In his 2022 letter to stakeholders, Blackrock’s CEO, Larry Fink, wrote that the next thousand unicorns won’t be search engines or social media companies, but sustainable, scalable innovators – start-ups that will help the world decarbonise and make the energy transition affordable for all consumers.
We spoke to Manuel Silva Martinez, general partner of VC firm, Mouro Capital, about the role of smart investment to help advance sustainability goals and where he thinks those ‘soonicorn’ innovators are to be found.
Like the great gold rush prospectors, Martinez started out in San Francisco, working in corporate venture capital, before returning to his native Europe in 2015. Alongside business partner, Chris Gottschalk, Manu set up Mouro Capital in 2020 to provide smart capital to innovators who are shaping the future of finance.
What has been the traditional company response to financial technology innovations nationally?
As a global investor, we anticipate overarching trends and developments across geographies and markets, not just within them.
Within our own team, we were active in the US for the tech boom of the early noughties, we expanded into Europe as the next wave of innovators began to emerge outside of the US, and we invested early in Latin America, which is seeing incredible growth now, and we’re poised to take advantage of opportunities as and where they arise.
So, if we’re doing our job right, we’re actually getting ahead of innovations and helping them to find a market when they emerge.
How has this changed over the past few years?
Well, we’re seeing much greater proliferation. Where previously there were sort of centres of excellence, based on the concentration of skills, today’s sustainability innovators tend to be clustered much more by theme than by location.
Despite repeated commitments to sustainability, we are actually going backwards post-Covid. Carbon emissions are expected to rebound to pre-pandemic levels after decreases during lockdown; the gap between rich and poor has grown, exposing a gulf of opportunity; gender and ethnic disparity remain; and as global populations have grown, so too has the consumption of natural resources and the amount of e-waste generated and not recycled. It’s these issues that tech disruptors are targeting now with some really clever thinking.
Is there anything that has created a culture of change inside the company?
We’re a small but agile team. We pride ourselves on the strength of our theses, which are backed up by quality research and data. This willingness to follow our instincts, as well as continuously challenge them based on the available data, means we’re not only adaptive to change but we anticipate it. And despite our small size, with almost half a billion in investments, we are sufficiently well resourced to act decisively when we spot an opportunity.
What fintech ideas have been implemented?
We’re seeing an array of sustainability innovations, but they can be grouped into four main areas. Firstly, new investment products, ranging from institutional and retail carbon instruments to sustainability investment platforms and marketplaces. S&P’s Global Ranking expects sustainable bonds, including green, social and sustainability linked, to exceed $1.5trillion in 2022.
Secondly, platforms and analytic tools help to codify ESG and sustainability metrics themselves and screen potential investments on behalf of investors.
Third, technology platforms are helping companies to launch product as service (PaaS) models to offer rental or resale options. This is happening across every industry from automotive to IT hardware and industrial equipment. Just as with the ‘device-as-a-service’ industry, the compound annual growth rate is expected at 38 per cent from 2021-25, reaching more than €476billion globally.
Lastly, tech is rapidly enabling the circular economy through machine learning and IOT technologies. These make more efficient use of goods and allow providers to carry out predictive maintenance before a product breaks down, extending product life and boosting the creation of strong secondary markets.
What benefits have these brought?
Sustainable finance is still in its infancy, but it’s ripe with benefits at the intersection between ESG and circular business models, where finance and technology are already driving a positive impact. Aside from the intrinsic virtue of reducing consumption, waste and emissions, and more socially conscious investment, we can continue to improve by tackling issues through new platforms and assets, promoting measurement, and helping to grow alternative marketplaces.
Do you see any other industry challenges on the horizon?
Regulation is always a deciding factor. Historic pressure for a more proactive corporate approach to ESG has now gone beyond informal shareholder demands and regulatory guidance to the heart of global markets and new, tougher regulations. This regulation itself may end up shaping the market faster than private enterprise alone. As VCs, we need to be able to anticipate change early and back the companies we believe are poised to take advantage.
Can these challenges be aided by fintech?
Yes, I think fintech voices are going to be central to the debate: both in helping to shape regulation and enabling others to navigate it. Also, by coming up with solutions to implement ESG standards. Just as fintech is innovating in know your customer and financial crime compliance, we’ll see the same with sustainable finance.
The SuFi space is, of course, broader and more complex than outlined here: (green) energy, commodities and sustainable housing all deserve further exploration. But SuFi is ripe with opportunities for those who can help smooth the transition to net zero. By harnessing technology and innovative new approaches to tackle issues that, frankly, have been around for decades, we’ll help turn the tide on sustainability.