Alternative cleantech Investment Options for Canadians

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Canadians who want to invest in environmental solutions and clean technologies (cleantech) – the sector of companies that minimizes the impacts of non-renewable resource use – have several options. Some of these are available to retail investors wary of choosing individual stocks or volatile passive funds characterized by hype and cynicism.

Retail investors can, for example, invest in actively-managed mutual funds from Genus Fossil Free, or renewable energy infrastructure debt from B.C.’s SolShare Energy; Alberta’s Alberta Solar Co-op; Ontario’s OREC and SUN Co-operative; and Nova Scotia’s Scotian WindFields, Watts Wind Energy and Wind4All.

However, the average solar or wind bond isn’t available to non-residents and the public cleantech sector isn’t large or settled enough to support many retail mutual funds or passive funds that reflect market fundamentals.

Most cleantech action in Canada is reserved for accredited and institutional investors who can access alternative investments outside of stocks and bonds. These investments usually consist of portfolios of entrepreneurial companies managed by private equity firms (including venture capital) such as Chrysalix, DBL Cleantech Capital, Efficiency Capital, Emerald Technology Ventures, EnerTech Capital, Evok Innovations, Pangaea Ventures, Pyfera Capital and Yaletown Partners.

To dig deeper into this space we reached out to a sample of nine additional Canadian cleantech investors: two in debt, four in private equity and three in public equity.

 

CoPower

CoPower’s green bonds provide project financing for cleantech infrastructure developers in North America. The company’s mission is “to unlock capital for climate solutions by empowering individuals to participate in – and profit from – the low carbon transition.” With low investment minimums, and an online dashboard providing personalized financial and environmental performance information, CoPower is accessible and millennial-friendly.

Trish Nixon, director of investments, explained to Corporate Knights how CoPower makes impact through two kinds of distributed power: “As a financial partner and innovator, we will help accelerate the growth of the distributed clean energy market in North America,” she said. “By democratizing clean energy and impact investing, we can help individuals align their investments with their values, and in doing so cast their vote for clean capitalism.”

Interested investors can access the green bonds directly through CoPower or through participating investment advisors. Bondholders earn up to five per cent annual interest, distributed quarterly over a five-year term.

 

SolarShare

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Solarshare’s 600kW project atop a factory that produces pool noodles in Brampton, ON

SolarShare is the largest renewable energy co-operative in Canada and one of the foremost clean investment opportunities available to retail investors in Ontario. Like CoPower, SolarShare supports distributed power by building infrastructure that produces electricity where it is consumed, and by allowing wide access to its solar bonds via low minimum investments (they are available to all Ontario residents starting at $1,000).

Jennifer Bryan, the co-operative’s community investment and marketing manager, describes SolarShare as “growing by leaps and bounds and has just surpassed $22 million in bond sales from 1,275 investors.” Bryan notes that local communities such as those in northern and remote Ontario, where large-scale solar projects are currently being built, benefit from local revenue and job creation. By 2017, SolarShare projects will be generating enough power for 1,600 homes.

SolarShare bondholders earn five per cent fixed-interest on five-year bonds (which are RRSP/TFSA eligible) and six per cent fixed-interest on 15-year self-amortizing bonds, well above the current rate of government savings bonds.

 

InvestEco

In food and agriculture, the booming organic food sector is expanding from Whole Foods to Walmart. According to the Organic Trade Association’s most recent study on U.S. consumer attitudes about organics, the coveted millennial demographic is now “devouring” organics.

Financing part of this food revolution is InvestEco. Similar to how millennials prefer their food grown, InvestEco’s focus developed organically: Founded in 2002, it originally invested in a portfolio of companies that included renewable energy and efficient transportation. After developing deep expertise and a broad network in the food and agriculture sector, InvestEco now almost exclusively invests in that growth sector.

Managing partner Alex Chamberlain told CK that InvestEco invests in “high-growth private companies that have a strategic advantage in the market by virtue of their brand, distribution channels, unique supply chains, farming protocols, processing capabilities, or proprietary technologies.” InvestEco targets top-quartile financial returns, while producing social and environmental benefits that are measured, monitored and reported.

 

JCM Power

JCM Power is a renewable energy company which develops, constructs and operates renewable energy infrastructure that fits criteria intended to limit risk to activities under JCM’s control. The focus is on African and Latin American countries that lack electricity yet have plenty of sun and wind. The projects look to bring electricity to millions of people, reduce greenhouse gases and replace unhealthy fuels such as smoky kerosene and diesel.

“The economics of solar have improved so dramatically over the last couple of years that we don’t need subsidies,” says CEO and cofounder Christian Wray. “The main challenge is working with governments with little experience in solar to create strong bankable contracts that meet the standards of international financiers.”

