We recently held a discussion with the Founding Partner of Stance Capital, Bill Davis. Stance Capital is a member of Climate Action 100+ and a signatory of the UN Principles for Responsible Investment. It is a pioneer in quantitative ESG investing and research and was founded to debunk the idea that investing in companies with strong performance on environmental, social and governance indicators result in inferior returns on investment. Stance Capital seeks to invest in large-cap public companies that are transparently managing the transition to a lower carbon economy.
Bill Davis is a firm believer that entire industries, bigger than any other industries previously created, are going to emerge in the sustainability field. And that big shifts in investment are going to take place, as more investors realise that the transition from fossil fuels to renewable energy becomes inevitable, and more companies and individuals care about investing their money responsibly. In this meeting, he shared his experiences of what investors need to see to be comfortable investing capital into certain markets. Our key takeaways from the discussion are as follows:
A stable government, economic system and incentives, and bondable counterparties are essential criteria needed to attract investment.
We cannot reach our global climate targets without changing the behaviour of the top 100 greenhouse gas-emitting companies.
Private companies do not need a lot of motivation to invest their capital. The nature of capitalism is to find capital, put it to use and create shareholder value. The role of governments in this process is to make it as easy as possible. Businesses drive government, and projects need to stand on their own economically without government interference. There is always capital looking for good projects, and if there are businesses that can identify strong opportunities from an economic standpoint, then there will always be capital so long as governments allow it.
It will be increasingly important to engage the major global infrastructure investors in this debate. They will need the same in-country signals around stability that everyone else will need. Grid infrastructure will require billions of dollars in investments, and those firms can finance most of the projects. Climate Parliament has also been defending the idea that there is more than enough money in the private sector, and in the bond market, to finance a global transition to renewable energy, but policymakers have a key role to play in this process: as Bill pointed out, with good laws and political stability in place, public investors are not even needed.
By initiating a dialogue between investors, developers, regulators and legislators, Climate Parliament is committed to developing a framework, as laid out in the ‘Clean Energy. Delivered’ illustrative investors’ statement, which will ensure a reasonable return on investment and accelerate the financing of the infrastructure we need for a net zero transition.