Climate Tech Opportunities Attract Investors

Ivanna Hampton: The climate tech industry stands to benefit from an infusion of billions of dollars. The Inflation Reduction Act is offering incentives for companies to move toward a low-carbon economy. Investment opportunities are expected for years to come. Morningstar’s editorial director for sustainability Leslie Norton is joining Investing Insights to discuss what’s ahead.

Investment in Climate Tech

Leslie, you’re moderating the Investment in Climate Tech panel at the Morningstar Investment Conference next week. Can you give us a quick preview?

Leslie Norton: Happy Earth Day, Ivanna. We have this panel, and the premise of it is that there’s a legislative bonanza for the climate tech industry because of the Inflation Reduction Act, because of the Infrastructure and Investment Jobs Act, and the Chips and Science Act. And this generated enormous momentum for America’s domestic clean energy industry. What is this industry? We’re talking about clean energy generation and grid, we’re talking about carbon emissions removal and decarbonization of the economy, and we’re talking about electric vehicles, new and used, and all kinds of other industries.

The Inflation Reduction Act and Greenhouse Gas Emissions

Hampton: The Inflation Reduction Act is providing incentives to remove greenhouse gas emissions from the atmosphere. Can you tell us what companies could receive?

Norton: Right. Well, one newspaper article called it the U.S. plan to become the world’s clean tech superpower. There are lots of benefits for consumers since this slate of legislation. All these pieces of legislation were announced in the past several months, but they include rebates for families to buy heat pumps and tax credits to install rooftop solar, and of course tax credits for buying electric vehicles, both new and used. But there are lots of incentives for corporate America, too, that will benefit hydrogen and energy storage companies, domestic manufacturing, and of course clean energy stock valuations.

Carbon Tech in 2022

Hampton: Carbon tech closed out 2022 with record-breaking year for venture capital investment in a number of deals. What’s drawing private investors to this area?

Norton: Of course, as we mentioned, there’s a slate of legislation in the United States that’s unlocking investment for this area. Climate opportunity accompanies climate risk. One of the big issues last year and also this year is that Europe needed to replace Russian fossil fuels during the Ukraine war. European countries have serious targets for net zero. Obviously, they’re looking for solutions to the decarbonization issue.

A Tough Climate for Climate Tech

Hampton: We’ve had a bumpy market, rising rates, and recently the collapse of Silicon Valley Bank. What does this mean for climate tech?

Norton: Great question. Silicon Valley Bank was very involved in the climate tech space. I spoke with John McDonough, the analyst at PitchBook who covers clean tech, and what he told me was that larger, more established climate tech startups are obviously going to be able to find alternatives for banking and venture debt. But the problems will arise for smaller, younger startups, the ones that aren’t generating revenue yet. They’re going to find funding more challenging. On the other hand—but, but, but, as people say—there is also increased regulatory support for many climate technologies, so as a result, that’s going to drive the founding of more climate tech startups and their founders who have big dollar signs in their eyes.

What Should Investors Know About Sustainable Investing?

Hampton: And I owe you a Happy Earth Day, so Happy Earth Day, Leslie. And it’s coming up on this Saturday. This year’s theme is invest in our planet. What should investors know if they’re interested in sustainable investing?

Norton: Thank you. Good question. There are plenty of places to find great information about sustainable investing. One of the best is, of course, Morningstar.com, which is where you’re watching Ivanna and me right now. Have a look on the website, click on the sustainable investing tab. When you look up your fund, you can click on the sustainable investing tab there, or rather the Sustainability tab. You can see how we rate the fund and you can see how it screens on a number of issues, such as tobacco or nuclear energy. One of the things I like to tell people is be honest with yourself. Are you investing sustainably to avoid risk or are you trying to align your portfolio with your values? The answer to that matters a lot. You can be in a straight-up equity fund, which probably uses ESG metrics in its investment process. But if you’re looking to make an impact on the world, look for an impact fund and read those fund documents pretty closely.

Hampton: And you mentioned Morningstar.com, and you’ve written an editor’s note for Morningstar.com for Earth Week. What are a couple of highlights in there that while folks are on Morningstar.com should check out?

Norton: Right. We have an array of articles for Earth Week, so thanks for asking. One of them will be on carbon-capture technology. That’s a promising climate solution. We have top-rated funds from sustainable-investing pioneers, and we have a lot of articles ranging from clean energy fund picks to forestry REIT picks to food and agriculture companies that are doing well on the sustainability front.

Hampton: Well, I hope everyone enjoys what you guys have put out for this week. Thanks for your time today, Leslie.

Norton: Thanks for having me.