Demand for sustainable investments fuels clean tech IPO wave

By Jeffrey Jones for The Globe and Mail
One of 13 solar projects owned and operated by major producer Northland Power Inc., in Prince Edward County, Ont. JOHNNY C.Y. LAM/THE GLOBE AND MAIL

Developers of clean energy, emission-free transportation and other climate-friendly technologies are tapping capital markets in what financial players see as a new wave of initial public offerings driven by surging investor demand for sustainable assets.

A quick succession of financings in Canada has bolstered the outlook for more deals involving renewable energy, electric vehicle technology and hydrogen fuel cell development. The activity is part of a global investment boom as countries set targets to achieve net-zero emissions in the next 30 years, necessitating a structural shift to clean technology. Government plans for a “green recovery” from the economic devastation wrought by the pandemic have only accelerated the flow of money.

Now, numerous companies involved in the transition are planning IPOs and other routes into public markets to expand their operations and offer investors opportunities to benefit, experts say.

“It’s really a robust period. I haven’t seen such a strong market ever for clean technology,” said Ken MacKinnon, managing partner at Montreal-based MKB & Co., which invests in cleantech for the transport sector. “It’s great that public capital markets are now assisting private capital in terms of helping to foster the movement of capital into these companies to help them grow.”

The deals will help widen the field of Canadian public companies in the sector, which has been dominated by major renewable energy producers such as Boralex Inc., BLX-T +0.25%increase;  Northland Power Inc. NPI-T +0.34%increase and TransAlta Renewables Inc., RNW-T -0.32%decrease Mr. MacKinnon said. Besides IPOs, companies are also making their way into public markets via special purpose acquisition companies (SPACs) and reverse takeovers, he added.

Financing picked up recently with three notable IPOs, each seeking $100-million. Burnaby, B.C.-based fuel cell producer Loop Energy Inc. has filed for an offering. The long-time partner of Canada’s National Research Council is in the commercialization stage of its technology. Loop has brought in some big-name advisers, including Lord John Browne, a former chief executive of BP PLC, and Lance Uggla, who recently sold his financial data company IHS Markit Ltd. INFO-N +1.87%increase  for US$39-billion.

Earlier, Newfoundland and Labrador’s Altius Minerals Corp. announced plans to spin off its renewable power division through an IPO. Altius Renewable Royalties has two investments in U.S. assets, as well as a joint venture with private equity firm Apollo Global Management Inc.

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Also in the sustainability field, Winnipeg-based Farmers Edge Inc., which provides data and artificial intelligence technology for the agricultural sector, filed a preliminary prospectus Tuesday. The company is focused on digital technology for increasing crop yields, cutting production costs and implementing data-driven practices for sustainability.

The uptick in financing is indicative of the global flow of money from major institutions and retail investors alike into companies developing green energy technology and sustainable infrastructure. As a show of such demand, BlackRock Inc.’s iShares Global Clean Energy exchange-traded fund has climbed 135 percent in the past year.

Meanwhile, major institutional investors, including pension plans and fund managers, have set up large investment funds targeting the renewable energy and clean-tech sectors.

The trend of major investors layering environmental, social and governance factors onto buying decisions is helping fuel the IPO activity, said Tyler Swan, head of equity capital markets at Canadian Imperial Bank of Commerce. “They incorporate it in different ways, but these are companies that very much touch upon the green economy and are prized in that environment,” he said.

In addition, the election of U.S. President Joe Biden and the Democratic power shift in the U.S. Senate has also raised hopes for a boom in cleantech. Mr. Biden has pushed environmental issues to the top of his agenda, and part of that has been a recommitment to the Paris Agreement on climate change.

“So it’s definitely something that we’re keen and on top of and we think is going to be a key theme of capital markets for the foreseeable future,” Mr. Swan said.

Quebec City-based LeddarTech Inc., a developer of environmental sensing devices for autonomous vehicles, is considering an IPO among a range of funding options for its expansion plans, chief executive Charles Boulanger said.

“We’re looking to scale up very quickly. We are very well positioned in the market, not only in terms of technology – we have very unique fundamental technologies – but really that we bundle these unique technologies with a different business model. It gives us a very distinctive approach in the market,” Mr. Boulanger said in an interview.

The company’s product offerings help meet the demand for emission-reducing investments alongside electric vehicles and vehicle sharing, he said. He declined to give a timeline for a deal or the potential size of an IPO.

Clean-tech companies have also been major benefactors of the SPAC craze, in which buyout groups assemble cash by listing on U.S. exchanges, then seek out operating companies to acquire. Canadian companies have yet to play a major role, however, as few have the necessary scale yet, Mr. Swan said.

At least 15 such corporations have gone public through SPACs, according to Accelerate Financial Technologies. Many deals have involved companies developing both electric vehicles and batteries.

The Canadian member of that club is Lion Electric Co. The EV maker, part of the Power Corp. conglomerate, was bought late last year by Northern Genesis Acquisition Corp. for US$500-million.

Investors are betting the new clean energy boom has more lasting power than the last rush, a decade ago, when numerous solar companies went bust or were swallowed up after facing financial troubles. Indeed, improvements in technology for renewable energy and EVs since then have lowered costs and encouraged adoption, putting the businesses on a more viable footing, Mr. MacKinnon said.

“This means the entrepreneurs developing these businesses have huge growth potential,” he said. “It is those growth prospects that are attracting investor interest.”

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