Croatian first Unicorn

Croatian first Unicorn

Last week’s announcement that the US private equity firm One Equity Partners is partnering with Infobip in their $200 million Series A round at a $1 billion valuation may not seem groundbreaking in the international technology market yet for a small mostly tourism-driven country like Croatia it certainly is. It is a sign for the global investment community that substantial growth on a global scale can be achieved by Croatian companies, and can pave the way for more capital commitments to Croatian equities. 

The three founders of Infobip have not just proven that global Software companies with thousands of employees can be built on the beautiful coastline of Croatia, but are a symbol for the resilient entrepreneur, as they have silently built a global powerhouse without any funding or help by the institutions which were intended to do so. Infobip’s founders have spotted the need for a Full-stack Communications Platform as a Service (CPaaS), as they describe their product, early on in 2006 when it was far from obvious that billions of SMS would have to be sent daily from Uber, Lyft, and other mobile Apps 14 years later. Today the company operates its direct communication SaaS globally with virtually every major telecom operator, offers a wide range of messaging services, and boasts clients with the likes of Uber, Burger King, and Strava. 

The funding comes a bit surprising, as the founders intended to go public without prior fundraising.  In comparison Twilio (NYSE: TWLO), Infobip’s main competitor has raised $263 million from 24 investors, amongst those global leaders such as Salesforce, Fidelity, and T. Rowe Price since its inception 2009 when they first went through the Techstars Accelerator. Today Twilio has a market cap of $38.59 billion, the $1 billion Infbip is valued at seems small compared to its biggest rival, although it is their first-ever funding round and we expect more money to be drawn to the company. 

The round’s only investor One Equity Partners, invested in Croatia for the first time, the middle-market private equity firm has $10 billion assets under management and was formed at Bank One in 2001, today it operates under the JP Morgan Chase umbrella after the latter was acquired by JPM. Interestingly One Equity Partners acquired a majority share in Ericsson media solutions in 2018, which is the media business of Ericsson composed of many previous acquisitions, yet a small part of Ericsson, which of course has its roots in the global telecom market and could pave the way for a symbiotic relationship between the two. 

The future will show how this Croatian success story will unfold, we at VentureXchange are happy that Silvio Kutic, Roberto Kutic, Izabel Jelenic have shown the world that Croatia can produce Unicorns, and hope that many more will follow their path. Congratulations Infobip.

The most sustainable companies in Europe

The most sustainable companies in Europe

Europe is front-and-centre in the tidal shift towards more sustainable business, driven by far-reaching regulations. Nearly half the world’s most sustainable companies are in Europe. France paves the way with nine sustainable companies in the ranking, followed by Finland with six companies of 100.

European countries have typically been leaders in the fight against climate change, with many ranking lowest in carbon emissions globally and highest in environmental quality. The newest trillion-euro investment plan looks to solidify Europe as the global example for combating global warming as other continents like Asia and North America continue to produce high carbon emissions and lag in renewable energy sources.

We took top 3 companies in Europe that rank high on corporate sustainability criteria. The researchers rely on readily available data for all publicly-listed companies with at least $1 billion in gross revenue (in PPP), as of the financial year 2018.

Some of the criteria used for measurement of corporate sustainability include financial management, employee management, resource management and clean revenue.

 

Ørsted A/S

Denmark’s Ørsted A/S claims the top of the leaderboard in 2020. Within a decade, the company has completely transformed its business model—shifting away from the Danish Oil and Natural Gas (DONG) company into a pure-play renewable energy company.

Ørsted A/S operates through three segments: Wind Power, Bioenergy and Thermal Power, and Distribution and Customer Solutions. According to media, they have recently signed a deal described as “the world’s largest renewables corporate power purchase agreement.” Taiwan Semiconductor Manufacturing Company – purchased all the energy produced by Orsted’s yet-to-be-built 920-megawatt offshore wind farm off Taiwan.

Nevertheless, Ørsted attributes its dramatic transformation to the societal demand for green energy and aims to be carbon-neutral by 2025.

 

Chr. Hansen Holding A/S

Chr. Hansen took second place in 2020 among the worlds most sustainable companies. Chr. Hansen’s score improved to 83.9% from 82.99%. Moreover, Ørsted A/S jumped to No. 1 in 2020 from No. 4 in 2019 as its overall score improves to 85.2% from 80.13%.

The company is developing microbial solutions for the food, nutritional, pharmaceutical and agricultural industries. Sustainability is an integral part of Chr. Hansen’s vision to improve food and health. In 2019 Chr. Hansen has ranked as the world’s most sustainable company by Corporate Knights thanks to strong sustainability efforts.

Chr. Hansen scored high marks in clean revenue, which Corporate Knights defines as the percentage of a company’s total revenue derived from products and services categorized as clean.

