The competitive nature of the sustainable investment market is forcing investors to spot the green leaders of tomorrow – likely those companies transitioning from ‘grey to green’.
Rather than today’s already well-known green leaders, older-line industrial businesses in capital-intensive sectors are more likely to be attractive in the future, according to John Goldstein, global head of sustainability and impact solutions in the client solutions group at Goldman Sachs Asset Management (GSAM).
“That transition is where you’re really going to unlock potential value,” he explained. “There may be real value uplift from a financial and a climate-impact perspective.”
Picking from private stock
GSAM tends to invest in solutions created by privately-held companies that are typically in unique market niches.
The firm doesn’t necessarily expect them to become Fortune 500 companies, but will instead be integrated into the supply chains of larger corporations – making them more sustainable and facilitating their transition.
“Corporations have set ambitious sustainability goals and need solutions to help achieve them,” said Letitia Webster, head of sustainability for private investing at GSAM.
One approach such companies might take, she explained, is to focus on broad solutions that can be integrated into a wide variety of products such as biopolymers, which are made from renewable sources.
She said GSAM also looks at carbon-intensive sectors to understand their pain points in the transition, to determine what solutions will be necessary for them to decarbonise.
For example, when it comes to the utility grid, Webster prefers solutions that increase the grid’s overall output and reduce costs as part of the clean energy transition. “We are investing in short- and long-duration energy storage platforms,” she said, “as well as in the inverters that are a critical component for battery, wind and solar storage projects by connecting and enabling the interaction between the power-producing asset and the power grid.”
At the same time, early-stage companies also provide a burgeoning source of investment potential as the transition gathers pace.
“As the technologies become more sophisticated and cost-effective, and there is more consistent and dependable demand that investors can predict and plan for, they become backable by larger institutional capital with larger investment commitments,” said Webster.
As a result, compared with investments in low double-digit millions of US dollars, she said GSAM is now investing capital upward into triple digits, recognising the growth potential of these companies with sustainable products.