Climate Considered: Sustainable Investing

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To celebrate Climate Week 2022, learn from Deputy Portfolio Manager Veronica Zhang about the cutting-edge technologies that are catalyzing the resource transition and driving sustainable development.

Transcript

Which unique environmental factors are driving investment decisions and engagement with companies?

When you look at ESF specifically, it is the Environmental Sustainability Fund, the entire premise of that fund is to invest in companies that are making a better impact on the environment than other ones.

We think it is more important to look at not only carbon emissions, but also the impact on land, air and water.

We look at the amount of waste that a company generates, we look at how they recycle their waste. We look at the amount of water a company uses. We look at how much recycled water they use, and we also look at how much water they take from scarce resources.

Outside of carbon emissions and the stuff that goes into the air, we also care about other pollutants, like NOx (nitrogen oxide) and VOCs (volatile organic compounds) and all of these secondary emissions. I don’t think there is one angle that we look at within the element of “E” (environment) that we think is most important. We think you have to look across the entire scope of everything that a company emits and how it impacts the environment.

Which technologies are accelerating the transition to a more sustainable future?

If we go macro, there are a lot of different technologies that are being adopted and being worked on that would be able to lower the footprint of negative environmental issues in the world. You go down the path of nuclear, green hydrogen and carbon capture. Those are all technologies that I think within 10 years will be much more economic, and much more developed and commercialized, such that they will make a bigger impact.

In the very near term today, we’re working with technologies that we already have, technologies that are at scale, that are deployable and that make sense to the end-consumer. What we consider to be developed renewable resources tend to be along the lines of solar and wind.

The way that you kind of get more solar and wind adoption is not necessarily by building more solar and wind. It is by finding a way to integrate them into the current energy mix in a more efficient manner. Solar does not work 24/7 – it obviously does not work at night time, and wind does not work if the wind is not blowing. So, how do you stitch those things together and ultimately harvest as much energy as you can out of these intermittent sources without having to just build a lot more?

The answer to that is in stationary storage batteries. We have seen a tremendous explosion in the growth of batteries over the past couple of years. Now it is just a supply issue, of not being able to get enough of them. Ultimately, if you have battery storage integrated with solar and wind and all these intermittent resources, you are able to control the amount of energy that you use and control the amount of energy that is stored, such that you are able to predict usage patterns and, therefore, not rely as much on what we call base load generation, which is natural gas, coal and whatnot.

One name that we like is called Freyr (FREY). Freyr is a Norwegian battery startup. They started commissioning their gigafactories in Norway, which are based off of 100% renewable energy. All of their power comes from solar and wind. They started doing that last year, and I think the facility will probably be built sometime in 2024.

In the meantime, they are also piloting and opening up some gigafactories in the U.S. and other parts of Europe. It is a very timely event given the fact that the U.S. is now much more focused on security of supply and being able to get parts for their manufacturing, especially on the EV (electric vehicle) side, from domestic sources. The fact that Freyr is able to get a gigafactory launched using renewable energy puts them at a lower price point.

In addition, the second layer on top of that, which I think is really interesting, comes from the technology itself. Freyr is a manufacturing facility, but they use a type of technology patented from an MIT (Massachusetts Institute of Technology) startup, which basically truncates the number of steps that you need to use to manufacture a battery. If you think about all the major Chinese, Korean and Japanese battery manufacturers, they have had a process that was in place for many, many years. They have invested millions and billions into their facilities. There is not much room to really tweak that manufacturing process because you have the machinery there, you have all the steps there.

The licensed technology from MIT basically takes those number of steps and reduces them by nearly 50%. When you do that, you use less machinery, the amount of time it takes to produce a battery is less, and ultimately you get the same end product but you just use less of everything.

From the environmental lens, we think that is a huge, huge plus. We love innovation on the technology side. It doesn’t have to be super-crazy innovation, it just has to be doing more with less, which we think is exactly what Freyr is embodying.

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