 

Neste Oyj

 

Neste Oyj ranked as the world’s third most sustainable company on the Corporate Knights’ Global 100 list of the world’s most sustainable corporations.

“Our company’s purpose is to create a healthier planet for our children, particularly through tackling the climate crisis. In this work, we need everyone on board. It is great to see more and more companies placing sustainability at the core of their strategies worldwide” – says Peter Vanacker, President and CEO of Neste.

Neste has gone through a comprehensive transformation over the past decade: the former local oil company’s aim is now to become a global leader in renewable and circular solutions.

The organizations that make up this list have made significant strides toward sustainability, but there’s still much work to be done, and it’s in their best interest as businesses to do it. The big takeaway when looking at Ørsted and the other companies is how the gorwth in green and sustainable development is moving forward. In this age of climate and carbon constraints and an emerging climate economy, these companies are positioned to succeed.

 

ESG Investments Croatia

ESG Investments Croatia

ESG could be defined as responsible investing strategy and practice which includes 3 key factors in investment decision making: social, environmental and governance factors.

ESG is becoming more important and present in the investing world because there is a growing number of clients who take into consideration ESG factors when deciding on which fund to invest in. 

Croatia in ESG practices

ESG investing is still at its early phases in Croatia. There is undoubtedly a higher level of ESG practices in Croatia and the future of investing.  This to some extent will come as a consequence of regulators already increasingly emphasizing that responsible investing is an integral part of asset management services.

At the EU level, asset management companies will need to start announcing how they integrate ESG factors into investment decisions. Recently, Croatia’s regulator (HANFA) announced that the International Organization of Pension Supervisors (IOPS) has adopted Supervisory Guidelines on the integration of ESG factors into investment and risk management of pension funds. Moreover, according to MSCI Croatia implemented 2 regulations by Governments with ESG practice in 2019. The regulations include slean and energy-efficient road transport vehicles. It also includes commission Decisions 2009/300/EC and 2018/59 on the ecological criteria for the award of the Community Eco-label to televisions.

Croatia has an ESG Relevance Score of 5 for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch’s SRM and are highly relevant to the rating and a key rating driver with a high weight.

Key rating drivers

Fitch forecasts the economy will contract by 5.5% in 2020, from the growth of 2.9% in 2019, due to the impact of the COVID-19 pandemic.  Croatia is highly dependent on tourism and tourism-related activities. According to Eurostat, the ratio of tourism to total domestic supply stands at 9.8%, by far the highest figure in the EU (average is 3.4%).

The hit to tourism and other services will have a significant effect on employment, consumption, investment and exports. However, it macroeconomic professionals expect the economy to recover in 2021. Moreover, the economy will expand by close to 3% on the back of service sector growth and a pick-up in exports as global demand resumes.

The chart above shows that HT leads the list with an ESG score of 61.97, followed by Ad Plastik with 45.76. The early adopters to ESG practices could possibly benefit from having high ESG scores as it might attract a new pool of investors who are seeking investments in companies with implemented ESG practices. 

Summary

Croatia is leaning towards ESG practice and many companies show deep interest in ESG topic through published articles and reports. We can clearly see that there is a better understanding of the environmental, social and governance challenges. Investors are looking to invest in companies with long term ESG strategy. Existing and future regulatory changes at EU-level (EC’s Action Plan on Sustainable Finance) provide a further decisive impetus to embrace sustainability aspects.  We can advise clients in devising the ESG strategy and communicating it to various stakeholders.  ESG strategy is not a stand-alone issue but should be integrated into the overall company’s strategy, operating environment, and business model

Sustainable investing in the new normal

Sustainable investing in the new normal

Sustainable investing is becoming part of business today as businesses face environmental and social challenges. Addressing these sustainable challenges in global markets allows for financial advisors and investors who are actively seeking places to invest their money that support their sustainable values.

Refinitiv provides a rich source of environmental, social and governance (ESG) research data, covering 80% of global market cap, spanning 76 countries. However, only 35% of companies have specific reduction targets around their emissions, meaning many are setting up policies without backing up their intentions.

Sustainable investing has become more important now more than ever. In the world of new normal, investors will look for their portfolio companies to integrate ESG objectives.

Why sustainable investing is growing?

 

The reason behind the high interest in sustainable investing starts with climate change that was most discussed theme this year in Davos. From a corporate and market perspective, that shows more opportunities for tech companies. Some of the companies that showed interest in green investing are Starbucks and Salesforce.

According to Barron’s, Salesforce.com announced it would plant a trillion trees over the next 10 years. Starbucks (SBUX) committed to a 50% reduction in emissions. That said, big companies are willing to speak loudly about climate risks in 2020. The fact that climate change was number on the topic at Davos, says a lot about how important this issue really is.

