Business

The family office perspective on cleantech as energy prices go through the roof

Sorting out climate change seemed difficult, but not impossible, twenty years ago. The going got tougher this year as power shortages developed and governments fell back on fossil fuels to generate energy. The temperature is rising but doubts over the value of poor-conceived ESG strategies are growing.

There are calls for a new approach to sustainability through changes in corporate accounting, where regulators put a price on carbon and entrepreneurs can profit by going green. The Securities & Exchange Commission plans to introduce environmental disclosure rules to make the job easier. Changes to accounting rules are well under way.  The United Nations COP 26 gathering in Glasgow will put stress on the need to achieve net-zero emissions by 2050. But it could be hard to find a consensus in the middle of an energy crisis.

 The family office perspective 

 Alan Schwartz, managing director of Australia’s Trawalla family office in Australia has launched an appeal for a commercial approach to to sustainability through his think tank Universal Commons.

As co-writer of an article with Reuben Finighan, he says: “The only way to turn our global economy around is to change the rules so that addressing social and environmental problems is profitable.”

He wants asset managers to put together commercial green strategies and lobby for more effective corporate accounting, to counter lobby groups such as the representatives of oil and gas companies which spend $200 million a year delaying and blocking climate action. 

Other family offices are reluctant to invest in green ventures at any price. Last year, Jan-Ole Hansen, chief investment officer at North-East Family Office told Family Capital he expected an appropriate return from climate deals

He believes asset managers should show clients their ability to invest, and fight, for a green new world. Rockefeller Asset Management has responded by opening its Climate Solutions fund to third-party investors. Al Gore’s Generation Investment Management has already proved its understanding in areas like the circular economy.

Schwartz does not believe investors should accept lower returns to make an impact: “Whether it is global warming, loss of biodiversity or poverty and social isolation, investors simply are not willing to accept sub-commercial returns.” 

Other family offices are reluctant to invest in green ventures at any price. Last year, Jan-Ole Hansen, chief investment officer at North-East Family Office told Family Capital he expected an appropriate return from climate deals. Philanthropy is kept in a separate bucket. 

Seniors often back the next generation of family office leaders at new businesses where they can learn the importance of commercial returns, rather than directly plonking hard-earned family money into ESG. Elsewhere, next gen tends to look at a green opportunity but seniors sign the cheque. All of which creates checks and balances which put commercial interests squarely at the centre of the debate. 

Breakthrough Energy led by Bill Gates is investing $2 billion in ventures like nuclear fusion and green cement.  It backs regulatory change and takes a commercial stance in its search for opportunity.

It has launched a catalyst programme to accelerate moves into green deals involving direct air capture, green hydrogen, long-term energy storage and sustainable aircraft fuel. In a statement, it says: “They are at the critical moment, where an influx of capital can turn them into viable commercial products much more quickly.”

What’s changed?

Problems with the current regime are the result of decisions by politicians which failed to take account of changing circumstances. Twenty years ago, for example, we saw a dash for gas, which is far less harmful to the environment than coal, later perceived as a “stranded asset” despite its past value. 

Following the pandemic, this year, the demand for energy in China, and other Asian economies, has skyrocketed. Generators stepped up their purchase of coal. Partly due to a lack of capital investment in mines, the coal price has surged 160% to $212 a tonne this year. 

The Asians scouted around looking for cheaper sources of energy and hit on natural gas.  The dash for gas in Europe was already making supplies tight. Its price has risen 140% this year to hit $5.80 per million thermal units. 

Elsewhere, drought has produced a hydroelectric energy crisis in Brazil.  Indonesia power demand has risen after excessive rainfall. Rail strikes in South Africa have held back the distribution.

A remarkable lack of wind has reduced wind farm production in Europe following the publication of research suggesting it may become less reliable in a warmer climate.

Solar power, like wind, is now cost-effective compared to fossil fuel. But component costs for new plants have shot up and research from Lund and Western Sydney Universities says large solar farms have tended to throw out excessive heat, as well as power. 

ESG is also being criticised for its naivety.  Investors which use it tilt passive portfolios towards sustainable companies, at the expense of those with a large carbon footprint. It is a decent argument, but the flood of money into ESG funds in recent years has badly distorted the market by pushing up technology, healthcare and quality-growth stocks whose emissions so happen to be low. 

Vincent Deluard, director of macro strategy at StoneX, points out that these companies also employ 21% less staff than the rest of the market. He says ESG strategies: “Sell companies with lots of employees and buy ones with lots of robots, patents and intellectual property.” 

It remains to be seen whether big tech stocks will be able to hang on to their fan club, as well as their trading monopolies. And like coal, a lack of investment in utilities or haulage companies leaves the real economy badly exposed in an emergency. 

Commentators, like Duncan Austin and Tariq Fancy, say ESG makes investors complacent. They believe their investments are making a difference, so why try harder? Alan Schwartz says he has never believed it is possible to “do good while doing well.” 

A number of family businesses would agree. Many of them also happen to invest in the old economy. This helps to explain why families are behind the curve in backing ESG, according to surveys in Family Capital, and elsewhere. Elsewhere, regulators are starting to wonder whether ESG is little more than a poorly defined term used by managers to sell funds.

There are signs that investors are travelling in Schwarz’s direction. BlackRock, better known for ETFs tracking ESG indices, has just declared its support for the Breakthrough movement sponsored by Bill Gates. 

Family-controlled Schroders has raised its climate game, recently pointing to the importance of natural assets. Activist investors are also starting to influence the corporate agenda

Investment consultants advising clients with $10 trillion have come out swinging for net-zero, including Cambridge Associates is a prominent consultant to family offices. 

David Druley, Cambridge chief executive, is supporting the pledge: “We are lucky to already be working with several clients that are leading on the full spectrum of decarbonization to investing in real-world solutions and looking forward to utilizing this expertise across our broader client base.”

Subscribe

You will need a Premium Plus Subscription to access this database.

Exclusive news, analysis and research on global family enterprise and private investment offices.

Access to the most comprehensive fully interactive database on global family offices, principal investment offices, and family enterprises.

Check Deal Data, Senior Staff, and New Analysis on more than 500 family/principal investment and holding groups

Already have an account? Login

Subscribe

You need at least a Premium Subscription to read this article.

The most comprehensive information service on the global family enterprise world, featuring exclusive news, analysis, research and data on global family enterprises, family offices, and private investment offices.

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 500 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

You've reached the end.

Continue reading free articles by registering as a Member.
Or choose a Premium Plan.

Membership

Free

  • Exclusive reports, analysis and commentary
REGISTER NOW

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 500 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

Leave a Reply