Complex Made Simple

Climate change will get new clients in a 2020 year for sustainable M&As

Executives and boards globally will use mergers and acquisitions to address their climate risks

fast fashion retailer H&M reported a global inventory of unsold clothes worth $4bn in 2018 The $46 bn merger of Peugeot and Fiat Chrysler Automobiles may go down as one of the first major corporate tie-ups driven by climate risk As climate concerns rise up the corporate agenda in 2020, more Fiat-style mega-deals are possible

Shareholders will put more pressure on companies (Energy companies, banks, car manufacturers, others) to deal with greenhouse-gas emissions in 2020. That’s also likely to prompt executives and boards to use mergers and acquisitions to address their climate risks – giving Wall Street a new way to pitch deals.

Read: Floods, famine, heatwaves-global warming is real and it’s getting worse

Fashion trashes old thinking

The fast fashion model, wherein designs move swiftly from runway to stores, is considered a major contributor to waste problems. Fueled by social media, consumers want to get a hold of the latest trends as quickly as possible, and retailers must rapidly increase production to meet demand.

But this can lead to overproduction and huge amounts of waste — fast fashion retailer H&M, for example, reported a global inventory of unsold clothes worth $4bn in 2018.

Even luxury brands are contributing to this problem. In 2017, British luxury fashion label Burberry burned around $37 million worth of unsold bags, clothes, and perfume.

And it’s not only unsold merchandise that’s problematic. After use, 73% of clothes either end up in landfills or are incinerated.

If these practices continue, the fashion sector could consume a quarter of the world’s carbon budget by 2050. But with increasing consumer demand for more sustainable products and a rising focus around eco-friendly practices, the fashion world is taking steps to lessen its negative impact on the environment.

What remains to be seen is whether fashion and climate will wed using blockchain tech to measure how waste is generated, stored and disposed off to accurately find more eco-friendly solutions or if garments will startups who can weave a way towards recycling new business threads.

Read: ‘AI’ Will Accelerate Breakthroughs Across Energy, Water, Waste and Smart Cities

Clean M&As 

The looming $46 billion merger of France’s Peugeot and Fiat Chrysler Automobiles may go down as one of the first major corporate tie-ups driven by climate risk. Yet the novelty will quickly wear off as chief executives wake up to the financial impact of global warming. That gives climate-conscious advisers an edge, Reuters Breakingviews explains.

Investment bankers spent little time on green issues in 2019 – or before. Lazard boss Ken Jacobs has said environmental, social and governance concerns may play a role in deals, but reckons they are “not a factor yet.” He’s mostly right. Of the 39 transactions worth over $10 billion announced up to Dec. 10, only Fiat-Peugeot counts. The Italian-American carmaker could avoid a potential $2 billion in European emissions fines in part by teaming up with its French rival, Jefferies reckons, and ease industry problems like overcapacity and low margins.

Others may follow suit. Carbon-intensive sectors like steel, cement and airlines are grappling with the prospect of higher prices or even a tax on carbon, incentivizing a shift to cleaner energy. Royal Dutch Shell in 2019 bid for Dutch renewables utility Eneco, which instead agreed a 4.1 billion euro sale to a consortium led by banking-to-energy conglomerate Mitsubishi Corp. Chevron, ConocoPhillips and even climate laggard Exxon Mobil may similarly need to buy their way to a greener future.

Green bankers are admittedly a rare breed. Former UBS investment-banking boss Jeff McDermott set up Greentech Capital Advisors to work on clean energy a decade ago, and in December agreed to sell to Nomura. Erstwhile Lazard dealmaker Tony O’Sullivan and Baker McKenzie climate lawyer Martijn Wilder recently founded Pollination. As climate concerns rise up the corporate agenda in 2020, more Fiat-style mega-deals are possible. That’ll give Lazard’s Jacobs and other fast-moving rivals more ways to rake in fees.