030 of producing at least 40% of the products it needs for net-zero technologies, such as solar power or fuel cells, partly by streamlining the granting of permits for green projects. The bloc has also announced a goal for carbon capture of 50 million tonnes by 2030.

2. East Asia set to remain top wind power region

East Asia is on track to remain the world's top wind power production region thanks to a project development pipeline that will expand its capacity by 65% by the end of 2030, according to data from Global Energy Monitor (GEM). Wind is the largest and fastest-growing source of renewable power globally, and is expanding at a record pace in every major economy.

Wind power generated roughly 7.8% of the world's electricity in 2022, but it must expand by enough to produce 21% of global electricity by 2030 in order to put the world on track to hit net-zero emissions goals. The predicted rapid pace of wind power expansion means the goal of having it generate over 20% of global electricity by 2030 is potentially achievable.

China will remain the largest wind producer and top wind capacity developer, but South Korea, Japan and Taiwan will all post faster growth rates than China through to 2030, according to GEM. Together, these East Asian countries are set to make up 36.2% of world wind capacity by 2030, GEM data show.

Europe will be the second-largest wind power developer over the remainder of this decade, boosting capacity by 68% from current levels. And the United States is set to cement its position as the second-largest wind producer overall thanks to a 53% increase in capacity by 2030. Brazil looks set to more than treble its current wind capacity and jump to third in the global rankings, from seventh now.

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