The climate solutions market could double from $1 trillion a year now to $2 trillion a year by 2025, says BofA’s Israel, including renewables, electric vehicles, batteries, biofuels, and circular economy plays.

Technology is changing what we demand and how we consume. Whether it’s driverless cars, smart metering in utilities, renewables in oil and gas, or online sales in retail, most sectors of the economy are seeing paradigm shifts in the way business is conducted.

Together these are the reasons why sustainable investing is rapidly growing. Therefore, sustainable investing has become more than a trend, it’s become the new normal.

In today’s environment where change and uncertainty seem to be the only constants, more and more investors are taking a long-term view and choosing to put their money into companies that generate a return and act responsibly. ESG investing is already reshaping global markets.

Key takeaways

 

To sum up, ESG investing is growing and it is becoming part of business today. In the recent article, we discussed the ESG legislation requirements.

Registered data on ESG investing growth showed a good path for sustainable investors and could serve as a proof point of how investors can trust ESG funds in turbulent markets.

There is no question about ESG becoming an integral part of doing business. If you are looking to integrate ESG criteria to your business strategy, we can advise you on devising the ESG strategy and communicating it to various stakeholders. 

Why ESG is core to a venture capital success?

Why ESG is core to a venture capital success?

Venture Capital (VC) is having a transformative impact on large sections of the global economy. While ESG issues have never been greater, investors may think the ESG is less relevant for VC. Tech companies do not directly emit many greenhouse gases or pollute many rivers after all. However, ESG integration for investing can be critical to long term success of venture capital firms.

The need for sustainable investments has grown dramatically in recent years and so has the pressure on investors to integrate sustainability factors in their investments. VC mostly targets disruptive business models that often don’t have developed model of ESG issues. As companies grow, individuals within the company will have their own perceptions of appropriate behaviour and activity which will likely be divergently resulting in a loss of ESG rigour in the corporate operation.

Moreover, tech companies are often at the forefront of emerging ESG concerns. For example, the ethical issue of personal data will become major 2020s human right issue.

That said, VC investors will have greater chances to identify ESG risks with systematically integrated ESG into investment decision making. Moreover, systematic approach is particularly valuable for VC investors because they have smaller teams and bigger portfolios than their private equity peers.

The adoption of environmental, social and governance policies can help mitigate risks and provide a healthy framework for inexperienced founders. Moreover, it can be less painful for the company if ESG has been part of its culture in its early stages rather than being ‘retro-fitted’ under the pressure of investor scrutiny.

With this in mind, VC investors can set the foundations for rapid growth if their company incorporates ESG early on. A clear ESG commitment can also attract Millenials, as sustainable consciousness consumers. A 2019 Morgan Stanley Institute for Sustainable Investing survey of high net worth investors found that 95% of millennials were interested in sustainable investing.

According to MSCI, the interest from millennial investors has already helped drive the rapid growth in ESG investment. Nearly USD 4 billion flowed into ESG funds in the first three quarters of 2019. The year-end total in 2018 was USD 5.5 billion, which at the time was a calendar-year record, but sustainable funds were on track to triple that during the waning months of 2019.

The necessity of ESG due diligence is simply relative to the sector, and so different factors will be diligenced depending on the profile of the business. Therefore, due diligence and manager research teams have been leveraging ESG data to better understand the ESG characteristics of managed products and funds. ESG reporting and data may help align what managers say they are doing with ESG outcomes.

For example, where a manager says they are building a portfolio designed to minimize exposure to climate change risk, due diligence and research teams may leverage ESG reporting to measure the carbon footprint and performance on climate change risk management of a portfolio and compare it to a benchmark.

At Venturexchange, we can advise clients in devising the ESG strategy and communicating it to various stakeholders. ESG strategy is not a stand-alone issue but should be integrated into the overall company’s strategy, operating environment, and business model.

Our article does not provide all the answers that involve ESG issues, but we hope it provides a framework for VC investors to consider and manage their ESG impact.

Related articles

The most sustainable companies in Europe

The most sustainable companies in Europe

Europe is front-and-centre in the tidal shift towards more sustainable business, driven by far-reaching regulations. Nearly half the world’s most sustainable companies are in Europe. France paves the way with nine sustainable companies in the ranking, followed...

read more
ESG Investments Croatia

ESG Investments Croatia

ESG could be defined as responsible investing strategy and practice which includes 3 key factors in investment decision making: social, environmental and governance factors. ESG is becoming more important and present in the investing world because there is a growing...

read more
Sustainable investing in the new normal

Sustainable investing in the new normal

Sustainable investing is becoming part of business today as businesses face environmental and social challenges. Addressing these sustainable challenges in global markets allows for financial advisors and investors who are actively seeking places to invest their money...

read more
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