New Cleantech Fund is Aimed at Financing a Resource Revolution


We already have much of the technology we need to address climate change and other resources scarcity related challenges. It is often economics, more specifically a lack of financing that creates barriers to its use. Amid a prediction that the era of falling energy, food and water prices is over comes a fund that invests in private and public projects of any size. (Guardian)

Is the world running out of energy, food and water? Or not? The debate has raged since Thomas Malthus wrote “An essay on the principle of population” in 1798.

In 2011, McKinsey & Co, the esteemed consulting group, provided a modicum of support to modern-day Malthusians. It published Resource Revolution: meeting the world’s energy, materials, food and water needs, a voluminous and influential report. It acknowledged that, until recently, new technology had overcome any so-called limits to growth, but warned of big challenges ahead.

“During most of the 20th century, the prices of natural resources such as energy, food, water and materials such as steel all fell, supporting economic growth in the process,” the consultants wrote. “But that benign era appears to have come to an end.” If current trends continue, governments and companies will face high and volatile commodity prices, unpredictable climate impacts and the threat of political instability if the needs of the world’s poor are not met. “Nothing less than a resource revolution is needed,” said McKinsey, and it will not be cheap: “Meeting future demand for steel, water agricultural products and energy would require roughly $3tn (about £2tn) average capital investment per year [which is] $1tn more than spent in recent history.”

Scott Jacobs, a leader of McKinsey’s global cleantech practice, sensed an opportunity. He decided to help raise some of that capital and to help save the planet in the process. Last year, Jacobs, who is 35, left McKinsey, and joined veteran investors Tom Cain, 58, and Charlie Finnie, 54, to form EFW Partners, an investment fund that focuses on environmentally-friendly ways to produce energy, food and water, as well as opportunities to use resources more efficiently.

“We believe that energy, food and water are generally scarce, and growing scarcer because of macro-economic trends,” Jacobs told me recently, after he spoke at Fortune’s Brainstorm Green conference.

Long-term investors stand to profit by financing the resource revolution, he says. More importantly, they will be better able to prepare their portfolios for the risks of resource shocks. Traditional diversification – across asset classes or across geographies – does not go far enough to protect investors against the impacts of climate change, or against food or energy scarcity, or drought, Jacobs says.

“Unfortunately, shocks to energy, food and water affect everything,” he adds. “We’re saying that risk management is broken.” Most investors were overexposed to risk and underexposed to opportunity.

So far, EFW Partners has raised between $50m and $500m (about £30m-£300m) – the partners would not be more specific – from foundations, endowments and accredited, ie, well-to-do, individuals. They include Tom Steyer, the climate-change activist and billionaire founder of hedge fund Farallon Capital; Rob Walton, the chairman of Walmart; and Bob Fisher, a director of Gap and the son of Gap founder Donald Fisher. Arizona State University is also an investor.

While venture capitalists invest in clean tech startups, “green” mutual funds invest in public companies and banks finance solar or wind projects, EFW is unusual because it will invest in private and public companies of any size, anywhere along the capital continuum, as well as engage in project finance.

Some of its investments will bet on innovation. “We need to reinvent the world when it comes to energy, food and water,” Jacobs says. Others will finance infrastucture and real assets; everything from solar farms to agricultural land. “That’s about rebuilding the world,” he says.

Thematically, this sounds sensible, but what does it look like in practice? EFW Partners’ investments include:

• Forced Physics, a startup company which is developing a nanotechnology-based refrigeration system that uses air as a refrigerant and produces no greenhouse gases or ozone-depleting pollutants. “They have a game-changing efficiency technology,” says Jacobs.

• SNTech, a private company that makes electric motors for heating, cooling, refrigeration, pools and spas. The company says its motors use 80% less electricity than conventional air-conditioning motors.

• Sungevity, a firm that finances and develops rooftop solar systems, leasing its panels to homeowners so they don’t have to make a capital investment. Co-founder Danny Kennedy is a former Greenpeace activist.

EFW is still looking for its first infrastructure project. It has talked with the developers of a 30MW solar farm being planned for south of Indianapolis, said to be the largest solar project in the midwest. Buying stakes in real assets, like solar farms or agricultural land, should provide EFW with predictable cash flow, in contrast to its equity investments, which are more speculative. The company hasn’t made any food or water investments yet.

If the McKinsey consults who warned of resource scarcity are right, Jacobs and his colleagues at EFW Partners should do well, as should their investors. But as I read the McKinsey report, I could not help recalling the most famous investment – well, it was actually a bet – in the history of resource scarcity. It was made in 1980 by Paul Ehrlich, the famed author of The Population Bomb, and economist Julian Simon. Ehrlich bet that the prices of five commodities (chromium, copper, nickel, tin and tungsten) would rise over the next decade. Simon bet they would be lower. Ehrlich lost: 10 years later, all five commodities’ prices were lower. Then again, if they had extended the bet for another decade or two, Ehrlich would have won. Which only goes to show: predictions are hard, especially about the future.


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