LONDON: Barclays Plc says more money needs to go toward climate transition projects that are too advanced to interest venture capitalists, and too nascent to attract infrastructure investors.
Daniel Hanna, the global head of sustainable finance at Barclays’ corporate and investment bank, says the so-called missing middle of climate transition deals hasn’t been getting enough attention from the finance industry.
“There’s a missing middle of capital between the venture and the infrastructure,” Hanna said at the Bloomberg Sustainable Business Summit in London.
A project can be “too developed, need too much money, for venture, but is too nascent, too early for the infrastructure”, he said. “And I think that’s where more focus is needed from banks like us, insurers and public capital – government money, to tackle this.”
Barclays is building out its focus on transition finance, having assembled more than 100 bankers in a new dedicated team at the beginning of this year, and recently provided new guidelines for staff on how to go about dealmaking.
Deciding at what stage to allocate capital to a green project can make a significant difference to returns, and venture capitalists have recently seen some deals sour, Hanna said.
“There is actually quite a lot of very early-stage venture capital focused on climate tech” and “last year, climate venture capital had a terrible year,” Hanna said.
“You saw a reduction globally in all types of venture capital”, though climate tech actually grew in Britain, he said.
In large-scale green infrastructure, meanwhile, there’s now an “amount of dry powder that’s being held by those funds to scale things”, Hanna said.
Barclays is stepping up pressure on energy clients to adjust their business so they can be treated as transition assets.
Earlier this year, the bank announced it will halt the direct financing of new oil and gas projects, and said energy clients will be met with “clear expectations of transition strategies and decarbonisation requirements”.
Rashmi Ghai, global head of sustainability and ESG at Citigroup Inc’s commercial bank, said mid-market companies, those with annual revenue of anywhere from US$10mil to US$3bil, are instrumental in the global decarbonisation movement.
“They aren’t maybe the face of the industries, but they’re definitely the driving engine of a lot of industrial and consumer companies,” Ghai said the Bloomberg summit. “There’s no real way to decarbonise the global economy without the decarbonisation efforts of these mid-market players.”
These companies also offer business opportunities around decarbonisation services for banks like Citigroup, she said. — Bloomberg
