At the height of the Covid-19 pandemic, cross-sector businesses scrambled to become more agile by digitalising processes and adapting to software that could strengthen remote working practices.
Covid-19 accelerated the uptake of industry 4.0 – essentially companies looking to advance their digital processes in order to remain competitive – but it is not just fear of missing out on savvy tech solutions that is driving tech investments.
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Victor Basta, co-head of DAI Magister, a boutique investment bank that advises international technology and climate companies, believes that investing in tech is a powerful way to boost environmental, social and governance (ESG) portfolios and for corporations to become more environmentally friendly.
Will climate tech kick fintech off its pedestal?
When asked what key trends are occurring in the tech investment space, Basta explains that the buzz around fintech may be dying down.
He estimates that between 2020 and 2022, fintech valuations are down by around 70–80%. He explains that a lot of fintech companies are now faced with abrupt strategy upheavals in order to become profitable, which is resulting in layoffs across the sector. In contrast, he points to high growth in climate tech.
“Climate-tech investment has multiplied in a very short space of time,” says Basta. “Over the next year or two, climate-related tech investing will become the single biggest investment area worldwide.”
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By GlobalDataHe adds that pressure from activists and employees asking organisations pointed questions over what they are doing to combat climate change has spurred an uptick in investment into climate change-focused tech solutions.
Another advantage that Basta says the climate tech investment space has over fintech is the pressure for companies to be ESG friendly.
“It is hard to make business-to-business software ESG [compliant], it just doesn’t fit the fintech script,” he adds. “An area that [investors and companies] want to be doing more in and be seen to be doing more in, let’s be clear, is stuff that fits under the ESG umbrella.”
Supply chains provide ample tech investment opportunities
Despite big governmental projects with trillion-dollar valuations, such as the building of nuclear reactors, often making headlines in the climate change tech space, Basta points out that there is a lot of smaller, private sector activity bolstering climate tech.
“There is an awful lot of investments [in the private sector] that are optimising what already exists,” says Basta. “Small changes can have a dramatic effect.”
Supply chains are highlighted as a key area for businesses in which climate tech can be applied. When it comes to minimising emissions used in supply chains, using electric vehicles and digitalising supply chains for better transparency are hailed by Basta as good and fairly simple investments.
Despite highlighting Europe as a leading region when it comes to investing in climate tech, Basta notes that there is still ample room for more investment.
“Out of all logistics in Europe, approximately only 7% is digitised, meaning that there is still an enormous amount of inefficiency, and as a result, an enormous amount of energy being wasted,” he says. “Climate tech investments – such as tech that helps to ensure cargo trucks are full in both directions – could dramatically reduce the overall climate impact.
“So, businesses can do that by just optimising and digitising their processes with tech that already exists.”
Cautious over costs
With a global recession looking increasingly likely, alongside a cost of living crisis and rapidly rising energy bills in many countries, the ‘easy wins’ for companies that Basta describes are particularly appealing to investors in 2022.
Overall, he says that investors have become more cautious, meaning that raising investment in tech has gotten more competitive.
“The cost of money has gone up a lot so there is more pressure on company valuations,” says Basta.
Despite this he believes that the shrinking valuations across tech companies are not as low as they could be given the current geopolitical landscape but warns that the lowered valuations have caused a certain level of pessimism across the industry.
“People are behaving like the sky is falling in, in some cases, but we just had two bad years [referencing the impact of Covid-19] and we are unlikely to repeat them any time soon,” says Basta.
Difficulties finding tech talent
When asked about the issue of sourcing, training and retaining tech talent, Basta holds the view that the responsibility to solve the tech labour shortage lies with the companies that require this talent, and not governments.
“The market for technical talent is still incredibly inefficient,” he says. “I don’t underestimate how hard it is to actually set solutions up, it needs management, but if the lifeblood of your growth is adding technical talent, there are ways in this world that you can go and figure it out.”
He highlights being open to remote countries such as Nigeria and Nepal, explaining that companies should establish centres in underexploited locations.
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“There is a reason that Microsoft is opening campuses in Kenya,” says Basta. “There are a lot of people between the age of 20 and 40 where the education system is reasonably good, and you can always train people.”
He adds that although government initiatives can be productive, companies could be waiting for ten years to see the results of projects that are being announced in 2022.
The drive for businesses to continually evolve through implementing advanced technology-based solutions is expected to continue. The same is certainly true for the spotlight on sustainability and climate change and the pressure on businesses to be part of the solution.
It stands to reason, then, that Basta’s vision of climate tech taking the top spot for tech investments could come to fruition at a fast pace, but companies will have to get creative around solving the tech talent shortage plaguing the West in order to be in a position to utilise the tech solutions on offer.
Editor’s note: The original version of article appeared on our sister site Investment Monitor.
