Investment in cleantech and renewables businesses has grown hugely over the last few years but for investment to be effective there is a need for specialist knowledge and understanding. Without that, there is a high level of risk for both the investor and ultimately the future of the company in question.
Many innovative cleantech and renewables businesses represent hope value. They are pre-revenue, the technology may not be proven and could well take longer to commercialise than envisaged. To maintain funding to the point of commercialisation, they need an investment market that fully understands the risk involved and can be sympathetic to the ups and down of the journey as it unfolds. What they do not need is an investment market that is only focused on the possible opportunity but lacks understanding and does not have the mechanisms in place to support the business through the challenges it will inevitably face.
Canada recognised and embraced the cleantech and renewables sector some time ago and Canadian capital markets have since been investing in creating the understanding needed, as well as a supportive system of institutions and rules, that would allow the sector to flourish.
Background to Canadian markets
Canadian market interest in the sector is based on a long history of investing in renewable energy in Canada. Leveraging Canada’s natural geography, hydroelectricity has been a long-term constituent of the country’s base load electricity production. Hydroelectricity now accounts for 60% of Canada’s total electricity needs, with that figure rising to over 90% in some provinces. Hydroelectricity is so ingrained in the psyche of the country that consumers often refer to their electricity bills as their hydro bill.
That long-term history of investing in hydroelectricity has not only raised awareness but also created the impetus to develop technologies and a support network and system fit for the wider cleantech and renewables sector. A reflection of that was the support early movers into the sector received and have continued to benefit from since, such as Ballard, one of the world’s iconic and pioneering fuel cell companies, which went public on the TSX in 1993.
What has that experience created?
The offer the Canadian financial markets can provide cleantech and renewables companies seeking growth capital is unique. At the TSX, that offer is based around a well-developed index, supported by an equally well-developed Exchange Traded Fund (ETF) product set. In 2021 to date, the Canadian markets have welcomed four new Cleantech ETF launches. That index and the specialist funds that support it are underpinned by access to world class understanding, through an army of specialist and knowledgeable equity analysts.
A further strength of the sector in Toronto has been its location, being based regionally in North America but outside the United States. Whereas small- and mid-sized companies, including those that are pre-revenue, may struggle to attract interest in the US markets, there is significant interest in Canada, with ready access to multiple professional funds with the right mandate to invest. One such fund is BDC’s Cleantech Practice focusing exclusively on clean technologies. “A number of our companies have successfully raised significant capital on the TSX to accelerate their growth plans,” says Jahangir Bhatti, Director, Cleantech Practice, BDC. “Canada’s public markets offer strong support for the cleantech sector in advisory, legal and accounting services. After-market support through analyst coverage or events like TSX Cleantech Investor Day, where several of our companies presented, have been beneficial.”
The TSX’s role in supporting the cleantech and renewable sector
In keeping with the wider Canadian financial markets, the TSX recognised the importance of the cleantech and renewables sector some time ago and has been investing in developing its offer to these companies since.
An example of this investment is the annual Canadian Clean Energy Conference, which the National Bank of Canada (TSX:NA) and the TSX first ran in London in 2014. After seven years it is now a firm fixture in the investor calendar, attracting more institutional fund managers every year. The most recent event, in June 2021, featured 12 Toronto listed issuers, some of whom have presented at all seven events, while others were first-timers. Robert Merer, Managing Director Equity Research, at National Bank Financial, says: “The Canadian markets have a strong community of global leaders in the cleantech and renewable energy space. The listed companies attract interest from investors around the globe and our annual conference in London is increasingly popular.”
The Capital Pool Company (CPC) system of listing also lends itself to companies within the cleantech and renewables space. A CPC is essentially a SPAC [special purpose acquisition company] for smaller businesses. It offers a uniquely simple and effective means of listing that is cost-effective, allows the management team of companies to maintain control and minimises management time away from developing the operations of the business. It also balances the listing risk between the investor, SPAC and the company.
What does the sector in Canada look like now?
Today the cleantech and renewables sector in Canada accounts for 88 issuers, across the TSX Venture Exchange and the TSX. The sector consists of companies based in all parts of the world or with projects in multiple jurisdictions, from Europe to the Middle East and across North and South America.
Combined, the sector has an aggregate market capitalisation of $89bn. In the first half of this year alone, there were 16 new listings and over $3bn of new equity raised.
These companies range from a few million dollars in market cap up to multibillion-dollar giants such as Northland, Algonquin and Brookfield Renewable. The sector covers a wide range of industrial activities. This ranges from power producers, with wind, solar or hydro generation assets, to innovative technology companies, engaged in vehicle manufacture (including jet skis and snowmobiles!), biomass conversion, fuel cells. plastics recycling and different energy efficiency technologies.
What does the future of Cleantech in the Canadian financial markets look like?
The Canadian markets are continuing to build on the centre of excellence that has been created to date. With the continued growth of the sector, it will increasingly attract relevant capital and expertise, underpinned by an established system and support network that serves as a solid platform for the future of the cleantech and renewables sector, not only in Canada but from around the world.