You are receiving this because you have signed up for the Behind the Balance Sheet Substack. This is the first in a new series on climate change which I hope is of interest. If not, please simply unsubscribe. Your subscription to Behind the Balance Sheet will be unaffected. If you have recently unsubscribed, apologies we missed you.
How investors can make good returns and avoid pitfalls from the energy transition is probably one of the most important but also one of the most contentious questions in finance.
I have teamed up with Huw van Steenis, Vice Chair of Oliver Wyman and climate finance expert to produce a podcast, interviewing leading players in the energy transition field and this article explains the background.
I first became interested in climate change when I saw Al Gore speak in 2006 at an investor conference in Hong Kong. Gore was really impressive. He strode on stage and proclaimed
“I used to be the next President of the United States.”
Then he laughed. And he showed extracts from his documentary, an Inconvenient Truth.
The documentary and the presentation were convincing. I started looking for investments that fit the climate change theme, including renewables. Solar was pretty trendy around then, but rarely cheap.
I also looked at wind – at a 1-1 meeting, the chief executive of the largest wind player in the world explained to me the problems they had encountered the previous week with an installation in Europe.
They had a problem with the column of the turbine, going down a country road in a mountainous area. They couldn’t get it round the corner because there was a house in the way. They had to buy the house in order to knock it down so they could get the turbine up to the top of the hill. And I thought…….. well, that’s not a very good business.
So I wasn’t really very successful in pursuing investments related to climate change. I was interested in the opportunity to improve the environment, but I was primarily focused on investing and generating high returns.
Fast forward to 2018/19, just before the CFA introduced its ESG investing course. I thought an ESG course in my online school would be really popular so I went round and I interviewed various people I respected who were involved in ESG investing. I sat down for a couple of hours with my friend Ben Yeoh who is a real expert - he wrote part of the CFA book.
But I came to the conclusion that I couldn’t really teach this. I had a number of problems:
First, I thought G for governance was kind of a given for investors – it was an integral part of the research process and wasn’t something you could or should separately teach.
I was uncomfortable about the S for social. When I am considering an investment, I have enough to think about and I want to delegate this stuff to the management. I care if companies don’t have a diverse board. I don’t give a hoot about diversity awards.
But I think the environmental side is really important. And I am pretty shocked that we had come over 17 years since I saw Al Gore speak yet we haven’t really made that much progress. And that’s just ridiculous because I have children and of course, like any parent, I am passionately concerned about their future and the world that they will have to live in.
I was extremely fortunate that Huw van Steenis, Vice Chair of Oliver Wyman and climate change expert, suggested that we did a podcast together, exploring climate change and trying to understand better the investment implications of a green future.
We wanted to remove some of the hype around all this and to inform investors - if people are more knowledgeable, then hopefully we will achieve these goals faster and capital will flow more quickly to where it can remove the most emissions.
Clearly the answer isn’t investing in low emitting tech stocks – Apple can go to zero carbon and it won’t move the needle. What we need is investment in green steel, sustainable aviation fuel, cleaner cruise ships and much more.
I didn’t feel qualified to do a podcast on my own as I didn’t feel sufficiently expert. But Huw is really knowledgeable, super smart and is the ideal person to partner with.
We plan to do a few podcasts, I have no idea how many and I don’t know how often. Huw is a busy guy, so we’ll see. But I know we shall get some good guests. Huw is going to ask some good questions and we have already heard some interesting answers.
The ultimate objective is to identify opportunities to make money from the energy transition which hopefully will result in capital flowing in the right direction and emissions being reduced. My goal is to be the antithesis of investor ESG handwringing - let’s see.
I am calling this Beyond the Balance Sheet for obvious reasons. You can sign up for the associated newsletter here and you can find the podcast on the usual channels in the Behind the Balance Sheet feed. As usual, the podcast, show notes and links to the newsletter will be on my website. I hope you enjoy it and I would love to hear your thoughts.
You can hear the podcast audio trailer below:
Or the video (which is even better) is on the YouTube channel.
And Huw addresses the question of how investors can make good returns and avoid pitfalls from the energy transition in this op-ed in the Financial Times.
This newsletter will be irregular. In it, I shall explore some of the learnings from the podcasts, look at some of the issues and try to improve my understanding of the energy transition. This learning in public is a bit scary, but hopefully it will be fun for me and useful for some readers.
Your support as ever is appreciated and I would be grateful for your feedback.