ESG, responsible investing, sustainability, impact investing, these terms are nothing new to anyone following the changing trends in asset management. Not a week goes by where there’s not a new ESG fund being launched or a firm bulking up on its responsible investing offering with new hires.
Speaking to Gordon Power (pictured), founder and chief investment officer of Earth Capital, he’s well aware that some might be wary of funds claiming to be sustainable as that is now a key requisite for most asset owners. However, with 35 years of industry experience, the business which evolved out of a family office he co-founded with Stephen Lansdowne has very little that naysayers could pin a term such as ‘greenwashing’ on.
Managing just over $2 billion in assets through a variety of vehicles including associate companies of Earth Capital such as Berkeley Energy and Sustainable Development Capital as well as a listed fund the Sustainable Energy Efficient Investment Trust, Mr Power has a diversified list of interests.
Even seemingly altruistic investments such as farming in Botswana has a clear route to revenue as the company provides 15 percent of the country’s tomato requirements. “We do good things with that business [Noka Farm] and we're seeking to use less and less chemicals on it,” says Mr Power.
Given that two-thirds of the country is desert, the Kalahari, water conservation is paramount and here is another area Earth Capital excel at, using irrigation systems for instance.
Remaining with water, Earth Capital also invested in Propelair, a UK-based firm that makes toilets that use less water. However, rather than resting on their laurels, the company also comes up with ways to make the components more sustainable, for instance moving away from ceramics due to the amount of energy needed to make those materials due to the heating process.
Non-exclusionary
Mr Power notes that one aspect of ESG investing he’s wary of is simply banning certain companies from portfolios due to the nature of their business (tobacco, firearms etc).
“ESG has a tendency to eliminate stocks from portfolios. Tobacco stuff like that. We look at positives and negatives across 30 different tests, And those 30 different tests will be marked positive, neutral, or negative,” says Mr Power.
By using this scoring methodology, Mr Power can see how to make businesses more sustainable and with that more profitable (changing the materials used for the aforementioned Propelair products being an example).
Looking at a recent report from Bain Consulting, it seems that most private equity money is going into tech companies, a world away from African farms or toilet makers. However, these companies are present in the portfolio as well as seen with SoftIron.
SoftIron combines the world’s ever-growing need for datacentres with the equally important requirement to reduce energy use. This is a global market worth around £70 billion and the company provides high data density with lower costs and crucially already has a number of patents in place.
Private equity and sustainability
When asked about competitors, Mr Power says there are some very large private equity houses such as KKR and Bain Capital that might have some sustainable funds but in essence the world is changing so private equity will have to adjust as well.
“When you consider a company like Zoom can be worth more than the top 7 major airlines in the world. Suddenly, people began to realize, business as usual is no place to be. Sustainability is required,” states Mr Power.
When put in those terms, sustainability focused private equity funds seem more than sensible, they are essential.
