The post-pandemic landscape ushers in era of green investment imperative, says new Arthur D. Little report
Nurturing disruptive ventures and business models via innovative financing and ecosystem orchestration creates a virtuous cycle further accelerated through government policies during COVID”
In pre-pandemic times, progress towards transformational change remained remarkably slow, despite climate change and sustainability rising higher than ever before on large companies’ strategic agendas. Although COVID-19 may have temporarily pushed climate change off daily newsfeeds, 2020 was a year in which political ambitions towards addressing climate change started to look much more robust. Arthur D. Little (ADL), the leading management consultancy firm with the longest-standing presence in the Middle East region, expounds this viewpoint in their latest report entitled The Green Gambit: Investing for corporate strategic advantage in the post-COVID-19 world. The report assesses how the crisis has transformed the green investment environment and stresses that now is time for organizations to pursue bold green transformation strategies previously considered too risky.
As per the report’s findings, industrial companies should be well-positioned to capture success in this direction and contribute to the ecosystem as it addresses mega challenges based on three building blocks – winning technology on which breakthrough solutions critically depend, scale and scale-up capabilities to create lasting value, and capital to sustain rapid and successful development. Crucially, this cycle was far from perfect in pre-pandemic times but key players are now conducting comprehensive re-evaluations and pursuing new or improved strategies.
“Recent events stemming from the pandemic have encouraged governments, corporates, and investors to take a fresh look at their priorities, and we are now seeing new drivers for green growth emerge,” said Adnan Merhaba, Partner and Energy practice Lead at Arthur D. Little MEI. “Governments are exploring green investments as they transition to cleaner economies, investors are advancing their strategies through sustainability targets, and private equity firms are allocating more funds and monitoring the carbon footprints of companies they work with. These are encouraging signs, with many examples and proof-points indicating a successful long-term transformation that the Middle East will witness in due course.”
The United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA) are prominent regional examples where green investments continue to yield positive outcomes. The UAE is expected to provide 50 percent of power needs from renewable sources by 2050 due to nuclear and solar power contributions, while Mubadala Investment Company (Mubadala), the Abu Dhabi National Oil Company (ADNOC), and ADQ recently finalized a Memorandum of Understanding (MoU) to establish the Abu Dhabi Hydrogen Alliance. Moving forward, these partners will collaborate to build a substantial hydrogen economy at the national level and establish Abu Dhabi as a trusted leader of blue, grey, green and pink hydrogen in international markets.
Similarly, in KSA, the country’s leadership aims to invest up to USD 50 billion in the renewable energy sector by 2023 as part of its strategy to reduce oil dependency and diversify its energy mix. Moreover, NEOM has already launched the world’s largest Green Hydrogen Project, with 650 tons of carbon-free daily production by 2025, through a large consortium including ACWA Power and Air Products.
The Green Gambit: Investing for corporate strategic advantage in the post-COVID-19 world urges companies to focus on two imperatives as they strive to take advantage of greater volumes of better-connected investment funding. Firstly, they should adopt new approaches to nurturing disruptive ventures that may be outside the normal core business. Secondly, they should work collaboratively to shift the entire business ecosystem, which is often needed to successfully deliver green initiatives. The report also explores the positive benefits that organizations can capitalize upon through innovative funding options, for e.g. Special Purpose Acquisition Company (SPAC) route, which is an alternative way to raise capital and access public equity markets.
“To date, the majority of corporates to set-up innovative transformation programs have experienced varying outcomes, and the SPAC route is an effective way to invest in public ventures and overcome associated risks,” added Merhaba. “From our perspective here at ADL, SPACs will offer vast opportunities to experience notable results whatever the scenario, propelling corporate ventures to greater heights and boosting their appeal both internally and to public investors.”
In KSA, Lucid Motors reached an agreement with SPAC Churchill Capital IV Corp., to become a publicly-traded company in February, which is the largest deal yet between a blank-cheque company and electric vehicle start-up. The combined company will have a transaction equity value of USD 11.75 billion and private investment is priced at USD 15 per share, placing the pro-forma equity value at USD 24 billion.
“Another thing to become apparent following recent events is a rejuvenated appetite among investors to accelerate green initiatives,” concluded Merhaba. “This is why the ‘Green Gambit’ is so relevant – because companies are exploring disruptive ventures, redefining their respective ecosystem roles, and entering into new partnerships to deliver on green commitments and ensuring impact is realized. Our report outlines how every party can act strategically to ensure success, and we are sure to see an influx of green investments and positive results emerge like never before in the coming years.”
About Arthur D. Little
Arthur D. Little has been at the forefront of innovation since 1886. We are an acknowledged thought leader in linking strategy, innovation and transformation in technology-intensive and converging industries. We navigate our clients through changing business ecosystems to uncover new growth opportunities. We enable our clients to build innovation capabilities and transform their organizations.
Our consultants have strong practical industry experience combined with excellent knowledge of key trends and dynamics. ADL is present in the most important business centers around the world. We are proud to serve most of the Fortune 1000 companies, in addition to other leading firms and public sector organizations.