The European Investment Fund (EIF) and institutional investor KfW Capital have invested a combined €34 million in the Green Generation Fund (GGF), bringing its total value to €100 million.
- The Green Generation Fund has raised €100 million to be invested in sustainable start-ups.
- Start-ups are well positioned to develop innovative solutions that will be crucial in solving many of today’s most pressing issues, providing they have access to capital.
- Early-stage investors are increasingly backing companies with a focus on sustainability, creating the conditions needed to drive progressive change.
The female-founded Green Generation Fund (GGF) has secured €100 million to deliver its goal of strengthening the food technology and green technology industries of Europe and the United States.
In addition to the investments from the EIF and KfW, several private investors have also made contributions. Their investment will primarily be used to back start-ups developing CO2 reduction technologies for the food and agricultural sectors, though broader initiatives will also be considered.
The fund’s current portfolio features eight start-ups, developing products and services addressing a wide range of sustainability issues. They include:
- Biomilq which is developing breast milk from human cultured cells
- Change Foods which is developing dairy style products from microbes
- Neggst which is producing a vegan egg substitute that closely replicates regular chickens’ eggs
- Libre which is using solid-state biomass fermentation to transform fungi into meat substitutes
- Lipid which is addressing the flavour of meat replacements, using phyto fats
- Rainforest Company which is producing products from acai, supporting local communities
- Klim which is a digital platform enabling regenerative agriculture for smallholders
- One Five which is using materials science to replace existing ones, such as using fibre based materials to replace plastics
KfW Capital Co-CEO Jörg Goschin said: “The investment strategy of the fund is focused on innovative solutions for sustainable consumption along the entire value chain to make significant contributions to achieving climate goals. The Green Generation Fund is an impressive example of the vast opportunities the venture capital ecosystem has to offer in the green tech sector.”
How does the GGF operate?
The GGF makes early-stage investments in start-ups that align with its binding ESG & Impact policy. It aims to establish a start-up ecosystem with a particular focus on food-related technologies, health and personal care, and green technologies.
Its sector-based investments are subject to a strict materiality assessment to ensure their contribution to at least one of the UN Sustainable Development Goals, while also aligning with the EU Taxonomy for Sustainable Activities, SASB Standards and the Global Reporting Initiative.
A stringent ESG strategy is used to identify potential sustainability-related risks and opportunities for value creation, while an impact assessment framework has been developed to monitor progress.
The fund’s founders aim to eventually support between 25 and 30 portfolio companies, and have committed to allocating at least 90% of overall investment capital to the achievement of climate and environmental targets.
Start-ups are strongly positioned for innovation
Start-ups are strongly positioned to develop innovative solutions for some of the world’s most pressing problems.
They typically have fewer stakeholders to accommodate, smaller and less established supply chains that can be easily altered, and are developing brand new processes rather than attempting to evaluate and improve deeply embedded systems.
The latest generation of entrepreneurs are also increasingly aware of, and passionate about, sustainability issues. As they are building their ventures from scratch, these principles can be embedded within their business during its most formative years.
Food and agriculture, the GGF’s core priority sectors, highlight the need for innovative new enterprises.
With research estimating that the global population will reach 10 billion by 2050, worldwide food production will need to increase by around 70%. Agricultural sectors, however, are already facing challenges such as supply chain constraints, extreme weather and land availability.
These issues are becoming increasingly urgent as the climate continues to change. Ignoring the problem and continuing to convert land for unsustainable food production will only make the situation worse. Indeed, agriculture, land use and deforestation combined have become the second largest source of global greenhouse gas emissions and the primary cause of biodiversity loss.
Innovative start-ups rely on investor capital
There’s no avoiding the fact that start-ups need investment to make their innovative solutions a reality.
Thankfully, the acknowledgement of climate change as a crucial risk factor, combined with increasing outrage around pressing social issues, has placed ESG investing at the forefront of the financial investment ecosystem.
ESG investing becomes even more attractive, as several ESG factors are recognised for their potential to also improve economic returns in the long run.
This is exemplified by a report from the Business and Sustainable Development Commission, which concluded that just four key economic sectors could generate $12 trillion worth of market opportunities involved in achieving the SDGs.
Such findings have contributed to an increase in demand among venture capitalists seeking the chance to back start-ups that are centred around sustainability.
Research by PwC highlights this rise in demand with its finding that venture capital and corporate investment in climate technology start-ups achieved an 84% CAGR between 2013 and 2019.
The trend for ESG investing means, however, that complex reporting expectations are now extending to start-ups. Although conventional markets are on the path to developing standardised approaches to ESG risk management, their solutions are not yet designed for the high-risk, high-return context of early-stage investment.
This being the case, start-ups seeking investment from ESG-aligned funds such as the GGF will need to ensure they are prepared to demonstrate how their business model aligns with ESG principles and will continue to generate positive impact at scale.