Power technology and renewables: wind turbine blades, advanced meter infrastructure.
Clean water: energy recovery technologies, water filtration and de-salination.
Hortz: Please give us a sense of the size of the universe of companies in these areas.
Uek: We have a proprietary universe of about 600 companies that have significant revenue to one, or several of our environmental themes. That is our definition of clean tech universe, and that is a lot of companies, equating to almost the total market capitalization of the MSCI World Index. Our universe is all-cap, but we have focused on smaller and mid-market capitalization companies as we want the Fund to have pure exposure to our themes. Many of the companies in the universe are industrial companies that have been public for many years, yet are focusing and scaling their growth in differentiated clean technology solutions. One of our efficient transportation holdings has an automated process for making electric motors—the company has been operating for 100 years, yet today has the most efficient electric motor winding equipment in the world.
Hortz: You emphasize that your investment approach is not an ESG strategy but more of a thematic investment approach. Why do you state that is a “big difference”?
Page: We believe clean technologies that enable the efficient use of scarce resources, are one of the most significant, sustainable, long-term global growth trends. We believe that companies positioned with leading technologies that can address resource scarcity will deliver greater shareholder returns over time. This is a significant point of differentiation, as an ESG fund is not as narrowly focused on this isolated and very strong growth trend. The Fund captures easily identifiable, recognized global trends, such as non-OECD economic growth, urbanization in China, related resource scarcity, global climate change, etc.
This, in contrast to an ESG strategy that has more elusive goals that are harder to isolate and, we would add, unrelated. ESG data also tends to focus on inputs, like company operations, and is highly suspect as many ESG research firms use modeling techniques that are model or estimate based. With our approach, we focus on environmental technology solutions—the companies are solving environmental problems with clean technologies, and as their technologies are scaled across economies, there is a compounding output affect. The ESG data providers are focused on corporate practices, not technology solutions. We believe our approach is highly differentiated.
Hortz: How do you go about quantifying the environmental impact of the companies you research?
Page: Most of the companies held by the Fund either save water and/or mitigate carbon, while providing other natural resource efficiencies. We strive to engage with the Fund holdings on social impact metrics: in aggregate, how much water and carbon emissions are saved as their technology is deployed into the market? We aim to develop carbon mitigation savings per revenue unit.
Hortz: How would you characterize your portfolio holdings in your Essex Environmental Opportunities Fund (EEOF)? Market cap, growth rates, etc?