The QCF (LUX) - Net Zero Emission fund is the direct descendant of Quaero Capital’s clean energy fund. It responds to client demand to go even further in financing the energy transition. Martina Turner launched the clean energy fund eight years ago with the idea that investment was needed to make renewable energy accessible to all and therefore competitive. “The vision was right,” said Olivier Ken, co-manager of the Net Zero Emission fund with Turner. “To decarbonise the economy, we had to start with energy. And it’s off to a good start. Today, in Europe, 35% of energy is renewable. Now we need to take a broader view and say that what is happening with energy will happen in other sectors such as transport, agriculture and chemicals.”
The theme is based on three drivers. Firstly, government commitments to achieve net zero emissions by 2050. These political commitments are very important in Europe, as well as in the United States and China. Then the economic effect: regulatory support (subsidies, tax credits, etc.) which will allow economies of scale, an increase in competitiveness and therefore a wider adoption of solutions. And finally, the evolution of consumer behaviour.
Another topical issue that will contribute to the performance of this strategy is ‘reshoring’, i.e. the relocation of production. “Covid and the Russian aggression in Ukraine have made Western countries aware of their dependence on imports from Asia and Russian gas. It is clear that governments want to relocate sensitive industries, many of which are essential to the energy transition, such as semiconductors. The investments required will be enormous. We believe that we are facing a capex phase the likes of which have not been seen since the Second World War: batteries, semi-conductors, raw materials, all of the sectors concerned are essential to the decarbonisation of the economy.”
To find investment opportunities in the Net Zero Emission theme, Quaero Capital has adopted the recipes that contributed to the success of the Capital Clean Energy fund. First, the universe is opened up to analysts across the industrial sector. They are the ones who will work to identify the products, technologies and services that will enable the economy to be decarbonised.
What differentiates us from other funds active in the Net Zero Emission theme is that we do not start from a benchmark, but from the industrial side
“We are looking at all the major economic sectors--transport, agri-food, textiles, steel, etc--to assess their carbon footprints, to understand how this carbon is produced and where it is produced in the value chain. From there, we will ask our industrial specialists what technologies, products and services exist to enable effective decarbonisation. Then we ask ourselves whether these technologies, products and services are at an industrialisation stage and we look for the companies that we believe will become leaders in their fields. As our fund is SFDR 9, we have our ESG team validate our choices. Then comes the work of the financial analyst: we meet the companies to understand their market and their strategy.”
Once this work is done, the managers build their portfolio. A concentrated portfolio of around thirty large-cap companies--”we are looking for a certain maturity”--globally, with a growth philosophy and an investment horizon of 3 to 5 years. “What differentiates us from other funds active in the Net Zero Emission theme is that we do not start from a benchmark, but from the industrial side,” argued Ken.
Questions of maturity
“What we are interested in is assessing the maturity of a technology. Globally, in the energy transition, 70% to 75% of the technologies already exist. They need to be deployed and made economically relevant. Many technologies never reach the industrial stage, or only very slowly, which means you lose money. We are not a private equity fund. We only get involved at a certain stage of maturity. We want good technologies that are profitable.”
To illustrate their point, Ken and Turner mentioned the next major sector that they believe will have to address the issue of climate change: air transport. “It is a sector that accounts for 2% to 3% of total CO2 emissions and has grown by 5% per year since 2000.”
And the key technology for decarbonising is sustainable aviation fuel (SAF). This technology is available, mature, in the process of being industrialised and demand for it is set to increase, driven by regulatory pressure. The European Commission, in a recommendation, recommended a 2% SAF baseline in 2025 and 5% in 2030. The marketing aspect of using SAF could also be an argument for airlines.
Read the original French version of this article on the Paperjam site. This article was published for the Paperjam+Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.