How The Climate Impact Asia Fund is combining strong investment returns while saving the planet from climate catastrophe and biodiversity loss

November 30, 2020

BY Alexander Kalis

The importance of “building back better” and investing on a more sustainable footing in a post COVID-19 world. Save the world from Climate change and catastrophe

In 2016, on a scorching hot summer evening in London, Alexander Kalis and Jean-Marc Champagne, two long-time friends, caught up at the Mayfair offices of Milltrust International to share their deep concerns as to how the world was sleepwalking into a climate disaster, and how the asset management industry seemed to be asleep at the wheel.

Of course, Champagne, an experienced finance professional who had recalibrated his career from established global banks to join WWF in Hong Kong as Head of Environmental Finance Asia Pacific, was fully versed on the subject and the objective of his business trip to the United Kingdom was none other than to raise awareness from institutions to take environmental metrics including climate change into account when valuing their investments. Discussions with the big asset managers that dominated the investment landscape had gone well, with polite attendance at the numerous meetings he had set up, but few of them seemed eager to genuinely embrace his clarion call for change.

He shared his vision for a fund that would help channel private capital into innovative climate solutions, and this was the ‘Eureka’ moment for Kalis, Managing Partner at Milltrust International, a boutique asset manager dedicated to impact investment with a strap line of “sustainable prosperity”. Milltrust had its roots in both the UK and Asia, with CEO Simon Hopkins living and working for the best part of a decade in Singapore. The group had launched a world-beating emerging markets programme with a strong focus on ESG and had also developed into an investment specialist providing a range of award-winning, innovative and sustainable investment solutions to address some of the greatest themes of our generation.

“With the greening of the economies, there is tremendous opportunity for investors to generate strong returns led by the structural growth dynamics in the transitioning to a low carbon economy while also making a positive impact” Kalis thought. Investors would not have to sacrifice returns for the sake of doing good, and this was the key to rolling out a successful offering that would appeal to investors.

Fast forward to 2020, Milltrust’s Climate Impact Asia Fund is now a reality after 3 years of discussions with WWF-Hong Kong and the fine-tuning of the investment strategy.

The Climate Impact Asia Fund is managed in an exclusive collaboration with WWF-Hong Kong, who serves as the environmental consultant to the fund. As a permanent and active investment advisory committee member, WWF-Hong Kong has a key role in ensuring that the climate mandate of the fund is respected, while also providing environmental expertise and key insight on climate change policies. Kalis now chairs the fund’s investment advisory committee and leverages his 20+ year investment experience as well as his experience as an independent expert at Climate-KIC, Europe’s largest public-private partnership, supported by EIT (European Institute of Innovation and Technology) to deliver a fund that focuses not only on companies which address climate change mitigation but also donates up to 40 percent of its fee income to WWF’s biodiversity and species extinction-focused conservation programmes that deliver genuine and tangible ‘on-the-ground’ impact by one of the world’s leading NGOs.

“With the Asia Pacific region accounting for 49.4% of global CO2 emissions (vs U.S. 18.2%, Europe 12.5%, Middle East 6.3%, CIS 6.2%, South/Central America 3.8% and Africa 3.6% [1])”, Kalis explains, “this is the part of the world that needs the biggest focus if we are to solve the climate crisis. But Asia is also taking a lead in the fight against climate change. For example, China has spent US$100 billion into clean energy alone in 2018 and is already well ahead of its Paris agreement target of hitting peak carbon emissions by 2030. In little more than a decade, China has made itself a world leader in electric vehicles, renewable energy, and energy storage. “This is why we wanted The Climate Impact Asia Fund to focus on Asian-listed companies making positive impact solutions against climate change”, adds Champagne. These are companies in sectors selected by WWF-Hong Kong which include [2]:

