The transition to a low-carbon economy is a long-term, structural shift. Yet many publicly traded energy transition funds treat it more as an asset-gathering exercise than a rigorous approach to investment.
Resolution Investors, a new London-based investment firm launched by former Generation Investment Management professionals, sees an opportunity to invest in climate leaders and deliver public equity alpha.
“Allocators and potential allocators to public markets climate-focused strategies have been poorly served,” David Lowish, a former partner at Generation who serves as portfolio manager for Resolution, told ImpactAlpha
“Our approach at Resolution is laser focused on the underlying data around the climate performance of individual businesses and how that’s improving.”
It helps that the ability to accurately track emissions in operations and supply chains has greatly improved over the past few years, making more rigorous analysis possible, says Lowish. At the same time, many institutional investors are seeking more liquid investment after over-allocating to private equity.
The firm, which launched last week, will invest in a core basket of 30 global corporations across three categories: climate transition leaders, and smaller-cap companies with solutions to emissions reduction and adaptation. The London-listed fund is open to retail as well as institutional investors and will seek Article 9 designation, the EU’s highest sustainability rating.
It has raised an initial $25 million from the latter category, and expects to reach $200 million in AUM this year on its way to eventually becoming a multi-billion dollar strategy.
Transition leaders
Many large energy transition funds are nearly indistinguishable, with the same tech-heavy holdings. Resolution’s equities basket contains some surprises.
In the emissions reductions category, for example, it includes Westinghouse Air Brake Technologies Corp., a provider of equipment and systems for the rail sector. “If you can move more freight and more people by train, there’s a 5x benefit [in emissions reduction] versus over the road trucking or driving a car,” says Lowish. “We think a business like that, as it grows and benefits from an awful lot of refurb and upgrade capacity and capex on both sides of the Atlantic, is just really well placed to turn that into profits and to enable more transit.”
An adaptation play is Rentokil, a UK-based pest management company, on the thesis that planetary warming is fueling the expansion of insects and the diseases they can bring. (The company offers several sustainable solutions to pest control). Other adaptation solutions include water treatment and management.
Transition leaders will make up 70% of the basket. Like most public transition funds, Resolution’s includes Microsoft, an acknowledged leader in climate action with a goal of removing as much carbon from the atmosphere as it has generated since its founding in the 1970s. The software giant is, of course, building out energy-hungry data centers at a rapid clip. But it is driving innovation in energy efficient cooling and chips, says Resolution, and making large, long-term clean energy purchases.
Alphabet also makes the cut; other “Mag 7” tech giants do not. Of Amazon, Resolution co-portfolio manager Akhil Monappa says, “We don’t think they’re actually doing the things that we think they should be doing around being aligned” with a science-based emissions reductions targets.
Another transition leader is Workday, a human resources software company based in Pleasanton, Calif. It is powered by renewable energy, and has a $25 million commitment with Frontier, the carbon buyers coalition, to purchase high quality carbon removal. It is also a signatory to the Science-based Targets Initiative, and is working with its suppliers to reduce their emissions as part of that effort.
“You have this ripple effect,” says Monappa.
