Thomas George, Portfolio Manager of the TD Global Sustainability Fund and Vice-President, TD Asset Management, discusses green investing with Cleantech Authority.
How would you define green investing?
A fair definition would be any business model that improves the environment in some way.
Given the focus of your fund, why do you think there is a need for green investing?
We’re currently facing headwinds in terms of resource constraints. Those are real. Resource prices are telling us that we’ve hit those constraints. And so right now, unlike any other time in the past, green investing has a real economic benefit. Carbon continues to stall. It just feels like we can’t get the will on a global basis to get this on the table. But that all aside, the real question is how much economic value are we losing by degrading environmental resources at such a fast rate and trying to find in our capitalist model a price for that. The fact that the economics are telling us that we need to be environmentally conscious. That I think is a watershed moment for green investing.
Does green investing go beyond cleantech?
This is where everyone’s definitions change. I think of the umbrella in four different areas. The largest is resource efficiency—broadly defined as technologies or processes that enable economic functions to be done in a less resource intensive manner. It doesn’t have the glamor content to it, but as I found it, the less glamor, the more exciting the investment opportunity. It’s about the little things all adding up.
Then I would classify alternative energy on its own. Here is where you have the winds, the solars, and you’d also have things related to battery technology that would replace today’s current combustion engine. Then there’s the water spectrum, in terms of global clean water and water resource efficiency. Finally, healthy living, which I’d categorize as organics. I’m sure I’m missing a couple, but I think that most green investments can be categorized under any one of those categories.
How will carbon trading impact green investments in the future?
I had a lot of hope for carbon investing but I’m resolved to the fact that it’s not going to happen. That makes me sad, but I almost have to deal with it and move on. Utimately, Europe is not going to stand alone on carbon trading unless America comes on and America doesn’t have the will right now unless China and India make big concessions. If you hate bureaucracy and all that politics is, this is the epitome of it. We still need to move forward on that front, but I think it’s going to be trickier.
How about down the road in the far future?
Carbon was going to be used as a tool to incentive other forms of production that currently can’t be incentivized because they can’t reach that scale. Technological innovation requires an increase in quantity. Ultimately, the greater output you’re producing, the lower marginal costs you’ll get. The problem with clean technology in a lot of areas is chicken and egg. You can’t get the scale because it’s uneconomic at today’s prices. So you never get the scale and you never get lower costs. So what carbon was enabling was a circuit breaker in the sense of let’s get these guys economical and let’s push the cost curve down. Solar is the best example of that. Though it’s not carbon so much as countries enabling solar tariffs for installing solar, but costs since 1997 to today have fallen 50% and they’re projected to fall another 50% in the next five years.
What is the current state of green investing in North America?
Troubled. I want to have a better perspective on it, but I’d say completely troubled. In America, in terms of where the political discourse is right now, the consensus is that it is toxic. You’ve got a democratic group and a republican group that are nowhere near coming to a consensus, nor is there even the opportunity for them to come to a consensus. It’s almost like you’re dealing with two different churches or schools of thought that don’t even want to see eye to eye. In my view that’s a toxic environment in terms of getting clean initiatives through. On one side of the argument, the republicans have framed it that cleantech is part of the fat of the government. With the tea party, this whole free market fundamentalism has really taken hold in America. George Soros writes so eloquently about this and given that he’s such a wealthy person and he derides this concept so much, you really just get an idea. To coin Che Guevara it really is, “a free fox among chickens.” So not only are the poor marginalized in this whole free market fundamentalist scene, but the environment is marginalized as well.
What about Europe?
Slightly less troubled than America. America is troubled for philosophical reasons. And Europe has philosophical unity in terms of understanding the overall need and where it has to go, but their problems are completely economic. The economic malaise, to put it lightly, which teeters on economic paralysis, can never be good for clean tech. To be totally blunt, clean technology still requires some form of subsidization or incentivization at the current point. If you’ve got countries, not just companies, that are potentially going to go bankrupt it’s going to be tricky.
Are there any growing markets you are keeping an eye on?
Anything to do with energy storage. Longer term I’m very bullish on anything that will replace petroleum. Lithium and copper are probably the most interesting for me.
So if you were to bet on any horse in the cleantech race, where would you put your money?
If it’s just in terms of market share, I think it’s going to be a very close tie between some form of hybrid battery technology or electrification of vehicles and solar technology. It will really depend ultimately on what the price of oil is.
Realistically speaking, I think the biggest winner in cleantech is copper. From an investment perspective, I think it makes a lot of sense. Some recyclers such as Unicor in Belgium are fantastic. We’re going to need every ounce of this stuff. The technology aspect can’t be underplayed. Technology requires connectivity and the connectivity is currently driven by the only cost effective metal we know—copper.
Are there any particular companies you’re interested in?
I like pretty boring things. I like LKQ. They’re the largest auto parts recycler in the United States. Currently today in automobiles, recycled parts represent less than 10% of the overall replacements. In the trucking industry, recycled auto parts represent over 50% of the auto parts. So for me there’s a huge opportunity gap. People often say, “that’s amazing technology, tell me more.” Refrain from the whole technophile thing. The benefits for the environment with an investment such as this are multifold.
Piaggio, I love the whole scooter thing. I think these kind of bridge technologies make so much sense. Also, natural gas vehicles. That’s one area where the convergence of economics really plays a part. Since natural gas today is much cheaper than oil, the dollar per MMBTU for natural gas offers so much more value than oil. And it can reduce emissions by over 20%. So you’re getting a cost decrease of upwards of 20-30% and you’re reducing emissions by 20-30%.
For the average investor, how would you suggest balancing their portfolio with green investments?
I suggest first measuring your risk tolerance and getting a good gauge of your downside. Talk to a good financial planner to get that gauge. That planner can help you understand how risky cleantech funds and assets are relative to more mainstream investments and from there you can make the risk return tradeoff in terms of how much you can handle. It all comes down to risk tolerance and clean tech is highly risky, I can’t stress that enough.
