Xeraya Capital’s ESG Investment Strategy Pays Off
KUALA LUMPUR, MAY 6, 2021 — In January 2021, the world welcomed Joe Biden, as the 46th President of the United States, a change that not only has repercussions in America, but across the world. His appointment has had an impact on every facet of the world’s economy, from international affairs and economic issues, to racial equality and sustainable investing. While his first 100 days may be an object of debate for many, the impact his administration has had on climate change and biotechnology has been largely a positive boost for firms such as Xeraya Capital.
Biden’s Climate Policy1
In a nutshell, Biden has made a strong push for reigniting the talk about climate change and sustainable living. His administration has laid out a plan that encompasses three key factors:
- A 100% clean energy economy
- Biden is targeting to have the US achieve a 100% clean energy economy and to reach net- zero emissions no later than 2050. The strategy includes 1) establishing an enforcement mechanism; 2) making a historic investment in clean energy, climate research, and innovation; 3) incentivizing the rapid deployment of clean energy innovations across the economy.
- Building a stronger, more resilient nation
- Biden will be using the convening power of government to boost climate resilience efforts by developing regional climate resilience plans in partnerships with local universities and national labs which will provide local access to the most relevant science, data, information, tools, and training.
- Rallying the rest of the world to battle climate change
- Biden will be leading an effort to get every major country to ramp up their own ambitions when it comes to climate change. He is aiming to ensure that these commitments are transparent and enforceable. In the US, he will be fully integrating climate change into the country’s foreign policy, national security strategies, and its approach to trade.
- Stand up to the power abuse by polluters
- Vulnerable communities globally suffer at the hands of big corporates that pollute their local environments and take advantage of their natural resources. Biden will be taking action against fossil fuel companies and other polluters who put profit over people.
- Fulfil an obligation to industrial workers that powered the industrial revolution and the subsequent decades of economic growth
- No workers or communities that helped to shape America’s economy will be left behind.
The Policy’s Boost on Biotechnology and ESG Investing
According to this article on NASDAQ2, the past few years have pushed ESG stocks and funds into the limelight, but the advent of the pandemic in particular has spurred demand for these investment vehicles as traders focus more on impact investment. Morningstar data has shown that during the third quarter of 2020, assets under management in ESG funds hit US$1.2 trillion. In the same quarter, the United States saw inflows of US$9.8 billion, which reaches the year-to-date total to US$30.7 billion.
Additionally, the Forum for Sustainable and Responsible Investment’s 2020 report states that sustainably invested assets under management grew 42% from US$12 trillion in 2018 to US$17.1 trillion in 2020. It also infers that sustainable investment now makes up 33% of the US$51.4 trillion in total US assets currently under professional management.
What does this mean for investors? In general, ESG-focused companies avoided damage caused by the pandemic and addressed factors such as racism and geo-political tensions. As the US embraces the transition to a low-carbon economy, there will be early-stage investments in several small and big companies through venture capital and private equity. Therefore, investments in companies that focus on renewable energy, low carbon, and fossil fuel-free initiatives will rise. Biden, known as the “green president”, is expected to provide government initiatives, investments, and federal policies that will be favourable for the sustainable investment space.
As for biotech, the sector is projected to surge beyond US$775 billion by 2024, as scientists develop treatments for thousands of diseases. These companies are also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
A Mile Ahead: Xeraya’s Forward Thinking Investment Strategy
Malaysia’s Xeraya Capital, a venture capital firm focused on the life sciences, is no stranger to ESG investing and the market potential of biotechnology. With this knowledge at hand, Xeraya has made several investments over the years that fall under sustainable investing, and has reaped the benefits of being a mile ahead of other investors.
One such investment was LanzaTech, a company that uses carbon recycling technology by retrofitting a “brewery” onto an emission source such as a steel mill or landfill site; pollution is then converted by bacteria to fuels and chemicals. Potential use cases include plane fuel that is made of recycled GHG emissions or clothing manufacturing. Xeraya exited LanzaTech this year.
Another key example is the company P2 Science, Inc. The company has developed a set of unique chemical process technologies for converting renewable feedstocks into high-value, speciality chemicals, including flavour and fragrance ingredients, cosmetic ingredients, and renewable monomers. Xeraya invested in P2 in 2015.
While seeking the next big life sciences company, Xeraya’s investment team adheres to the guidelines set down by the Principles for Responsible Investment (PRI)3, which works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.4 They have been a proud signatory of the PRIs since March 23, 2018. The six principles set by the PRI are as follows:
- We will incorporate ESG issues into investment analysis and decision-making processes;
- We will be active owners and incorporate ESG issues into our ownership policies and practices;
- We will seek appropriate disclosure on ESG issues by the entities in which we invest;
- We will promote acceptance and implementation of the Principles within the investment industry;
- We will work together to enhance our effectiveness in implementing the Principles;
- We will each report on our activities and progress towards implementing the Principles.
A quick glance at Xeraya’s current portfolio of startups shows that the firm is continuing to be forward- thinking about sustainable investing, with firms that cover everything from biotech and battling old diseases, to reusing emissions and bio waste to create new products, thereby following the ideal definition of a circular economy.
About Xeraya Capital
Xeraya is a global investor in the life sciences sector with offices in Kuala Lumpur and Boston. We look to generate superior investment returns through active participation in our investments – collaborating with and nurturing our portfolio companies. We seek opportunities whilst maintaining ESG compliance and ensure smart capital is deployed to bring life changing innovations to humanity.