Insight into sustainability themes
Zouk's Views
As delegates from around the world convened in Dubai a few weeks ago, the shadow of scepticism loomed large. So it was against the odds that the summit delivered an unexpected result. In a world first, 198 participating parties agreed to initiate a transition from coal, oil, and natural gas. The agreement, while not as robust as many had hoped, nonetheless called for a shift away from fossil fuels in a manner that is "just, orderly, and equitable." Many compromises, as expected, were made, however the deal approved by all nations represents a definitive step in the right direction.
With this consensus we have a framework upon which the real work will be built. The harder task ahead is the implementation of this framework into tangible, worldwide action. However, the message is unmistakable: the era of fossil fuels is drawing to a close, and the commitment to cleaner, renewable energy solutions is now energised with newfound momentum.
The outcome in Dubai, even if it was less than some had hoped for, must be celebrated as it finally acknowledges the need for change. It is a landmark decision which provides a vital scaffold for future decision-making and a shift in mindset geared more wholly towards sustainability.
It’s also testament to what can be achieved when the world unites under a common cause. Now, it’s our job to help to maintain this momentum, turning intention into reality through decisive investment into the next generation of sustainable technologies.
Amidst the build-up to COP28, a critical reassessment of the economic dialogue surrounding Net Zero is imperative. At Zouk, we believe that progression towards sustainability is not merely an environmental commitment but also a robust economic strategy.
The narrative that climate policy is economically detrimental persists, despite evidence to the contrary. Historical precedence, such as Germany’s ‘Energiewende’, demonstrates the economic dynamism that can emerge from such transitions—renewable energy initiatives have not only curtailed emissions but have also been a fulcrum for job creation and economic rejuvenation.
It is incumbent upon us, as stewards of the environment and the economy, to broaden the conversation. Fast tracking the transition to clean energy and slashing emissions before 2030 to limit global warming is our common goal, of that there is no doubt. However highlighting the fear of climate calamity alone is a disservice; rather, we must underscore the economic upswing that a green transition heralds.
McKinsey’s insights demonstrate a prospective net gain in jobs worldwide through the Net Zero pathway, coupled with the IMF's forecasts, suggest that the green economy could be the antidote to the economic deceleration faced by advanced economies.
The UK must leverage its position to promulgate the financial advantages of the Net Zero transition. This is not only about stewardship of the environment but also about securing economic prosperity and stability.
As delegates gather in the UAE, the discourse should not focus purely on the cost of transition but be buoyed by the potential for economic renewal. We need to collectively elevate the narrative to 'Net Zero, Net Positive', underscoring the transformative economic potential of climate action.
COP28 offers a stage to reframe climate action as the linchpin of economic growth. The imperative is clear: we must champion the Net Zero trajectory as the next frontier of economic innovation and progress.
Alarmingly, a study authored earlier this year found that nearly half of the 70,000 wildlife species studied are currently experiencing population declines.* While the threat of species extinction has been on our collective consciousness for some time, there is a growing acknowledgment of the critical role biodiversity plays in maintaining ecological balance and mitigating the impacts of a warming climate. For instance, it is widely acknowledged that carbon stocks in intact forests exhibit greater resilience than those in degraded or fragmented ones, reinforcing the importance of preserving diverse ecosystems.**
And yet the inherent complexity of ecosystem-wide data collection and analysis has proven challenging when designing intervention plans at both speed and scale. The intricacies of understanding and responding to multifaceted biodiversity challenges require innovative solutions.
With the capacity to efficiently analyse vast datasets, identify trends and anomalies, and forecast potential vulnerabilities, AI is emerging as an increasingly valuable and prevalent tool for ecosystem conservation and restoration efforts. Tech-based solutions are leveraging AI to automate data collection over expansive, inhospitable areas, addressing the logistical challenges of monitoring remote ecosystems. Accurate species identification is accelerating through advanced image recognition, providing valuable insights for targeted conservation efforts. Real-time monitoring, enhanced by AI, ensures swift responses to environmental threats, reducing the risk of irreversible damage to ecosystems. And AI-based predictive modelling is capable of prompting pre-emptive conservation measures, strategically addressing vulnerabilities before they escalate.