  • Renewable Energy: Renewable energy capacity in Asia continues to grow steadily, in particular in China and India. China’s renewable energy generation capacity grew from 480 GW in 2015 to just under 700 GW in 2018. China also likely has a total installed capacity of 200 GW of solar and 210 GW of wind by the end of 2019 – a 15% and 14% increase from 2018, respectively. In China’s coming 14th Five-Year Plan (2021-25 period), wind and photovoltaic power across China are to fully achieve power grid parity.
  • Alternative Energy(in developing nations only): China and India have ambitious targets to decrease the carbon intensity of their national 8 energy mixes, while still securing a reliable supply of energy. Alternative energy, including gas, provides a transitionary solution away from coal.
  • Energy Management Services: China has proposed ambitious plans to promote smarter energy use in urban 5 cities, requiring that 50% of all new urban buildings be “certified green buildings”, increasing the energy efficiency opportunities in the region.
  • Water: Asia is currently home to 4.5 billion people, who use ~ 65% of the world’s water supply. An estimated 30% of 6 Asia’s population is already facing water scarcity with demand for water expected to increase exponentially.
  • Low Carbon Transport: China dominates the market for electric vehicles. Roughly 1 million electric vehicles were sold in 2018—more than the rest of the world combined. Electric vehicles now represent more than 6% of car sales in China, up from 1% in 2016. In 2019 the government upped its goal for new electric vehicles to 25% of new car sales by 2025.
  • Environmental Services: China has installed the largest waste-to-energy capacity of any country globally, now equivalent to 40% of OECD countries combined, and growing. Other countries in Asia are developing similar environmental services.
  • Green Consumer Staples: Plant based consumer goods are typically less resource and energy intensive than their animal-based alternatives. For example, soy milk has been found to be 69% less CO2 intensive than dairy milk. Globally the plant-based beverages market is expected to reach US$22.9bn by 2027 growing at an 8.0% CAGR.

The fund is currently invested in 36 companies whose collective low carbon environmental operations are forecast to contribute a positive impact of [3]:

  • Avoiding 354 million metric tons (MT) of CO2 emissions, equivalent to taking 86.5 million cars off the roads.
  • Distributing 5,816 MT of clean water and treating 6,382 MT of polluted water to over 42 million households every year.

Today, the fund has generated strong performance and has benefitted from:

  • Growing M&A activity in the Asian renewable energy sector, with a recent takeover bidding war in the fund’s largest holding Infigen Energy between (Philippine conglomerate Ayala Corp-backed) UAC Energy and Spanish global energy leader and the world’s number-one producer of wind power, Iberdrola. Elsewhere, KKR has made a successful 11.9% tender for First Gen, another key position held by the fund. And the recent announcement of a “possible” privatization for Beijing Jingneng Clean Energy also supported the fund.
  • Strong double-digit % returns coming from the fund’s new energy vehicle and associated lithium-ion battery investments including CATL, BYD and Samsung SDI. The future of new energy vehicles is forecast to play a major role in the post coronavirus world, and China has a long-held ambition not only to provide the supporting policies and infrastructure to encourage fast domestic adaption but also to take the lead in providing the required technology to disrupt the traditional auto market.
  • Increased incentives announced by China’s Ministry of Finance to boost its budget for renewable power subsidies to 92.36 billion yuan ($13 billion), 7.5% more than it spent last year, with solar power incentives to rise by 14% compared to last year’s level, which has been particularly positive for the fund’s China solar exposure holdings: Xinyi Glass, Xinyi Solar, and Xinyi Energy.

Kalis commented that: “since mid-March, the global pandemic has been potentially transformational for the low carbon economy. On August 5th the NDRC announced installation targets of 11.4GW of wind capacity and 33.1 GW of solar capacity for 2020 which will require an estimated US$32bn of investment. This clarity has provided a welcome boost for China’s renewable energy operators and further highlights the cheap valuations of those that are listed on the Hong Kong Stock Exchange. Combined with the ongoing privatization trend and the recent news of the strategic co-operation agreement between leading direct drive wind turbine manufacturer Goldwind Technology and BYD to develop large scale battery storage systems for the adaption and scaling up of renewable energy supply, the outlook for the performance of the Fund’s Chinese low carbon cleantech holdings remains encouraging.”

[1] BP Statistical Review of World Energy, 2018
[2] Bloomberg, EISAL Research, Company Reports, WWF, UN, LNG Industry, Impact Alpha, Asia Water, REN21, Waste Management World, FT, China Power 2020
[3] EISAL Research, EPA, IRENA, Company Reports

About the Author

Mr Alexander Kalis is the Managing Partner of Milltrust International LLP in the United Kingdom, which he co-founded in December 2010.

He is Head of Investments and Portfolio Manager of the British Innovation Fund (VC/Early-Stage university venturing focused on AgTech, BioTech, Life Sciences, MedTech, NanoTech, DeepTech, and FoodTech), as well as Portfolio Manager of Milltrust’s Buy & Lease Agriculture Funds (Real Assets/Farmland), and Co-Portfolio Manager of the Milltrust Global Emerging Markets Fund (multi-manager).

As a passionate leader in the fight against climate change and in channelling private sector capital into profitable environmental focused projects, solutions-driven startup businesses, and impact funds, Mr Kalis spearheaded Milltrust’s dedicated Sustainable Impact Investments business. He serves as Investment Advisor and Chairs the Investment Advisory Committee of Milltrust’s Climate Impact Asia Fund (listed equities), a pioneering environmental impact fund he launched in exclusive partnership with WWF-Hong Kong.

Read the full bio here

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