As investors focused on finding companies that solve some of the world’s greatest challenges, we have been continually reminded lately of the “bear” case surrounding clean technology investment. Among hedge funds, it has become the easiest play in the playbook to short anything and everything related to solar energy, wind power, electric vehicles, advanced batteries, and biofuel, with little regard to long-term fundamentals. From our perspective, this strategy has become too easy – and history would suggest that when it becomes easy to make money the tide is about to ebb.
The bear case on clean technology (and with equity investing in general) may sound more intelligent at first blush than the bull case. However, we disagree with the broad, dismissive comments on clean tech, and maintain our discipline of investing in clean technology at “the nexus of environment and finance.” Building a successful investment thesis involves assessing new technologies, forecasting market penetration and growth rates, estimating costs of production and sales, anticipating capital needs and appropriate allocation of such capital, and judging management’s ability to successfully shepherd the company to profitability. In short, there are a lot of variables and assumptions that create risks that must be weighed against the potential investment rewards. Often, the long only investor is painted as an unabashed optimist that has been drinking the proverbial Kool-Aid. The bear can always point to near-term data points, weak economic data, funding challenges, competitor offerings and management mistakes that may sound more grounded and intelligent.
So, why then, do we do what we do? There are two simple reasons: 1) the world’s resource scarcities and environmental issues are only getting worse; and 2) we invest in companies that have growth tailwinds by providing solutions to these global challenges. One glimpse at commodity prices and newspaper headlines provides ample evidence that the rapid development of the world’s emerging economies is placing tremendous stress on our planet – food costs are soaring, water is scarce, fossil fuels are more difficult and costly to extract, and pollution is worsening. We need alternative fuels, access to clean water, increases in agricultural productivity, more renewable power generation and energy efficiency solutions. The Essex Global Environmental Opportunities Strategy (GEOS) invests in companies providing these solutions, enabling, through our investment philosophy and process, greater shareholder returns over time. So, while the bears and hedge funds may short clean tech names with neither thought of fundamentals nor differentiation, we invest in companies which we believe to be technologically viable, positioned with solutions resting across one or several of our proprietary environmental themes.