While there remains an inevitable component of physical fieldwork and intervention in achieving biodiversity aims, AI has the capacity to target and optimise resource allocation. It may prove to be a transformational addition to conservationists’ toolkits.
Climate Tech team
*Finn, Catherine; Grattarola, Florencia; Pincheira-Donoso, Daniel (2023). "More losers than winners: investigating Anthropocene defaunation through the diversity of population trends". Biological Reviews. ** UNEP (2014). “The relationship between biodiversity, carbon storage and the provision of other ecosystem services”.
Last month’s decision by the UK government to delay the ban on the sale of Internal Combustion Engine (ICE) vehicles has sparked heated discussions in the electric vehicle (EV) industry in the UK.
While the global shift towards EVs remains unstoppable, this delay has the potential to send mixed signals to investors and the automotive sector and may also raise concerns that other sectors, crucial to the energy transition, may face similar setbacks.
Automakers have invested billions in developing their EV platforms, and this delay is unlikely to slow their momentum. The transition to EVs is no longer a “nice to have” but an existential necessity for them and a global trend.
China has emerged as a global leader in EVs and now dominates the battery supply chain. While the world focused on short-term challenges, China quietly established itself as a powerhouse in this industry. Many governments across the world have now become aware of the risks facing the automotive industry in their countries, and are promoting policies to attract investments in EVs, aiming to catch up with China.
The Inflation Reduction Act is a game changer for the US in this respect. The EU is working on a similar approach, albeit more complex. Besides subsidies, which are certainly helpful if well designed and targeted, clear policies and a stable regulatory environment are fundamental for investors and traditionally have been one of the key strengths of the UK.
The transition to sustainable energy sources is well underway, with renewables attracting a huge amount of capital. The same is true for the transport sector where the electrification is gathering momentum, again attracting a vast amount of investment.
The next frontier is heat. Decarbonising heat will necessitate technological innovation, new business models, and substantial capital. Governments must commit to long-term goals and establish consistent, well-thought-out policies to allow the economy to mobilise capital and find the solutions we need.
The UK has the potential to be a leader in this arena and attract a significant share of the investments required by these sectors. Now is the time to be bold if we want to ensure a sustainable, low-carbon future while protecting our economies in the long run.
Massimo Resta
Between the fallout from Covid and its associated public policy response, the Russian invasion of Ukraine, and ongoing market volatility driven by rampant inflation and monetary tightening, we are experiencing an unprecedented combination of economic and geopolitical turbulence. These disruptions are challenging entrenched practices around production, consumption, and trade, and prompting businesses and governments alike to reset their key strategic priorities with a focus on resiliency across the board. Chiefly included among these are an urgent need for adaptability in global supply chains; security and resilience in food and energy supplies; and efficient usage of energy and key commodity inputs in the context of rising prices and scarcity.
In this environment, many climate tech companies are finding themselves better positioned than ever, benefitting from the overlap of climate-driven needs with newfound demand for their solutions spurred by inflation, supply chain dynamics & energy policy. And many of the most compelling climate tech solutions are to be found in the digital realm, with applications cutting across energy, transportation, industrial production, and food & agriculture. In Europe for example, where energy autonomy and a decreased reliance on fossil fuels have become geostrategic imperatives overnight in the wake of the conflict in Ukraine, we are seeing significant opportunities for companies offering digital platforms to help streamline the identification, funding, and implementation of clean energy and electric mobility projects. Meanwhile, some of the energy intermittency challenges introduced by renewables are being solved through digital network management, seamless integration of distributed energy assets, and flexible networks / marketplaces for energy & related services. In markets that rely heavily on food imports, we are seeing companies being able to leverage AI and big data to help countries and corporations rethink and future-proof their food sourcing strategy, factoring in climate as well as macroeconomic and geopolitical risks in a holistic way. And across various industries, companies are leveraging technologies such as blockchain to bring about new levels of transparency, efficiency & flexibility across the supply chain, promoting efficiency gains in resource consumption and production, from the sourcing of raw materials to the disposal and recycling of end products.
With such robust demand tailwinds, and as the wider technology sector undergoes a healthy correction in valuations, we are as optimistic as ever about the prospects for investing in and supporting the next generation of digital climate technology companies. Faced with the double jeopardy of climate change and energy dependence, Europe has no choice but to lead on climate tech innovation and adoption, and we look forward to playing our part in supporting the climate tech leaders of tomorrow, in Europe and beyond.
