Essex Global Environmental Opportunities Strategy (GEOS) October 2021 Update
As we head into the fourth quarter, there are many reminders afoot regarding the urgent need to decarbonize our global economy. While investment has increased over the past several years towards the new energy economy, the emphasis has been on clean energy infrastructure investment – just one leg of the climate solutions stool. Amidst listed equities, asset owners concerned about our environmental direction have centered investments on large cap domestic equities, in companies exhibiting strong behavior regarding the environment. For example, many companies with strong environmental ratings may invest in de-carbonizing their business operations. This is a valid approach, but not nearly enough. We believe there are multitudes of climate solutions available in listed equities, but asset owners must move to investing in companies enabling the new energy economy. The commitments to solving the U.N. Sustainable Development Goals and Net Zero pledges now equate to trillions of dollars, and over 50% of global GDP participants. We believe it is high time to move these aspirational commitments to investments in the companies enabling sustainability. For the U.S., we need to reduce emissions by 45% within the next decade. We strongly believe the holdings in GEOS are examples of listed equities moving the needle to decarbonize our global economy.
Our impact management process for GEOS is centered on providing examples and definitions for climate solutions, and the associated challenges as defined by the U.N. Sustainable Development Goals (SDGs). We believe providing these examples is important, as most asset owners invested in ESG have significant exposure to index funds, and do not have strong optics into specific holdings. Over the past two years we have engaged with our holdings to demonstrate the importance of framing specific solutions to the market, beginning with case studies. In most instances, these companies had not initiated sustainability reports. Just recently, long time GEOS efficient transport holding Sensata released their initial sustainability report. In this first reporting effort, Sensata went beyond their operational footprint regarding sustainability, to a discussion of how their products solve several SDGs. Last year, we initiated discussions with Sensata, urging them to release solutions-oriented case studies in their sustainability report. We educated Sensata management on the SDG definitions, and they were included in the report. Sensata has provided examples of how their sensor offerings solve SDGs 7 (Affordable and Clean Energy), 9 (Industry, Innovation and Infrastructure) and 12 (Responsible Consumption and Production). Sensata stated they are “committed to making a significant contribution in the path to electrification” though their solutions such as high voltage contactors, and thermal management systems for battery usage and storage. Sensata components enable EV platforms with longer ranges and faster charging times, which are critically important as EV adoption scales. Next steps in our engagement with Sensata will be to frame these examples in terms of carbon emissions mitigation.
The Current Outlook
If there is one thing that became increasingly clear to us this year, it is that the world needs solutions to our environmental problems now more than ever. The severity and frequency of storms continues to negatively impact our cities and their inhabitants. The proverbial 100-year storm has become anything but that. Our electrical grid continues to fail on a routine basis. Wildfires continue to rage. Drought conditions in the Western U.S. and South America are resulting in declines in harvests and shutdowns of power from hydroelectric plants. People are suffering.
The companies in which we invest can provide solutions to these many challenges. For example, we own a company that allows desalination plants to operate with up to 60% less energy. We own a former shipping company that is installing and servicing offshore wind turbines. We own a fuel cell company that we believe is poised to benefit from a shift to green hydrogen. And we own a semiconductor company that is leading a revolution in power semiconductor design and manufacturing that leads to significant increases in efficiency and range of electric vehicles. The Essex Global Environmental Opportunities Strategy is entirely focused on investing in companies that will help to provide solutions to our problems. We believe the outlook for secular growth remains very robust.
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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