Globalisation on pause? How scaleups can navigate today's uncertainty9:30 am - 10:30 am
The good growth blog: Reflections on COP26
The good growth blog is written by BGF’s executive chairman, Stephen Welton.
I’ve just returned from Glasgow and the COP26 conference, which brought together business leaders, politicians and scientists to discuss solutions to the pressing challenge of climate change. The mood was a lot more optimistic than the siren voices beforehand may have intimated, with the updated climate pledges showing a temperature increase of 1.8%, a lot lower than the apocalyptic 3-4% some were warning of. We really need to do a better job having appropriate balance as we tackle this emergency. It is obviously urgent, but the actions need to be seen in terms of what can be delivered. More hot air will simply raise the temperature (!). We need more concrete (green of course) proposals.
A good case in point is India’s pledge to be net zero by 2070. This was reported by some as a big disappointment – but, conversely, it is an incredibly important first step for one of the largest industrialising countries in the world. Even more impressive are India’s plans on renewables: to build every year until 2030 new capacity equal to everything we have in Britain today! And remember that Britain produces more offshore wind than any other country in the world.
We can be alive to the supply chain and logistical challenges in delivering this, especially wind turbines, whilst also recognising that the intention presents an enormous opportunity. It is a big down payment by India and we all need to follow suit, big and small, governments and private enterprise alike.
As you may know, BGF already invests in a number of innovative companies that are doing essential work to help the UK on the road to net zero. These include companies involved in battery technology, wind turbine maintenance and fuel cells, among many other things. However, there is clearly much more that needs to be done if we are to achieve the ambitious net zero target. One of the areas that I’m particularly enthused about, following the conference, is the role of hydrogen as a key driver of energy transition.
Hydrogen has been used as fuel for over a hundred years. Within my lifetime it has been more than once touted as the alternative ‘wonder’ fuel that will supersede polluting substances such as petrol (unlike petrol, hydrogen produces no harmful gases when it is burned). Hydrogen is already used in a range of places and for a range of purposes. It is relatively simple to refit cars, lorries and other vehicles to run on it.
There are challenges, of course. Hydrogen is highly flammable. The Hindenburg airship disaster is just one of the more vivid examples of the dangers involved. But let’s not forget that petrol too is flammable even though not as easily as hydrogen, yet most of us are quite content to drive around in vehicles that carry a huge quantity of it in tanks situated only a few inches from where we sit. Sometimes the petrol tank is literally beneath our feet. In other words, while flammability of hydrogen is a risk, it can be managed – this is an engineering problem. For example, JCB in the UK are already doing some great things with both small battery tractors and large hydrogen ICE excavators.
The bigger problem is that the production of hydrogen often has an environmental cost. The leading method of producing hydrogen today is to extract it from methane, a process that releases carbon dioxide and carbon monoxide into the atmosphere. This is not a sustainable solution and the commitments at COP26 on methane reduction highlight how much harm that does, so we need a more sustainable way. A better, and greener option is to produce hydrogen through the electrolysis of water. This process has been studied for over 200 years by scientists including the British pioneers Humphry Davy and Michael Faraday. It involves using electricity to split water into its component atoms, hydrogen and oxygen. Hydrogen can then be collected to be used as fuel.
The problem, though, is that the electricity for electrolysis has historically come from power stations that burn fossil fuels. It makes little sense, environmentally speaking, to swap petrol in your car for hydrogen made this way. What does make sense is to use renewable energy to create the electricity to power electrolysis.
There are many ways to generate renewable energy but the one in which the UK is global leader is wind, particularly offshore wind – this is natural given that the UK is essentially a windy island. One of the drawbacks of wind power, and renewables more generally, is inherent volatility – wind only provides energy when the wind blows, with a linked problem that sometimes the wind blows hard when demand for energy is low, and there is an excess of energy production. There is much talk of attaching large, static batteries to wind farms to store some of this excess power. Another exciting possibility is to use that excess power for electrolysis. In other words, attaching to every wind farm a hydrogen production factory, making hydrogen with wind power.
The technology for producing hydrogen from green electricity is already here. In fact, one of the winners of the Earthshot Prize, the environmental awards hosted by Prince William in London in October, was the company Enapter, which makes electrolysers that allow customers to produce hydrogen from green electricity at any scale. BGF has already invested in this space. In 2020, we led a funding round into Bramble Energy, a company that has developed a hydrogen fuel cell that is designed such that it can be manufactured in a range of existing factories around the world.
Clearly, more needs to be done. That’s why I was pleased to read the government’s Net Zero Strategy, released in advance of the conference, which outlines plans to unlock £90 billion of private investment by 2030. Small and medium-sized businesses have a huge role to play in meeting the nation’s environmental targets. We will simply not get the innovation we need without them. That’s why it’s crucial to support the drive and ingenuity of entrepreneurs and business leaders.
One thing I took away from COP26 is a renewed sense of action, one balanced with real potential. This was the first COP when business, and not just policymakers, were out in force. We all know we must act if we are to prevent cataclysmic changes to our planet, but we also have to act smart. BGF has responded to the call by placing net zero at the very heart of our investment process, alongside a real assessment of the wider elements of ESG.
We have created a specialist advisory board and are delighted that Baroness Brown of Cambridge, the Chair of the UK Climate Change Committee for over 10 years, has agreed to lead that. At our inaugural session in Scotland, together with a collection of some of our portfolio companies, the conversation was dynamic and the desire to learn from each other and do more really palpable. That’s a prerequisite for all investors, not just BGF or specialist venture capitalists, but mainstream asset managers, to accelerate investment activity in companies engaged in carbon reduction and the energy transition.
We hope our advisory board will not only inform BGF’s investment activities but add real insight and connections to our portfolio and to all those companies we look forward to talking to.
Climate change is our greatest challenge, but besides the sense of urgency, I left COP26 with a sense of optimism. There is a huge amount of creativity among entrepreneurs and business leaders that is just waiting to be unleashed upon this problem. I don’t subscribe to the cynics who write off these sorts of multilateral events, often before they have even begun. What other means do we have to mobilise the world, young and old, rich and poor? With the right support, fostering innovation and investment, we can make significant progress towards solving these global problems.
How we can help
At BGF, we are investors of minority capital and minority capital only. Learn more about our patient investment approach and how it can help your business achieve its growth targets by getting in touch today
Business funding insights
A post-exit perspective—with Leigh Howarth, CEO of STATS Group
In August, we announced the successful exit of our investment in STATS Group, an Aberdeen-based pipeline technology specialist for the global energy…
Gujarati Diwali and New Year’s celebrations
Pratish Patel joined BGF’s Portfolio Finance team in Birmingham in 2017. Here, Pratish shares the history of Diwali and how…