Global Energy Transition: An opportunity to invest to drive change
Greenchip Financial founders John Cook and Greg Payne share their investment thesis, sector outlook and investment strategy of the Mackenzie Global Environmental Equity Fund.
John: Greenchip was founded in 2007 by Greg Payne and myself based on a really simple investment thesis. The idea was that emerging clean technologies were going to converge with the limited resources on our planet and ecological limitations. This transition is going to create enormous challenges for businesses that rely on an endless supply of cheap resources and the ability to pollute for free, but it also will provide an historic investment opportunity for businesses on the right side of the transition.
That said, we’re in the earliest days of a great energy transition, and we’ve seen these transitions before historically. You can go back to the mid-1700s and see when the technological advances in the steam engine met with the availability of coal to really kick off the Industrial Revolution. About a hundred years later, we saw the internal combustion engine come together with the availability of gasoline to really set up the 20th Century for massive economic expansion and growth.
What we’re seeing now is a third great energy transition, a transition from fossil fuels to renewable energy, from inefficient processes to efficient ones, and we believe this will create significant wealth going forward and a great pool of investment ideas, but also significant challenges for business models that aren’t able to adapt.
Greg: The environmental economy is much bigger than most realize. Most people think of it as just wind and solar generation, but in fact, since we started the company ten years ago, we’ve tracked over 800 companies with an aggregate market capitalization of over $6 trillion, in sectors ranging from renewable energy to clean technologies to food and water and alternative forms of transportation.
Although we’re still in the early days of the great energy transition, growth rates can be very high. Well, the good news is the securities in our sectors are often mispriced. There is little analyst coverage. There’s high levels of regulatory and technological change. Also, new emerging companies and new technologies are often susceptible to high levels of hype and cynicism, which gives us an opportunity to buy when the cynicism is high and the prices are low.
We believe that, for these reasons, the mispriced securities that simply blanketing [sic] the environmental sectors with an index or a passive approach is suboptimal. You need to have a focused, active, fundamental-based, value-driven strategy. Don’t just chase new technologies. Identify the green chip companies, the blue chip companies in the green economy, and wait for the opportunity where the cynicism is high to take a position with a good prospective return.
Ten years ago, when John and I founded Greenchip Financial, we calculated that addressing the challenges of resource scarcity and environmental degradation would lead to the necessity of $2.5 trillion of annual capital investment by the year 2030. Today, we’re only a little over a trillion dollars, so we still see a lot of growth ahead of us in the environmental economy.
John: But what’s coming next is extremely exciting: the convergence of technologies like robotics and artificial intelligence and advanced materials. They’re going to lead to technologies that we don’t even know about these days that will make our economy more efficient, allow it to grow or to continue to grow, and make it sustainable at the same time. It’s an exciting time to be an environmental investor.