John Higelin, Partner, Zouk Capital
In the US, an estimated 1 out of every 3 individuals has been affected by extreme weather in the summer of 2021 alone. Myriad other occurrences worldwide point to a same disturbing trend: extreme weather events are becoming more frequent and more devastating – likely so for the foreseeable future. And as the evidence for a causal link to global warming continues to mount, calls for achieving Net Zero are growing louder. But while greenhouse gas reduction remains key for addressing the likely root cause of this trend in the long run, there is also an urgent need for adaptation strategies aimed at minimizing the scale and scope of the damage wrought by these traumatic events.
Artificial intelligence (AI) is showing some promise in this endeavour. Deep learning techniques perfected in recent years for image recognition are being applied to weather imagery data with promising results. Other approaches are applying machine learning methods to a combination of weather, social media, and other data in a bid to further improve forecasting accuracy and timeliness. By providing more advance notice of such events, even by a small margin, AI could go a long way in helping to prevent catastrophic loss of life and economic harm (in the US alone, the 8 extreme events in 2021 to date are estimated to have caused in excess of $1 billion in damages). And in addition to improving short-term prediction capabilities, AI could also be applied to longer term weather pattern prediction to inform better decision making in agriculture, urban planning, and critical infrastructure management. As access to more high quality data and AI capabilities continue to expand, we may see new services and business models built on hyper-localised, highly accurate, real-time weather forecasting, in industries such as logistics and insurance.
While many of these initiatives have yet to be commercialised at scale, there are some promising developments in this regard. Companies like Spire are radically improving the quantity and quality of weather data by using a constellation of nanosatellites to measure the state of the atmosphere at very high spatial and temporal resolutions. And firms like ClimateAI are now using AI to help forecast crop supply and demand by factoring in the likelihood and impact of major weather events, thereby allowing growers to optimize their sales and build resiliency in their operations. As these solutions continue to prove their viability, Zouk looks forward to supporting the mission-driven founders that are working to bring them to market.
John Higelin, Partner Zouk Capital
Sources:
· https://eos.org/articles/combining-ai-and-analog-forecasting-to-predict-extreme-weather
· https://www.washingtonpost.com/climate-environment/2021/09/04/climate-disaster-hurricane-ida/
· https://www.wsj.com/articles/how-ai-can-make-weather-forecasting-less-cloudy-11617566400
Until fairly recently, ESG was an infrequently used term in the investing world, and in the eyes of mainstream asset managers, was used by a very small percentage of investors. Those with sustainability mandates were seen to be rather idealistic in their philosophy, more philanthropic than seeking alpha. Over the years I have had many discussions with investors about how sustainable and profitable didn’t need to be mutually exclusive and that companies that placed ESG considerations at the heart of their strategy were in fact more likely to generate alpha. Not many saw the connection.
However, while this has been changing over the last couple of years, the last twelve months particularly have seen a combination of the effects of the COVID pandemic, a rise in awareness of social and racial injustice as well as looming net-zero government targets, and so ESG has landed on the agenda of every investor. What is now certain is that the question of how companies and investors should approach the interconnection between sustainability and financial returns is becoming a more important part of investment decision making. I believe that this shift in thinking is now here for the long term. However, transferring this shift in thinking to the fundamentals of an investment philosophy can’t simply happen overnight. A culture of sustainability has to have been properly pervasive through the whole organisation – part of its DNA – for some time.
So how can investors be sure that the companies or funds they are investing in, aren’t simply using clever marketing to demonstrate their so-called ESG credentials? We have seen an increase of around 30% of professionally managed assets subject to ESG criteria since 2016 alone and with the momentum generated in 2020 this is only going to increase. Measuring sustainability and impact however is still hard to fully quantify and standardise, and many methodologies fail to capture the nuances involved. Given the quantity of funds now subject to ESG criteria, I hope we will see an improvement in the adoption and standardisation of measurement practices, ensuring that only those businesses making a genuine impact will be recognised for their contribution and making non-compliance harder to hide.
