GEOS – Net Zero Value Chains

Opportunities in Net-Zero Value Chains

For many investors and stakeholders, a large company like Amazon or Walmart announcing a commitment to reach net-zero emissions is welcomed. Net-zero goals are evidence that large corporations are “doing their part” to address global emissions and acting as responsible corporate citizens. From a business perspective, net-zero commitments can enhance customer loyalty, driven by an emerging class of consumers who seek to do business with sustainable or climate conscious companies. Companies with net-zero commitments may reduce operating costs if they are able to secure lower, less volatile energy costs from long-term renewable power purchase agreements (PPAs) or rooftop solar systems. The drastic increase in European energy prices over the past year proves that energy costs can have a significant impact on a company’s bottom line. Finally, commitments to reach net-zero can reduce financial risk associated with carbon pricing schemes that may force companies to internalize the cost of their emissions.

For the GEOS team, we view every 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.

As an example, consider some of technologies needed to make Amazon’s target to achieve net-zero global emissions across their operations by 2040 a reality. The logistics of decarbonizing Amazon’s operations, which generated more than 16 million metric tons of scope 1+2 emissions in 2021 and another 55 million metric tons in scope 3 emissions, is no small feat. Amazon’s 2040 goal entails decarbonizing their delivery vehicle fleet, freight transport, data centers, warehouses, distribution centers, and manufacturing facilities. For Amazon’s delivery fleet, their announced orders for electric delivery vans from Rivian and other OEMs are well known, but the orders rely on contributions from the entire electric vehicle supply chain. Components or intermediate products needed for these vans include lithium for lithium-ion batteries, rare earth materials for electric motors, electrical distribution systems, silicon carbide semiconductors, EV charging infrastructure, and smart grid infrastructure to manage the electricity demand from charging delivery vehicles. For long haul transportation of products by truck, ship, or airplane, battery or fuel cell trucks, low carbon fuels like green ammonia, and sustainable aviation fuels (SAFs) are needed to reduce emissions. AWS data centers, which demand 24/7 power supply to maintain cloud services, require battery storage, hydrogen fuel cells, and energy management software to ensure intermittent renewable energy can satisfy constant energy needs. Finally, warehouses, distribution centers, and manufacturing facilities rely on renewable energy from rooftop solar systems or onshore and offshore wind farms to keep the lights on, requiring wind turbine blades, microinverters, high voltage cables, and other contributions from the clean tech value chain.

The considerable number of clean technologies needed to decarbonize one company’s emissions footprint demonstrates the enormous opportunity ahead for clean tech companies, and the opportunities within the net-zero value chain. It is not simply the final product that is vital to achieving decarbonization goals, such as an electric delivery van. Instead, net-zero goals are reliant on contributions throughout the clean tech value chain, from companies mining and refining lithium to producing silicon carbide semiconductors.

GEOS invests in the companies across the clean tech value chain enabling net-zero goals, whether by delivering the final product, such as a rooftop solar system, or supplying intermediate components, like microinverters. While decarbonizing a company’s own operations is impactful, with a large company like Amazon being a prime example, we believe the biggest impact most companies have is through their products and services. We invest in companies that offer critical solutions needed to mitigate climate change and solve environmental challenges, thereby generating significant positive societal impact as they scale their solutions. 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.



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.

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