The Alchemists’ Triumph

In today’s Exponential Investor:

  • One man’s waste is another man’s asset
  • A Founding Mother of environmental economics
  • The green transition is more than just energy

Jesus turned water into wine, and the alchemists of old used to dream of turning lead into gold.

The idea of transmuting a lesser substance into one of value is an idea as old as time.

It’s powerfully ingrained into the human psyche.

And indeed, possibly the most exciting company I’ve looked at since joining the clean tech and renewable energy team at Southbank Investment Research is focused on the circular economy.

It incorporates a brilliant technology, a new business model and powerful corporate backing.

The idea is so powerful and commercially attractive, I can see only good things for it.

That’s because it’s done a classic bit of alchemy.

It’s turned one man’s waste into another man’s asset.

This is the circular economy at its finest – taking two waste products from other processes, maybe a bottle factory and a gas plant. Then, with a little help from a patented technology, it turns it into a product.

What businesses traditionally thought of as a waste product, which they had to pay to get rid of, has been turned into an asset.

That completely up-ends the economics of a number of processes, and reduces waste at the same time.

Lower waste, cheaper products – it’s the ultimate win-win.  

The circular economy is going to be a big buzzword in the years to come so it’s worth paying attention to.

And as part of the Beyond Oil summit that’s going on this week, I spoke to Hazel Henderson, who you could describe as a Founding Mother of most environmental economics, ESG ratings and modern circular economy ideas.

My interview with her was released on Thursday. If you signed up, you should have had an email with a link to it, as well as James Allen’s keynote and other brilliant talks focusing on the technology behind the transition.

But looking back at my talk with Hazel specifically, it really was a fascinating, holistic approach to the energy transition.

She actually ties the huge changes we’re seeing in the energy transition into a wider shift that she sees in human history.

It’s one part, but it’s not the whole.

The driving force behind the energy transition can also be seen in the shift towards eating less meat and finding more balanced diets, methods of production, and agriculture.

It can be seen in the way we farm, the things we grow and where we eat them.

And more importantly from an investment perspective, she sees changes in the fundamental assumptions of modern economics, which until now have given no quarter to environmental risks or opportunities.

But as I’ve written before, none other than Larry Fink of BlackRock – the world’s largest asset manager – has said that finance is changing, and the energy transition is forcing investors and companies alike to include climate costs and risks in their reporting and analysis.

This is part of the wider, popularised “ESG” trend in investing at the moment, where companies are rated independently on their environmental, social and governance scores.

It’s a way of helping investors to assess whether the companies they’re looking to invest in are positive or negative for society and the planet.

And it was none other than Hazel and her colleagues who pioneered this concept back in the 1980s.

Back then, she was working as a cabinet-level policy adviser, and saw first-hand the way in which big oil and gas majors basically “owned” industry – and part of her work since then has been describing the shift to “The Politics of the Solar Age”, the title of a book she wrote in 1981.

Then came her media company, Ethical Markets, which exists outside of the influence of the fossil fuels sphere of influence.

So you can see she’s been decades ahead of the game on the energy transition which is really only taking off right now. And her investment focus is not on just avoiding fossil fuel companies – divestment – but focusing on pure-play green transition companies instead.

Her latest creation, the Green Transition Scoreboard, brings all these themes together, showing the annual growth in investment in all major green transition sectors: Renewable Energy, Energy Efficiency, Life Systems, Green Construction, and Green R&D.

A lot of this actually fits in with the brilliant points Rob West was making about reforestation and soil erosion and the impacts that our natural environment can have on soaking up carbon from the atmosphere. Both of them go beyond the traditional solar, wind, and electric vehicle themes that we all know.

Improving forestation of unused land and using modern methods to restore soil fits in very well with nature-based solutions to combatting climate change – exactly the kind of thing Hazel also advocates.

Over 50 years or more, Hazel has influenced the way we think about economics and the environment.

Her focus on the “blind spots” of economists is now entering the mainstream – as things like air purity and water quality being to find inclusion in financial economics. These were formerly dismissed as “unquantifiables”, but Hazel’s relentless, life-long focus on changing that is really starting to pay dividends right now.

The world is waking up to a greater transition than just in energy. The air we breathe, the water we drink, the food we eat and the way we live are all making it into our decision making and consciousness on a daily basis.

I asked Hazel about the biggest changes in our approach to energy, renewables and the future since she started her career, and we talk about her ways of understanding the world and the many transitions we’re going through.

She was brilliant to speak to and a real pleasure to be able to share her ideas with you all – I hope those of you who caught it, thought it was as enlightening as I did.

Have a good weekend,

Kit Winder
Editor, Southbank Investment Research

Category: Energy

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