To judge the validity of ESG claims, investors need to look at how long sustainability has been part of a fund or a company’s formal approach, and whether such policies are clearly articulated and genuinely embedded into decision making. But they also need to take a close look at organisational culture and whether it is supportive of such policies. At Zouk, for example, we formalised our approach back in 2006, and since then ESG has been at the core of every investment across both of our strategies. Our methodology seeks to ensure that sustainability and financial performance are inherently aligned, and that this alignment is properly quantified, monitored, and maintained throughout the investment lifecycle. Each investment is assessed on its own merits, both in terms of its potential to specifically advance one or more of the UN SDGs – be it affordable and clean energy, responsible consumption and production, or reduced inequalities – and in terms of how strongly the investment’s expected financial returns may correlate to them. Ultimately however, these policies rely on our values-driven culture, one in which a genuine concern for sustainability is shared by each individual across all levels of the organisation.
As the world hopefully puts the pandemic in the rear-view mirror, the emphasis is shifting back towards more urgency around the route to net zero. We will also start to see investors taking far more interest in how companies are genuinely addressing diversity, social and racial injustice and workforce safety and wellbeing. More transparent policies will be expected by investors, and companies that visibly care about society and the environment are receiving long awaited recognition. I believe we will look back on 2020 as the tipping point to ESG considerations becoming the rule, not the exception, for every investor. Investors should now focus on fostering a culture of sustainability within their ranks, to ensure that this shift in perspective translates into genuine and lasting change, as well as higher returns on investment.
Samer Salty, Managing Partner
This article appeared in Environmental Finance in July 2021
The Leaders Council of Great Britain and Northern Ireland is currently in the process of talking to leadership figures from across the nation in an attempt to understand this universal trait and what it means in Britain and Northern Ireland today.
Samer Salty was invited onto an episode of the podcast, which also included an interview with Lord Blunkett. Host Matthew O'Neill asked both guests a series of questions about leadership and the role it has played in their careers to date. Samer talks about the impact of covid-19, his leadership influences and the importance of considering sustainability in our thinking about the world.
You can listen to the podcast in full here: https://youtu.be/II0O0pmsOBo
Samer Salty, Managing Partner
Unfortunately, this is where Bitcoin and blockchain have become interlinked in the minds of many, but is where a distinction should be drawn. Sustainability is not only to be found in energy savings, but also in the ability to drive business process efficiency and transparency across industries, which in turn ensures better usage of resources and creates value. In this sense, blockchain, and distributed ledger technologies (DLT) more broadly, are among the most powerful drivers for sustainability on the horizon of technology development.
Supply chains are a good example of how goods and payments cross landscapes without constant monitoring. Blockchains can help to trace the provenance of goods and services across that landscape in an automated fashion allowing data to be exchanged seamlessly. This ensures that where traditionally inconsistencies could slip in, this can be avoided with blockchain technologies. Suddenly a whole process previously susceptible to anything from basic paper duplications or quality issues to fraud or money laundering becomes 100% transparent and traceable.
Take the pharmaceutical industry as an example. Blockchain can today be used to track and record the movement of drugs and medications. In the case of drugs used illicitly, this has huge implications for public health, particularly when you consider the impact of the opiate crisis in the USA currently. Every packet of every drug can be tracked and traced at all times.
Property and real estate is another area that can benefit from creating a public ledger for ownership and transfer, thereby significantly improving identity management and ensuring authentic historical records. The same can be said for energy trading and establishing contracts where blockchain enables a secure and accountable case to be built for every trade. In financial services, across disciplines, there is a move towards blockchain being used an integral part of a product offering to ensure that clients are specifically benefitting from transparency from the outset.
Blockchain and its applications are still in early stages but have the potential to achieve a seismic shift in transparency across the digital economy. Already in sight is a world where every piece of information has its source verified independently. In this new paradigm, “fake news” could be stopped dead in its tracks, and people could regain control of their personal information and make more informed choices.
Indeed it is the fully open and transparent nature of blockchain, particularly within public ledgers that will validate the whole value of transparency. Public blockchains have the potential to completely disrupt current business models by fully disintermediating the entire process, taking away the companies that act as middle men in for example financial transactions such as banks, as well as drastically reducing infrastructure costs. With blockchain employed in every public ledger, all government transactions would be open for scrutiny. The potential therefore, for massive improvements in efficiency and subsequently sustainability, is vast.
