2023: Navigating the Shift From Transition to Transformation

2022 felt very much like a pivotal year of transition, didn’t it? With the world returning to “normal,” we found ourselves continuing to deal with the structural challenges of climate change, whilst facing the ongoing manifestations of systemic and geo-political tensions reminding us that the challenges we face are far from over.

With interest rates increasing due to inflation, markets dropping due to a recessionary environment, and global supply chains still reeling from the pandemic, two interesting trends have emerged as both relatively resilient, counter-cyclical, and long-term bullish:

1) Climate-tech investing and 2) Purpose-driven businesses.

Climate-Tech Investing

Climate tech investing “had an exceptionally strong 2022 delivering $70.1B of investment, defying gravity in a broader market that has fallen significantly.” In 2023, amid a challenging economic backdrop, it is expected that this will moderate. However “Climate Tech will enjoy preferential allocation and has mobilized a focused investor base competing for quality flow” (Source: HolonIQ).

This is not a fad. The global economy, especially in the West, is undergoing massive re-industrialization as we begin to shift from fossil fuels towards mass electrification and alternative, renewable energy sources. We are seeing a move towards local production using regenerative agriculture, hydroponic farming, and lab-grown solutions. Additionally, there is an increased focus on mindful consumption, driven by trends among younger generations and a variety of sustainability initiatives.

At Tidal Impact, we are leveraging our expertise in impact data, due diligence, and projection modeling to invest in such solutions — growing startups driven by social, environmental, and commercial performance. In May 2022, we completed our very first investment in material science company Natural Fiber Welding who are innovating in the space to drive forward their zero-plastic mission. Having invested in their series-B alongside Ralph Lauren, BMW, Tattarang, Engine №1, and other strategic investors, we view NFW as a cornerstone for our investment strategy.

A second investment was completed in December (to be announced soon.. watch this space!) and we have two more currently in diligence and six in our pipeline. We will continue to apply Tidal’s rigorous, private-equity style due diligence approach to venture-stage deals to build an ecosystem of interoperable B2B2C businesses that enable the world’s biggest brands to operate more sustainably and impactfully.

Purpose-Driven Business

In 2023, “the only certainty for businesses will be change — and purpose. Business leaders, employees, investors, and communities know the pressure is on: Companies have to operate responsibly. How they do so is the challenge” [Link]. This is consistent with what we’ve seen at Tidal, as private equity firms, corporations, and others are being mandated by regulators to report their ESG performance and plans ahead. Our advisory practice continues to grow YoY supporting institutional investors, corporate partners and startup clients with their impact/ESG measurement and management activities, an example of which is our production of StepStone Group’s first ever ESG/TCFD reports, which we delivered through our strategic partnership with ESGTree. With a 100% client engagement renewal rate, not only does that mean demand is high — it also means our “How” works.

The more companies embed impact in their business models and operations, the better their financial returns will be over the long run. It is thrilling to implement this theory of change. Our approach, in both our consulting and investment practices, is supported by three pillars:

(1) Social and environmental impact are performance metrics

(2) Impact/ESG measurement and management are dynamic, not static

(3) Impact-derived economic value is where long-term alpha resides

With our powerful, growing, and global coalition of impact practitioners, an innovative business model that evolves with the times, a strategic advisory business that continues to strengthen Tidal’s core IP in impact and sustainability data, and our ability to continue to leverage that IP for our own investing, we look forward to 2023 — a year we go from transition to transformation. My cofounders Dima and Julia join me in wishing you all health, happiness, and purpose for the year ahead. Here’s to continuing the journey and doing good!

Sincerely,

Mohannad

Tidal Impact Cofounder & CEO

Learn more about Tidal Impact here.

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