Many a politician will tell you that perception is reality.
So too it can be said of investment trends. Money tends to flow to those sectors where investors perceive momentum to be building. This leads to the lemming principle and the all-too-rare phenomenon of counter-cyclical investing – something we all like to think we do despite all evidence to the contrary.
Whatever the realities of climate change, there is no doubt that both the fear of its impending impact and the legislative responses of our Government have set the stage for emerging investment themes.
The high profile themes have been the development of renewable energy sources and the cleaning up of existing fossil fuels (solar, wind, wave, clean coal etc). While there will no doubt be some substantial wins in this space, the truth is that this is an expensive game to play, and the lemmings have already started pouring in.
The distinction between fundamental technological innovation and infrastructure build-out is important here as most investment opportunities tend to be in the latter category. Quality pure technology plays are very hard to find.
I find it remarkable, but not surprising, that one of the most obvious places to start has received little fan fare – energy efficiency. Sure…we had a brief flirtation with replacing our incandescent globes with low energy fluorescents, but the elephant in the room is large scale commercial and industrial energy usage.
These are the largest energy users and so 5% or 10% energy savings in these sectors would have a substantial impact on our national carbon footprint – not to mention save our corporations millions!
The Howard government put in place two pieces of legislation. The Energy Efficiencies Opportunities act (EEO) and the National Greenhouse Emissions Reporting act (NGER). The Rudd Government has maintained these policy settings.
EEO was designed to force the largest emitters to not only report on their energy usage but also on specific projects that would help them reduce energy consumption. Interestingly there is no compulsion on corporations to actually implement any such projects.
NGER was designed to do an audit across the major emitters to establish the baseline national carbon footprint. This was to be the basis for determining the number of permits to be auctioned in the context of the carbon pollution reduction scheme (CPRS).
With all of our large companies grappling with their compliance obligations, perhaps the most interesting investment opportunities lie in turning compliance into bottom line profits.
This goes well beyond solar panels on the roof or windmills in backyards. It’s about quality industrial engineering and associated tools that help our captains of industry generate more with less.
In times of economic nervousness and bearish sentiment, good old fashioned value creation wins hands down. The catch is that real value creation is not easy…but there’s never been a better time to make it happen.
Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.
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