Sustainable Energy Investments and Profits: Consistent Goals

Smart impactful investments and business creativity is needed to improve the environment and fund up to $30 trillion globally in infrastructure projects to combat global warming and other environmental challenges. This was an important theme at the HBS Club of Washington event on May 16^th on Sustainable Profit: Investment Opportunities in a Changing Climate with panelists Mark Tercek, Matt Arnold and Jeff Eckel. Roger Feldman, Partner with Andrews, Kurth Kenyon LLP, a noteworthy project finance energy practice group leader moderated and started with the question: can you make money in sustainable energy ventures?

Mark Tercek, President and CEO of The Nature Conservancy, addressed the question by saying yes, it is vital to use business acumen to solve environmental challenges. Without business creativity and impactful investments, it is difficult to solve environmental challenges. He indicated he had written a book on this topic. And added that governments should also invest, and while philanthropy is also critical, it is the combination of the above with business solutions that are vital in addressing environmental and conservancy issues. Mark Tercek was thankful to Matt Arnold, Global Head of Sustainable Finance at JP Morgan Chase, who has facilitated and championed a number of sustainable finance activities included providing a grant to The Nature Conservancy for $11 million to fund, internal to the Nature Conservancy, an Investment Banking (“IB”) function and help recruit IB skilled resources to design creative financing approaches to address environmental problems. Mark pointed out that one investment for forest land involved 95% outside financing covered by a royalty stream and only a 5% philanthropic level.

Matt Arnold commented that profitable sustainable investments were available and were frequently made. He also advocated selectively that investors, by accepting returns slightly below equity parity, may facilitate many more impactful investments for the environment and conservation to be made. For example, a return of 10% versus 12% would see more environmentally impactful investments. He also saw the creation of a new infrastructure class of sustainability related investments. In response to several questions from the audience, Matt commented that his team at JP Morgan Chase had evaluated several consultant studies and came to the conclusion that without impactful investments, it could require $30 trillion over 30 years for infrastructure investments in energy, water and waste water, and transportation related areas, or about $1 trillion per year being needed to solve the current climate crisis.

Jeff Eckel, President and CEO of Hannon Armstrong, talked about the success of Hannon Armstrong and about CarbonCount, a ratings methodology that measures the MT of GHG/ $1000 of investment, allowing Hannon to make the most impactful investments per dollar invested. Using this rating method they screen investments to only look at investments that reduce GHG emissions, and then prioritize for return on equity. CarbonCount shows that most energy efficiency investments are high impact from a carbon standpoint. Jeff said they were working to create a new asset class of reduced carbon investments. He described how in 2016, Hannon Armstrong invested in $1+ billion in energy efficiency, real estate and a variety of sustainable investments. And yes, as a public company, he said they were profitable with Hannon Armstrong’s recent 10k indicating a return on asset in the low 6% range. Since the IPO, 4 years ago, shareholders have received approximately a 150% return. He was proud of what they accomplished but also said it is ONLY the beginning and a good start with much more to be done.

It has been said that the longest journey starts with a single step and after the prepared remarks, the group of 60 or so networked to discuss more specific activities and ways people could work together. With the future of our grandchildren’s world at stake, many individuals wanted to find a way to make more sustainable/profitable investments that can appropriately address our environmental challenges. The urgency that we all step up has increased in importance with the decision of President Trump to withdraw from the Paris Climate Agreement. It is up to us to make a difference.