AFTF 2022: partners on the path to net zero

The path forward is together.

As disparate governments, corporations, investors and individuals double down on a net-zero, nature-positive future, many do so under unique circumstances, and on a unique path.

But for Deniz Harut, Executive Director at global climate investment and advisory firm Pollination, there’s a better way – one that can lead to radical partnerships for long-term value creation and being ahead of the curve on growth.

“One of the biggest challenges companies looking to decarbonise face is defining their own transition journey,” she said. “Everyone wants to solve the challenge on their own within silos. But the truth is [the process] needs cooperation, coordination and a holistic approach.”

The increase in sustainability-driven M&A activity and partnerships is a clear trend. This is increasingly popular, Harut said, because corporates need help understanding and strategising how to get to net-zero – and assistance financing and implementing those strategies.

For the foreseeable future, it is reasonable to expect M&A assessed from a sustainability perspective will be crucial means to create growth and competitive advantage, according to Harut.

“[Strategic partnerships] extend our reach and scale far beyond what we could achieve alone,” she said.

Little wonder then dealmaking with ESG principles at the core has been on the rise across sectors, with green deals having tripled in value to $US164 billion in the year to December 2021.

In 2021 alone, startups in the climate-tech space raised almost $US55 billion from venture capital and private equity, Bloomberg reports. Some experts put the value of the climate risk analytics market at $US40 billion today.

And while the size and nature of the market varies depending on the needs of the sector, the end goal remains the same – a smoother path to net zero.

Strength in numbers

In the financial services sector, as banks seek to support their customers’ efforts to decarbonise by devising innovative financial products alongside traditional debt and equity products, they are turning to partner with companies that can complement their offerings.

Pollination is one such firm. Founded in 2019, it brings together a diverse group of experts with different skillsets and perspectives under one roof to advise companies on how to decarbonise, and navigate the transition to net zero and nature positive.

“We’re experts in turning the transition challenge into a high integrity and credible strategy,” Harut said.

As ANZ seeks to support the transition to net zero – including efforts to facilitate over $US50 billion in sustainable finance by 2025 alone, and supporting the use of blockchain tech to promote the carbon-trading market – one way the bank hopes to address its capability gaps is through partnerships with the right firms.

In 2022, ANZ and Pollination struck an agreement that allows the latter firm to scale up its advisory services across ANZ’s global client network, while enabling the bank to enhance the scope and impact of its sustainable finance offerings by supplementing them with Pollination’s domain expertise.

Together, these two entities are now better placed to support their respective customers in their plans to grow sustainably.

“Pollination’s know-how in transition, scientific and analytical skills, coupled with expertise in policy and regulations is complemented by ANZ’s deep understanding of debt capital markets and the ability to deliver innovative sustainable finance products,” Harut explained.

 “ANZ’s presence in more than a dozen markets across Asia means the bank has exceptional reach where investment in decarbonisation and nature is both critically important and a huge opportunity.”

Banks and financial institutions can further promote sustainable development by investing in SMEs and equipping them to capitalise on the growth opportunities afforded by the transition process, according to Harut.

Indeed, banks are already stepping up efforts in this direction, with ANZ extending its $US200 million funding program with the Clean Energy Finance Corporation to support Australian businesses investing in emission-reducing infrastructure.

No signs of a slowdown

Sales of green bonds globally continue to grow, with public and private entities raising $US54 billion in green bonds in September 2022. On the M&A front, transactions involving ESG-focused firms have continued strongly, jumping 111 per cent year-on-year in the first half of 2022 despite the prevailing economic uncertainty and rising interest rates.

Experts expect more such deals to emerge because companies, whether big or small, high-emitting or not, need help embedding ESG metrics and decarbonisation plans into their core strategy.

Another area seen benefiting from corporations pooling their resources and expertise is the preservation of natural capital, which is seen as one of the most effective ways of tackling climate change.

“Natural capital investing recognises the intrinsic value of our ecosystems, and there is a growing need to undertake existing economic activities in a way that is aligned with nature and ultimately serves to build resilience,” Harut said.

“Innovative green technologies are also contributing to decarbonisation, and Pollination has partnered with several venture capital and high-growth companies and investors to help accelerate their impact.”

Besides partnerships and investments motivated by corporate efforts to mitigate the impact of climate change, analyses and decisions around M&A increasingly factor in ESG considerations.

Investors view them as crucial to identifying value creation opportunities and assessing risk, with over half of all executives surveyed in a recent study noting that a company’s ESG record justifies higher deal valuations or expect it will be so in the future.

“It’s not just about financial due-diligence anymore, but also climate due-diligence and corporate action must walk the talk of climate strategy,” Harut said. “ESG principles are no longer just nice-to-have for a business.”

“Addressing the world’s twin climate and nature crises will drive the biggest disruption in financial markets since the industrial revolution.”