Ultimately, crypto-currencies will also fall into line and become more sustainable. New distributed ledger technologies such as Hedera Hashgraph are already showing that some of Bitcoin’s major limitations – including low transaction volumes and high energy consumption – could be overcome. And as cryptocurrency adoption goes mainstream, it will drive yet another wave of unprecedented efficiencies across the economy.
So, in simple terms, it is the wide array of increasingly powerful tools provided by blockchain that will streamline the complexity of transactions, contracts and communications the world over, facilitating hitherto unprecedented levels of transparency, efficiency and value. Technology is once again at the centre of a sustainable future.
Samer Salty, Managing Partner
This article appeared in Business Green in February 2019
Since I began investing in Africa, I have realised that leapfrogging needs to be examined from two different perspectives. Firstly, we need to differentiate between leapfrogging the ‘old’ world – that is, bypassing how the West did things in the past, such as how Africa generally avoided building a comprehensive fixed line network and instead moved straight to mobile; and leapfrogging the ‘new’ world. Leapfrogging the new world is sidestepping the current industry status quo by using technology, which provides a much better, more efficient, and more sustainable way of doing things. For example, many of the traditional industries across the world are deconstructing with no likelihood of returning to antiquated models. We are seeing huge changes in the global financial services, energy, and communications industries among others. Clearly, Africa does not stand alone in leapfrogging. In some cases, Africa is in fact leading the world in developing new business models with technology at their core.
If you take a look at the energy industry for example – the growth of renewables is rapidly reducing the requirement for resource-heavy power generation. At the same time, there has been an increase in distributed power networks - through wind, solar and battery technology - meaning that the old centralised energy model is seeing its role diminish gradually. In Africa, great effort has been made to establish large coal and gas-fired power plants. It is time-intensive, hugely costly, and has been difficult to implement; and with 600 million Africans still not connected mains electricity, the off grid model has been filling that gap. Off-Grid Electric is an example of a company that provides vital, affordable solar to homes across Tanzania, Côte d’Ivoire, Ghana, Kenya, and Rwanda. The combination of localised renewable energy and storage managed through IT and mobile payments is what makes the business so disruptive, massively scalable, and capable of changing the status quo. This distributed energy model is essentially what is now happening in the West, albeit on a different scale, and there is no doubt we are learning from the African model.
Education is another important sector in the development and advancement of Africa, which is successfully leveraging online tools to leapfrog the traditional route and fulfilling huge potential. Indeed, leapfrogging in the world of education is occurring globally - not only in Africa - as technology offers online access to a far wider cohort of students than physical institutions could ever provide. GetSmarter is a South African online education provider, acquired by 2U (the biggest online education company in the US) in 2017, which is leading the way not only in Africa but also on an international basis through its pioneering interactive learning experience. This interactivity came about because GetSmarter recognised it needed a differentiated approach, and this approach eventually led to institutions such as Harvard and MIT choosing to partner with it above others.
Financial services is another area where technology is disrupting the sector. 10X Investments, a tech-enabled asset manager, has shaken up the sector in South Africa by combining technology with proven investment strategies, and reducing fees by as much as 80% compared to the traditional model. Founded in 2008, 10X was way ahead of its time with the notion of leapfrogging the traditional money management models and opening up access into the mass market previously frozen out of an expensive and exclusive market managed by consultants and advisors. It was the first organisation to combine distribution, administration and index investment with low cost accessibility, demonstrating that a company founded in Africa could lead the way in using technology to bypass traditional business models.
Similarly, blockchain technology is revolutionising currency transactions and is proving a game changer in global markets. In Africa, the knock on effect of the disruption of this industry is also massive, where companies such as Kenyan digital foreign exchange and payment platform BitPesa are taking full advantage of the new norm, delivered by this innovative technology, to send and receive payments in multiple currencies.
Beyond technology as a catalyst in various sectors, what is also important to remember is the impact that technology has facilitated across Africa on very basic level. The digital economy has created a level of transparency in a continent hampered by corruption. It has opened up borders, allowed companies to scale without boundaries, and has ensured that fledgling companies are not beholden to the business establishment – all of which have created a platform for growth and development, as well as fostering a culture of entrepreneurship and success.
