From squid-powered lights to lab-grown diamonds to edible tableware, startups are leveraging scientific advances to design more sustainable products. Investors have taken note.

Everything that can be made can be made more sustainable. Given the endless opportunities and the urgent need to address climate change, it’s no surprise that nearly every multinational and countless entrepreneurs are focused on sustainable innovation, including by redesigning existing products and developing new ones.

Such innovation is being driven by advances in technology – and by science. Women and men in lab coats, peering into microscopes, crowded around test-tube racks, may save us from some of the world’s biggest challenges – from climate change to energy dependence, from pandemic risks to food security – while also reinventing many of the more mundane products we purchase every day. And that, of course, is creating potential investment opportunities.

Consider Glowee, a French startup that has identified the genetic coding that creates bioluminescence – think of a glowing deep-sea squid – and harnessed it to develop light sources that require no electricity. Or take the example of Israel-based Lusix, which produces diamonds grown in labs powered by solar energy and recently sold a stake to LVMH, the French luxury conglomerate. Then there’s Beyond Meat, the lab-to-table plant-based meat pioneer and the first publicly traded vegan food unicorn (meaning it has a market cap in excess of $1 billion).

For every such success story, however, there are thousands of untold failures.

In a typical year, according to a Harvard Business School study, over 30,000 new products are introduced; 95% of them fall flat. More of those products than ever before are sustainable, but most of them will also fail – despite enormous demand. In a recent survey of 10,000 people across 17 countries by Simon-Kucher & Partners, a consultancy, 85% of respondents said they have shifted their purchasing behavior in the past five years towards being more sustainable. According to the same survey, sustainability is rated as an important purchasing criterion for 60% of consumers, especially Millennials (born between 1981-1996) and members of Generation Z (born in 1997 or after).

Today, just about every investor likewise considers environmental (as well as social and governance) factors in their decision making; many now expect sustainability to be the default for their portfolio. In a world characterized by lower growth and higher inflation – fueled by factors such as the war in Ukraine, ongoing supply chain disruptions and lingering COVID risks – investors also recognize that the long-term outlook for innovation, especially sustainable innovation, remains a bright spot.

The challenge, of course, is to pick winning long-term sustainable investment themes; harder still is to pick winning companies in this space. For that reason, many investors like sustainable multi-asset funds, which allocate across asset classes and geographies.

In the meantime, scientists around the world continue to explore the laboratory of new ideas.

Algaeing, for example, is creating biodegradable, non-toxic, low-energy dyes and textiles using algae produced in solar-powered vertical farms run by a firm called Algatech. Krill Design, a Milan-based startup, collects orange peels, coffee grounds, eggshells and other waste, converts that into biomaterial, then 3D prints the waste into stylish home accessories like lamps and vases. Warsaw-based Biotrem takes a similar idea one step further by producing tableware from compressed wheat; the company’s plates and cutlery are not only biodegradable, they’re also edible.

The list of firms, large and small, investing in science-backed sustainable innovation is nearly endless. Many lack the financial strength required to continue investing through the current downturn, while others will struggle with issues like pricing and supply chains. Even if most will fail, however, a small number will carve a niche and a few will even enter the mainstream.

Someday in the not-too-distant future, a couple just might pause under a squid-powered Paris streetlight, following a plant-based dinner served on delicious plates. Dressed in their finest algae, one of them will kneel, open a box made of orange peels and eggshells, and proffer a lab-grown diamond ring.

Written by AJ Singh, Sustainable Investment Strategist at Quintet Private Bank


Publié le 12 juillet 2022