Ben Goldsmith is an environmentalist and pioneering sustainability investor. He is the CEO of London-listed investment firm Menhaden Capital [MHN.L], through which he and his team focus on the theme of energy and resource efficiency.
Goldsmith has a long track record of delivering returns in this space, having previously co-founded the sustainability-focused firm WHEB Asset Management more than a decade ago. Alongside this, he uses his personal wealth to support both philanthropic and political projects in the sustainable investing space.
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So, what convinced Goldsmith of the theme’s viability from an investment perspective?
“I set up a business in the late 2000s, in fact just after the financial crisis of 2008, called WHEB Asset Management, which today runs almost a £1bn in a long-only large-cap equity strategy, focused on exactly the same theme that Menhaden focusses on,” Goldsmith tells Opto Sessions.
“I still remain involved in WHEB, and I’ve been convinced since those days that the world is undergoing, I guess you could say, a green industrial revolution.”
For Goldsmith, the core of this revolution is in industrial sectors, which is trying to find new processes that make more efficient use of resources. This, he says, doesn’t just encompass energy but also raw materials, water, and waste streams.
This has led to the emergence of a new circular economic model, which includes leasing products rather than buying them to throw them away, and the emergence of renewable energy — “the ultimate circular economic model,” he says.
“All of these things are beginning to take off in ways that we couldn't really have imagined when we first started my previous business, WHEB. I certainly think this is one of the great secular trends of our time and that’s why I've chosen to focus on it as an investor,” Goldsmith explains.
“All of these things are beginning to take off in ways that we couldn't really have imagined when we first started my previous business, WHEB. I certainly think this is one of the great secular trends of our time and that’s why I've chosen to focus on it as an investor”
It is for these reasons that clean energy investments have gained a huge amount of popularity in recent years. However, as Goldsmith cautions, for any investors considering their positioning within the space, it far from being a certain bet.
“We do have concerns, as a team, around clean energy as an investment theme,” Goldsmith notions.
This is not, he explains, because they don’t love the sentiment and are not ecstatic about alternative energies’ recent performance against fossil fuels — and the potential this has for the future of civilisation. Rather, Goldsmith considers, it’s a practical issue.
“I guess our concerns revolve around how that has happened.”
Goldsmith explains that the manufacturing of the equipment used in solar and wind power generation has become progressively cheaper — hence, the reason for their strong performance against fossil fuels.
The problem, he says, is that this has the potential not just to strand coal, gas or nuclear assets but also older solar and wind assets.
“If you imagine, 2021 solar might end up out competing and stranding 2012 solar, which costs so much more to build,” he explains.
“In many cases, these assets are subject to long-term power purchase agreements, but not always — a lot of them are built to serve the spot market. So, if the price of power continues to go down in line with the tumbling cost of installing solar and installing wind — to the extent that suddenly solar power becomes ubiquitously cheap, maybe even too cheap — then you don’t want to be left holding assets that are trying to make a return on a much higher amount of capital invested in earlier years,” Goldsmith considers.
“We are a little concerned, in that regard, in owning what is effectively a piece of infrastructure selling a commodity in a market where that commodity gets cheaper every year,” Goldsmith explains.
“So for that reason, we think that as the good news rolls in clean energy, that may actually produce, ironically, declining or negative return on the assets”
He suggests that he and the firm are more interested in owning assets protected by some form of barriers to entry or by competitive positioning.
“So for that reason, we think that as the good news rolls in clean energy, that may actually produce, ironically, declining or negative return on the assets.”
However, not all is lost. After all, the development of new technologies within renewables is, as Goldsmith puts it, “a very competitive game”.
To hear about the potential renewable technologies offer for investments, as well as other aspects of Goldsmith’s philosophy relating to his investment and philanthropy, listen to the full episode on Opto Sessions.
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