JCM’s private investments rely on power purchase agreements (PPAs) between itself, an independent power producer and seller, and buyers of electricity such as governments. The contracts are fixed on hard currencies, backed by development finance institutions, and last as long as 25 years. PPAs represent a secure stream of future cash that JCM plans to transform into a return higher than the common private equity target of 20 per cent.

 

ArcTern Ventures

Speaking with Tom Rand, managing partner at ArcTern Ventures, the purpose of his early-stage investments was clear: “Let’s beat fossil fuels.” Located at MaRS, hub of Canadian cleantech activity, it appears Rand is in a good position to lead the way.

ArcTern is exposed to smart technologies that increase efficiency like smart thermostats, but has no plans to shy away from the “real cleantech” that will replace carbon. These replacements, including game-changers in renewable energy, materials and energy storage, are all represented in ArcTern’s portfolio.

Asked whether a likely change in climate priorities south of the border challenged his investment strategy, Rand replied, “The market does not change for me month-to-month or year-to-year; this is a multi-decade problem that isn’t going away, and neither will the market returns.”

Rand, author of Kick the Fossil Fuel Habit and Waking the Frog, expects to make significantly above market returns by investing in entrepreneurs who don’t need subsidies but do promise outsized growth through technological innovation.

 

Renewal Funds

Renewal Funds was created to accelerate the shift of resources to a regenerative economy. “We invest capital on behalf of people who care deeply about environmental and social issues facing our planet today,” says CEO Paul Richardson. “Our mission is to invest in purpose-driven companies whose products and services address climate change, the integrity of our food systems and the health of our oceans.”

Renewal Funds has invested in 22 early-stage companies innovating in the sectors of organics and environmental technology. Its portfolios are designed to deliver above market returns while catalyzing positive change and encouraging sustainable, multi-generational thinking.

The fund was founded in 2008 by Richardson, Joel Solomon and Carol Newell. Since that time, Renewal’s investor base has grown to nearly 200 mission-aligned individuals and charitable foundations as well as select financial institutions and its assets under management have grown to over $100 million.

 

AGF Global Sustainable Growth Equity Fund

The AGF Global Sustainable Growth Equity Fund provides capital to companies that offer energy, water, waste and environmental health and safety solutions. Companies that fit into these sustainability themes are mapped by value chain and across market capitalization, resulting in a portfolio significantly different from its conventional benchmark, MSCI World.

Martin Grosskopf, VP at AGF Investments and portfolio manager of the fund, described in an email the fund’s footprinting: “We use Trucost data to assist with this and are the only fund in Canada to publicly disclose this data.” Grosskopf expects each portfolio company to strive to continuously improve on material environmental, social and governance issues.

Since moving 45 per cent of the portfolio from Canadian to higher-growth global equities in 2014 the fund has performed well against MSCI World and has outperformed the thematic MSCI Global Environment Index since the index’s inception in 2008.

 

NEI Environmental Leaders Fund

Canadian mutual fund company NEI offers retail products managed by expert external portfolio managers such as Impax Asset Management. Launched in 2016, NEI Environmental Leaders Fund invests in U.S. and world public equities that optimize resources by producing renewable energy, building sustainable water infrastructure and recovering resources from hazardous waste, among other projects.

David Richardson is managing director at Impax, which manages the fund. Asked about any likely impact from a change in U.S. energy policy, Richardson noted that possible negative effects on pollution control companies would likely be outweighed by a tax cut beneficial to small and midcap companies well represented in the portfolio. “Regardless,” he said, “the fund is 40 per cent invested in water infrastructure and water efficiency demand has no place to go but up.” The fund’s target is to financially outperform its benchmark, MSCI World, by two per cent.

“Considerable research is put into measuring the fund’s environmental impact, from the amount of water treated to the amount of materials recycled,” notes Richardson. Even the amount of carbon offset by renewable energy is calculated and reported by EY, a leading environmental assurance provider.

 

Greenchip Financial

For John Cook, president of Greenchip, the strategy to invest in the “great energy transition” is not based on a hunch. According to Cook, “The transition from fossil energy to renewables, from inefficient processes to efficient ones, is unstoppable.” Since starting a decade ago, Greenchip’s investment thesis has held the hallmarks of an elegant mathematical proof: growing population-driven consumption and pollution mixed with decreasing natural capital results in growing opportunity for companies whose products and services address these challenges.

The Greenchip Global Equity Fund manages almost $35 million on behalf of a hundred accredited investors. The fund has outperformed the MSCI World benchmark since inception. Greenchip invests from a universe of about 800 environmental leaders operating around the world.

Cook is certain that efficiency and renewable power are the path to profitability, especially as GDP growth begins to decouple from CO2 emissions. “Investors that ignore these trends are taking on needless risks and missing an historic investment opportunity,” he warns.

This article was originally published on Corporate Knights
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Jason Visscher is a Research Analyst at Corporate Knights Inc.