Gravis hosted its second ’Gravis Talks’ roundtable on 25th April 2024. Occurring just after Earth Day, Keynote speaker, Rohit Seksaria, Head of Bloomberg’s Climate Transition Products, appropriately gave a ‘Hitchhikers guide to Decarbonisation’.
With guests including investment analysts, wealth managers and family offices, Rohit’s opening line was: “Sound investment practice can change the direction of the world, and if we need some $200 trillion to decarbonise by 2050, we better get it right!”
Here is a summary of his Q&A session, hosted by Anthony Curl, CIO of Gravis Capital Management.
How do you assess the decarbonisation plans of a company?
“It will depend on the investment thesis, goals, time horizon, asset class and type of asset. At the top level, I assess decarbonisation plans under the three As: Ambition, Action and Accountability.
“You start by looking at the current emissions – the carbon emissions of a company today – and then think about what it is planning to do in the future. What are its targets? How credible are they? What type of capex is the company investing in?
“Then you need to project the carbon pathway. What will the company look like in 2050? Does it even have a place in the world at that time? And if it does, what does the company’s balance sheet and cash flows look like? This can involve conducting scenario analysis, and stress-assessing the business to check whether it can withstand the bumps along the way.
“Inevitably, the path to net zero will not be a smooth one – for anybody – and there will be false starts along the way. But that’s ok. As long as we keep trying, keeping evolving our methods, we are heading in the right direction. Imperfect action is better than perfect inaction.
“For example, I previously worked with an international consortium to help a country in Asia reduce its carbon dependency by closing coal mines and replacing them with a hydro-power facility. Initially, we approached the project from a financial viewpoint, but the plan was not accepted, despite international backing. Why? Because we had failed to think about the social impacts. Our revised plan – which was accepted – focused on supporting the local communities required to make it work. We cannot decarbonise in a silo – we have to take people along and make social and governance factors your allies in this journey.”
Do you approach private and public companies differently?
“For both you are doing the same thing: looking for facts and assessing them. Data for large, publicly listed companies is more comprehensive and readily available. With private companies, the data can be harder to find and, where it is disclosed, not always standardised. So, it can be more challenging.
“However, arguably, you can have more influence with smaller or private companies – stewardship can have a more powerful impact here.”
Is regulation just a box-ticking exercise?
“I think it’s important that we take a step back and think about why regulation has come about in this space. It’s a by-product of investor demand. Investors started to demand ESG data from companies, but in the absence of standardised frameworks, companies reported in unusual ways – leading to confusion.
“Regulation had to step in quickly to standardise this reporting and make comparisons easier, as well as to reduce some of the greenwashing that was taking place.
“The way regulation is followed can mean it becomes a box-ticking exercise, but there is good intention behind it.
“We have many international standards and frameworks now – so rather than devising even more new standards, countries can adopt existing frameworks. That would help international investors via convergence of standards.
“In this respect, the EU is the North Star. Its frameworks and goals are setting the direction for every nation. Yes, some regulations can be too prescriptive, but Europe really is best in class when it comes to decarbonisation.”
What role can carbon credit markets play?
“It’s an exciting new market but it is early days. Until now, the market for it has been voluntary, but issues around integrity and credibility have created challenges for investors. However, we are seeing the introduction of global principles and regulators are taking an interest.
“For investors, due diligence is key – where are the credits coming from? Are they permanent? Are they monitored?”
Gravis’s role in the transition to Net Zero
Gravis has established a track record as a first mover, pioneering new areas of investment on the path to Net Zero. Amongst other milestones, GCP Infrastructure Investments Limited was the first significant backer of a domestic rooftop solar project in 2011. Gravis also lent to one of the first waste wood power stations developed in the UK a couple of years later.
Investment of this nature continues to today, with Gravis looking at projects in natural capital, sequestration, carbon capture and storage, sustainable food production, resource use, transport and energy transition.
You can find out more about GCP Infrastructure Investments here and Gravis’ proposed new Net Zero Capital fund here.
A round-up of Gravis’s inaugural Gravis Talks event can also be found here.
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