Climate Tech Companies Outperforming the Market

The increasing number of climate-focused companies entering public markets makes tracking their performance a challenge. To address this, Energy Impact Partners has developed an index to monitor technology companies dedicated to sustainability, energy efficiency, and greenhouse gas emission reduction.

Significant Returns in Climate Tech

For several months, the firm – backed by major energy consumers and utilities – has been constructing this index of publicly traded climate tech companies. Their analysis revealed a compelling trend: these companies are generating returns that surpass those of the broader market.

Since the start of 2020, the EIP Climate Index has exceeded the NASDAQ’s performance by roughly 2.8 times. It has risen by 127%, compared to the NASDAQ’s 45% increase. Approximately 20 of the 27 companies included in the index are relatively new to the public market, having been listed for less than a year, and have still outperformed the NASDAQ during this period.

Around 16 of these companies have experienced gains exceeding 100% since their initial public offerings, even considering the index’s recent 20% decline from its January peak.

An Educational Tool Revealing Investor Appetite

Although the index isn't currently available for direct public investment, it serves primarily as an educational resource. However, it effectively demonstrates the wide range of companies developing climate solutions and the strong demand from public market investors for these ventures.

“There’s been a really incredibly positive run in the climate tech sector in the public markets, and this extends beyond just SPACs,” stated Shayle Kann, a partner at Energy Impact Partners. “A key motivation for creating this climate tech index was to assemble a diverse group of companies.”

Diverse Representation Within the Index

The EIP index includes well-known companies like Beyond Meat, a leader in sustainable food production, alongside more established businesses such as Ballard Power and Bloom Energy, which specialize in hydrogen fuel cell technology.

The index encompasses a broad spectrum of climate-related technologies, ranging from electric storage and renewable energy generation to vehicle charging infrastructure and alternative protein sources.

“Our goal was to assess the sector’s overall performance by including a comprehensive range of companies. We created this index with inclusivity in mind, and it has demonstrably outperformed the market,” Kann explained.

Potential for an ETF and Improved Exit Pathways

While the EIP list is intended for informational purposes, it could readily be adapted into an exchange-traded fund (ETF) for the industry. Existing ETFs typically focus on specific areas like energy production or infrastructure; this index could be the first to track the broadly diversified landscape of companies working to mitigate climate change and reduce greenhouse gas emissions.

The index also features additive manufacturers like Desktop Metal, which Kann highlighted as having a significant climate benefit due to its technology.

“Additive manufacturing presents a strong climate case through reduced waste, decreased transportation needs, and the electrification of manufacturing processes,” Kann noted.

Implications for Early-Stage Investors

This performance also provides valuable insights for early-stage private investors, according to Kann.

“It establishes a clearer pathway to public markets. Companies experiencing share price increases here suggest improved exit opportunities for us and others in the venture capital space when this index performs well,” he added.

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