Matthew: Climate tech valuations suffer disproportionately from rising discount rates and debt costs
Shanu Matthew · Climate tech’s tough year in the public markets · Mar 14, 2024 · at 11:47
Shanu Matthew, portfolio manager at Lazard, explains to Shayle Kann why public climate tech equities experienced sharper valuation declines than the broader market during rate-hiking cycles.
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“In terms of the broader companies and their business models, oftentimes with some of these climate tech companies, you do have what we call capital intensity, meaning that you need to spend a lot of dollars at CapEx or R&D or et cetera to develop your product and get it to market, and so they oftentimes raise external debt To finance these this capital spend. And so in periods where interest rates are higher, that means a higher interest expense for them, as well as a higher discount rate for their future cash flows. And so with, you have these nascent businesses that are a lot of times valued on what they'll be able to generate in three, five, 10 years time, you are not discounting that higher, which lowers your net present value and results in, you know, lower valuations.”
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