Essex Global Environmental Opportunities Strategy (GEOS) March 2023 Update
As the global equity markets digested fourth quarter 2022 earnings in February, the markets succumbed to concerns about stock valuations amidst the ongoing battle between economic strength and inflation. Generally speaking, our companies in the Essex Global Environmental Opportunities Strategy (GEOS) had good earnings results with market sentiment providing no leeway for slight misses, or uncommitted guidance.
The GEOS team views every corporate net-zero commitment as creating additional opportunities for clean tech companies. Amazon, Walmart, and other companies with net-zero goals may receive the headlines for reducing their emissions footprints, but it is the clean tech companies providing the low carbon technologies that make these net-zero goals possible. Net-zero commitments are unachievable without the contributions from clean tech companies that provide critical solutions for solar panels, wind turbines, battery storage, green hydrogen, electric vehicles, biofuels, heat pumps, smart grid infrastructure, and other technologies needed for decarbonization. These technologies, and the companies providing them, make aspirational net-zero goals a reality and are the driving force behind tangible, real world emissions reductions. As more companies announce net-zero commitments, the investment case for “sustainability enablers” grows stronger and the positive impact of clean tech companies increases as they scale their solutions. We invest in companies that offer critical solutions needed to mitigate climate change and solve environmental challenges. GEOS exposure to companies solving environmental challenges allows investors to own companies generating positive impact, while also providing investors exposure to a generational growth opportunity associated with the low carbon transition.
Vestas Wind Systems, a company that develops, manufactures, and installs wind turbines for onshore and offshore wind farms, recently released their 2022 Sustainability Report. Of particular importance, the wind turbines Vestas produced in 2022 are expected to help avoid 408 million metric tons of CO2 equivalent over their lifetime by contributing to renewable energy generation that displaces fossil fuel energy. We believe avoided emissions is a useful metric to evaluate climate-related opportunities since it quantifies the impact a company’s products have on decarbonization goals. In contrast, other climate metrics such as carbon intensity or absolute greenhouse gas emissions are primarily useful for assessing climate risk but provide few insights about company opportunities associated with the low carbon transition. In terms of operational ESG performance, we plan to monitor Vestas’ total recordable incident rate (TRIR) progress given the importance of worker safety in the wind industry. Over the past 10 years, Vestas has made substantial progress in reducing the number of employee safety incidents, but their progress has plateaued recently, especially with contractors. Vestas also shared details of a novel chemical process to enable blade recycling which would allow Vestas to reuse blade material in new turbines to reduce their costs and drive circular resource use throughout the wind value chain.
Our objective of the Essex Global Environmental Opportunities Strategy – a strategy with almost 14 years of track record, is centered on investing in companies with technologies that are solving environmental problems, from water quality to the need for cleaner ways to power our economy. We have dedicated over 35 collective years to clean technology because we believe strongly the new energy transition is the most powerful investment opportunity of our lifetimes. New and emerging technologies are ripe for investment, and we believe our experience is a competitive advantage amidst index product proliferation and a continued focus on large cap stocks – a focus on what has been. We focus on our environmental themes to provide creative exposures to companies lost amidst GICs classifications. Clean tech, new energy, and applications that limit harmful chemicals are coming to market from industries that traditionally may not scream clean tech and solutions. For this reason, we look to our nine GEOS themes, evaluate the industries and companies that provide commercially viable solutions – so called sustainability enablers. GEOS is a growth strategy, investing in companies we believe will grow above market the next several years.
While the term ESG hits headlines in the continued partisan political battles, we point to our focus on investing in well run companies which are saving the world’s environmental problems – most linked to social inequities. We believe it is high time investors know what they own. Why not own companies solely focused on solving the world’s ills, and making the world a safer and better place? It is because of this value proposition these companies and our strategy will have long tailed growth over time.
This commentary is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. The opinions and analyses expressed in this commentary are based on Essex Investment Management LLC’s (“Essex”) research and professional experience and are expressed as of the date of its release. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is intended to speak to any future periods. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.
This does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product, nor does it constitute a recommendation to invest in any particular security. An investment in securities is speculative and involves a high degree of risk and could result in the loss of all or a substantial portion of the amount invested. There can be no assurance that the strategy described herein will meet its objectives generally or avoid losses. Essex makes no warranty or representation, expressed or implied; nor does Essex accept any liability, with respect to the information and data set forth herein, and Essex specifically disclaims any duty to update any of the information and data contained in the commentary. This information and data does not constitute legal, tax, account, investment or other professional advice. Essex being registered by the SEC does not imply a certain level of skill or training.
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