Institutional investors are desperate to invest capital into profitable businesses that are actively decarbonizing the environment. If your business is operating at a lower carbon intensity, then it is actively decarbonizing our planet. And everyone should know it.
While the term “ESG” (a set of standards for measuring a business’s impact on society and the environment, as well as its transparency and accountability) has become somewhat politicized, your overall carbon intensity can and should be quantified with accuracy. There are many good ESG consultants who can do that for you, and the return on that investment should be outstanding. It’s a tool your sales, marketing, and business development teams would love to have in their toolbox.
Types of Emissions
Scope I: Direct emissions from owned / operated sources, such as a company’s buildings or vehicle fleet.
Scope II: Emissions from an energy purchased to operate, such as electricity.
Scope III: Emissions from indirect activities, such as business travel or supply chain.
Scope IV: Emissions that could be avoided through energy saving techniques or technologies.
The most overlooked traits of the best businesses we work with, either owned by families, entrepreneurs, or private equity firms, is their ability to deliver goods and services with lower emissions. These traits are absolutely one of the most valuable differentiators when raising capital or in a sale process. If your business or your portfolio companies don’t have the lowest emissions of your peer competitor group, the best day to start focusing on emissions was yesterday.
What is “Decarbonization”?
Decarbonization is the process of lowering the carbon intensity of the entire economy. If there are two competing businesses, and one applies techniques or technology that performs the same service or manufactures the same product at an overall lower carbon footprint, then the business with the lower carbon footprint may be rewarded in their marketplace and by investors with a premium valuation.
Please feel free to contact anyone on the Industria team. We welcome the opportunity to discuss this article or other market insights gained from our current and recent transaction experience.