8 December 2021

2021 in Review: Decarbonisation

Written by Chris Stebbings

LGB's decarbonisation theme has become a more active space as the year has progressed, particularly leading up to COP26 in early November. While many people’s view of COP26 was that it delivered very little as China and India failed to fully commit to the reduction in CO2 to limit emissions to below 1.5°C, we believe the impact was significant particularly to consumers and especially on corporates. 

There is a broad range of stocks covered under our decarbonisation theme, including hydrogen, battery storage companies, electric vehicle manufacturers, specialist material manufacturers, recycling companies and agri-food tech companies. Many of these have come to market this year with varying degrees of success, while the two listed fuel cell companies (AFC Energy and Ceres Power) which peaked in Q1 have retraced by about a third. Most of these are pre-revenue but with strong IP backing and performance has been stronger from those with imminent revenue generation.

There have been a couple of areas of note over the last 12 months, namely regarding hydrogen. In July, we were involved with the IPO of HydrogenOne Capital (HGEN) which has been investing primarily in private companies building the hydrogen economy and the infrastructure to support that. HydrogenOne is a company, not a fund. It was cornerstoned by Ineos at the IPO with the shares performing well, +16% to date.

The other area of particular note is the food agri-tech space where we have raised money for two entities: Agronomics (ANIC) and the Cibus Enterprise Fund, both of which have performed extremely well over the last 12 months. This is a broad space encompassing fermentation, genetics, proteins, precision agriculture, vertical farming, traceability, automation and robotics which are all evolving very rapidly and attracting significant capital.

The outlook for decarbonisation companies remains positive as ESG money continues to flow into this area and the requirement for new sources of energy such as hydrogen remains strong. The reality is that the energy shift away from fossil fuels will be spread across a number of clean fuels and technologies and the transition will continue to be slow for another one to two years at least, as infrastructures are built to support new legislation around initiatives such as the transition to electric vehicles and reductions in carbon emissions generally. The adoption of less energy-intensive and longer-lasting products like LED lighting will intensify and the affordability of both domestic and commercial renewable power generation will significantly increase demand.

We believe we will see a number of  new IPOs in 2022 in this space and we will be focusing on strong management, significant IP, quality partners and also visible revenue generation.

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