Energy

CleanTech Will Thrive In An Era Of Uncertainty


There’s no question that we are in unprecedented times. As industry executives are rushing to find a place for their businesses in this new reality, ESG & cleantech investors are reaching out to analysts, cleantech CEOs, and industry experts to try to glean the forward-looking growth forecast for the industry – especially for publicly traded cleantech stocks within their portfolio.

Under normal circumstances, life would be much simpler. Historical trends, statistics and known factors, such as elections, can be put into mathematical models to provide levels of guidance to the direction of the market. That’s not the reality we’re facing now, and in the current environment there are many factors that have no previous precedent, making it near impossible to accurately predict the models.

So, where does the cleantech industry fall in these strange times? Some verticals, such as ‘work from home’ businesses and technologies are no doubt thriving, however, with clean technology and ESG investments, are we going to see growth or stagnation?

The Challenges

1. Capital Spending:

For all the capital spending projects that were sitting in the pipeline, there’s no doubt that these will be slowed down due to capital spending cutbacks and more general negative sentiment about the global economy. In order to offset this, future stimulus spending will be required for companies to successfully get through the impact of Covid-19 on the economy. The good news? Such spending is likely to have an infrastructure spending component, which will act as a net positive impact to the cleantech industry.

2. Supply Chains:

Supply chains are also a challenge for organizations – it’s impacting revenue and profitability in the near term. Shutdowns create order backlogs, which in turn create tensions between suppliers and clients. Suppliers, fearful of losing clients, don’t always provide consistent and reliable information about availability and timelines. This causes delays in orders and customer shipments, increasing costs to rush or substitute items, thereby reducing margins and revenues for the clean technology industry.

3. Shipping and Logistics:

Separate from the supply chain, shipping and logistics is possibly the biggest factor affecting cleantech companies. Many individuals are unaware that much of the world’s shipping capacity is in the underbelly of commercial airlines. With the slowdown in air cargo, the capacity of shipments is significantly reduced. Pricing and availability have become difficult, as shippers pick and choose what business they decide to accept. Cleantech is not always the most significant, and sometimes it’s near impossible to find shippers for crucial infrastructure and parts.

4. U.S. and China Trade War

For cleantech companies that do business on a global basis, the U.S.-China trade wars are beginning to have a real impact on the export and import business. It’s not just about the tariffs inflicted by each country on the other, it’s a general recognition that there is a new “Cold War” with two sides, and customers are beginning to think about strategically picking a side or splitting their business between the U.S. and China. With the Silk Road initiative and the more global outlook of China from an investment perspective, North American firms are facing new headwinds on the competitive landscape for cleantech projects and initiatives. 

The Growth Factors

1. Businesses & Margins

Most cleantech initiatives take time to plan as they are often infrastructure projects that need plans, approvals, construction bids, etc. As a result, going into 2020, the plans were reasonably set. As Covid-19 set in, many in the industry were able to focus on processes and paperwork and wanted to get the projects moving so they were “shovel-ready” once the lockdowns were rolled back. As a result, generally the industry likely saw good order flow during the shutdown, setting things up for a reasonable Q3/Q4 once things re-opened.

Cleantech executives are also reporting that Q3/Q4 projects may be at risk to small delays due to ongoing shutdowns that disrupt construction, but they are funded, contracted and will continue to move forward, even if it’s not within the initial timeframe

2. The Upcoming U.S. Election

Historically, the U.S. election was known to have a big impact on the direction of the cleantech industry. Today, this is no longer the case. Over the last four years, the cleantech industry has gained traction – mostly due to the industry no longer needing special subsidies to assist its lift-off – cleantech is now a commonly accepted alternative and, in many areas, the preferred route, due to its fundamental benefits and cost implications. The outcome of the U.S. federal elections likely has the lowest impact on cleantech than ever before.

3. Technological Advances, Innovation and R&D

Covid-19 has provided ample time for research and development. Teams and individuals have had time for thought, analysis and design. Promising firms know how to make lemonade from lemons and the pandemic shutdown provided an opportunity for all to focus inwardly. As a result, R&D should be thought of as similar to baby booms, where situations like this tend to generate a burst of newborns around 9 months later. Shutdowns and isolation tend to generate a new generation of ideas and innovations.

So, what does this mean for cleantech investing?

As expected, it is a mixed story with a myriad of factors affecting the cleantech industry, as with all industries today. Uncertainty is very high – there are no real historical periods that can be studied to forecast what is coming. 

However, the cleantech industry now has its own natural inertia that was not there during previous downturns. It is an industry that is not directly affected by Covid-19, and the pandemic has shown the value of the cleantech industry. In general, the industry will weather this period better than most other verticals, perhaps only behind those ‘work from home’ businesses and technologies, and as such, is a good strong diverse investment.



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