ESG stocks investing is recession proof: interview with Victor Basta

We live in a tumultuous world. You could even say that we live in a twilight world, for all the Tenet’s fans out there. After years of relative calm in the investment realm, across virtually all asset classes, things are changing. By calm we mean steady growth and small bumps on the road. Even the pandemic did not derail the markets, thanks to massive cash injections from the central banks around the world. Which ultimately led to spiking inflation… And now we are back to some kind of normalisation of interest rates. Recession fears are growing, as the sudden rise in main rates could eventually break the economic growth. Is there nowhere to hide? Could there be a recession-proof investment strategy? Is ESG the answer? Fintech Review asked a few questions to Victor Basta, CEO at DAI Magister.

Tell us more about DAI Magister. What is your elevator pitch?

ESG investing interview Victor Basta DAI Magister
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DAI Magister is a boutique investment bank that operates across a range of sectors, such as deep tech and fintech, with a particular focus on climate tech. Our goal is to assist clients in transforming our world one transaction at a time through expert guidance and creative insights. We also work closely alongside CEOs and their investors, helping them identify and nurture the right relationships to scale their organisations.

As a company, we always strive to promote cutting-edge technology, facilitate sustainable investment, and make a positive contribution to the net zero transition, across both emerging and globally established markets.

What is your background, and what is the story behind the company?

I have advised on over 130 transactions across 30 years and helped found and build three successful corporate finance firms in the process. My orientation has always been towards sell-side financings and M&A, focused on investors and founders of later stage growth companies.

Prior to founding DAI Magister, I was founder and managing partner of Arma Partners LLP; global co-head of Broadview prior to its sale to Jefferies, and an Adjunct Professor of Entrepreneurship at INSEAD teaching preparation for exits and large funding rounds. I founded DAI Magister originally to work with growth stage CEO’s to help them prepare for and navigate larger fundraises and M&A, with a strong focus from the start on ESG principles.

About 5 years ago we expanded our focus from Europe to also cover Africa and the Middle East, where we have now become the reference advisor for larger fundraises. The idea is to work with growth stage companies across multiple growth stages through to exit, something that many firms are simply not set up to do.

How is the demand for ESG stocks evolving?

ESG investing interview Victor Basta DAI Magister
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Demand for ESG stocks is massive, and there is an acute shortage of supply of companies already at scale. Investors are realising that climate tech, in particular, extends well beyond electric vehicles and solar energy grid. Materials, sustainable trading, ag-tech, smart cities, carbon capture technologies, space tech, AI, hydrogen and construction tech (to name just a few) are examples of sustainable industries that are attracting investment, because there is so much governmental pressure and funding to accelerate rollout in both developed and emerging markets. The market also now understands the importance of tech that boosts sustainability in the short term, so expect to see more and more investment in the understated services and products that will facilitate climate tech’s immediate impact.

Ultimately, we need investors to back the right businesses for climate tech to succeed, and a more rounded and considered approach to financing should mean cash ends up in the right hands.

Is sustainable investing recession-proof? 

Climate investment is a 20-year secular growth trend, and so has shown much more resilience than many other tech sectors, particularly fin-tech, during the current downturn. The value of climate tech funding in Europe dropped a bit in 2022 versus 2021, but nowhere near the fall-off in tech investing more generally.

With the market in its current state, a similar set of rules apply to the climate tech sector as pretty much everywhere else: a solid roadmap to profitability is crucial, and speculative investment is a risky game. So, our advice to sustainable investors who are new to the market is to stick with the core principles that have brought them success across other industries and back projects that can demonstrate growth. 

ESG investing interview Victor Basta DAI Magister
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The one main difference in climate tech is the positive tailwind of regulation and government incentives. In other tech sectors, regulation is only negative, constraining the potential for companies to expand. We’ve seen this in everything from semiconductors to social media platforms. In climate, initiatives are happening in parallel in the US and the EU to drive deployment, all of which serves to increase investors’ return on investment and shorten the time horizon to profitability on their initial investments. Of course, this has also spawned a host of non-viable projects and companies, so investors as ever need to look at opportunities selectively, but effectively in many cases investor returns are being heightened by government support, even if indirectly.

Any innovation in fintech more broadly that you are really excited about?

While the momentum of the fintech market has stalled over the last year, it’s important to remember that investment fell from a truly astronomical surge. Nevertheless, the funding for fin-techs is still very high in absolute terms and is undoubtedly still a lot higher than it was a few years ago, so there’s scope for the industry to grow.

There remains a lot of value to digitising financial institutions, replacing sometimes 30-year-old systems with modern customer and business-friendly technology stacks that enable banks and insurers to create more customised, and cheaper, products more quickly. Innovation at the core of banking and insurance is arguably still in its early stages, and what we’ve seen so far is only the first step of digitising and modernising the technology layers closest to the customer, not the ones deepest within financial institutions.

I’m also particularly looking forward to seeing how fintech presence evolves in emerging markets over the next few years, as there’s enormous potential for innovation and expansion in these areas. Financial inclusion is in its infancy; the vast majority of the developing world still operates on cash. Nigeria, for example, with 200m+ people, still operates 80-90% in cash. There still remains a wholesale transition across Africa, the Middle East, and parts of south Asia to truly digital payments transacted at a fraction of the cost and risk of what happens today.