Finally, what is clear is that in many cases, Africa is not simply keeping up the pace with the rest of the world using technology — it is at the forefront of leapfrogging some of the world’s most established industries in taking advantage of a new paradigm.
By Samer Salty, CIO DiGAME Investment Company
This article appeared on the AVCA’s Afri-Spective blog in February 2018.
It’s a few weeks since iZettle announced it was being acquired by PayPal in a landmark $2.2bn deal, catapulting iZettle into the international spotlight. During this time I’ve had a chance to think some more about why this is such a significant deal and what Zouk added to the party during the four years we have been invested.
Firstly, there is no doubt in my mind that in the last few years Sweden has produced some of the world’s best management teams and the iZettle team is right up there at the top. Magnus and Jacob and their tremendous team have built iZettle from scratch to create a new category gunning for the micro merchant and entrepreneur and providing a superb payment and credit infrastructure. There must be thousands of small traders who wonder daily how they managed before iZettle came along to simplify their whole payment world. The tie up with PayPal will undoubtedly give iZettle’s growth plans a huge boost and enable them to supercharge their expansion across the globe. We are incredibly excited about what the future holds for this complementary combination.
Secondly, the deal with PayPal is another overwhelmingly positive endorsement for the start up ecosystem that is clearly alive and kicking in Europe. From seed funding through to growth and the initial IPO plan, the iZettle success story is a perfect example of how great teams can have the support, funding and markets to create global players. We are certainly proud of the role we at Zouk played in leading $115m of growth funding rounds, as well as supporting iZettle’s expansion geographically and into new product areas.
Finally, it’s probably fair to say we have been below the radar as growth investors and the fact that we were the largest investor in iZettle may have come as a surprise to some of the commentators in this space. However, it is our particular style of highly collaborative support combined with our extensive network of contacts that has been of most use to iZettle. From our first meeting with them, it was clear that we would be able to add value and that in turn iZettle fitted perfectly with our sustainability vision for making investments in technology companies that provided both social and environmental impact. We wish iZettle all the very best in the next chapter of their mission of helping small businesses succeed and we are proud to have been part of their journey so far.
Samer Salty, Managing Partner
Nowhere are they more evident than in Egypt’s largest city, Cairo, with a population of more than 20 million. Infrastructure is dilapidated, roads are full and public transport is not always safe, clean or reliable. For those that can afford it, taxi hailer companies such as Uber have stepped into the breach and offered an alternative to driving for a more wealthy demographic. But it is only more recently that a new way of getting from A to B, the so-called bus disrupters have been in a position to start to solve the challenges of urban congestion.
To give this some context - every day in Cairo, a quarter of the city’s population –attempt to commute to their jobs. Only 11% own a car, there is only one government bus per 4329 people and 67% of traffic is due to congestion and infrastructure - which is costing around $8bn* in Cairo alone (*World Bank). This basic lack of infrastructure delivers at best a difficult journey. Enter a new, convenient and reliable form of bus transportation, which is affordable and safe. The bus disrupters, we believe, are in an exciting space, which is trending globally with players in major cities in Africa as well as in India and China has the potential to solve many of the world’s transport problems.
Take Swvl, the company DiGAME has just invested in, which is an app-based mass transit system in Cairo. Swvl enables riders heading in the same direction to share fixed-route bus trips for a flat fare. This type of offering combines the best of on-demand hailing services, such as Uber, but is up to two thirds cheaper, but with a quality, more reliable and safer bus offering than public transport. This makes it very appealing to a large market of frustrated commuters. By using dynamic software to ensure no one is left on a street corner or arrives too late, SWVL is able to use its fleet of buses - which incidentally are idling as a result of the economic slowdown in Egypt - in the most efficient manner to provide an excellent service. It already has a loyal following of aspirational tech-savvy young Egyptians who are delighted with a new more inclusive and affordable solution to their transport woes.
Not only are bus disrupter services taking more cars off the road and providing more reliable commuting, they are also helping to combat pollution and congestion, the number one cause of death of young people in Cairo (*WHO). What the rapid adoption of Swvl and other similar services has demonstrated over the past couple of years in Cairo, is the huge opportunity of technology driven companies to complement state services and provide a real social impact as a result of something as simple as improved travel. We are delighted to be supporting the Swvl team.
Samer Salty, CIO DiGAME Investment Company
