Disproving ESG “profits Vs Impact” Assumptions

Greenbacker’s Decade of Renewables Investing Shows Value And Impact Can Both Be Supported

Ten years ago, the mere mention of terms like “renewable energy” and “impact investing” at most wealth management industry conferences conjured up images of hippies, compact and slow-moving electric cars and unreliable electricity, powered by a smattering of solar panels and unsightly windmills.

But the words most frequently associated with green energy projects?  Tax subsidies.

The frequent assumption is that investing in renewable energy projects that drive impact – defined by reducing carbon footprints, versus “check the box” tactics such as carbon tax credits trading – inherently involves a trade-off between doing well financially and doing good for the planet. 

In 2011, the founding leaders of Greenbacker Capital – David Sher (Co-CEO), Charles Wheeler (Co-CEO), Robert Sher (EVP, Capital Raising) and Spencer Mash (EVP, Structured Finance) – joined forces to prove the “profits versus impact” argument is a classic false choice.

WSR interviewed Greenbacker to understand the team’s unique approach to impact-oriented renewable energy investing and how their strategy has powered the firm’s growth over the past ten years.

Flawed Assumptions

“We believe one of the single biggest misconceptions when we launched Greenbacker was that renewable energy investing had to be concessionary,” said Robert Sher.  

“One of the single biggest misconceptions…was that renewable energy investing had to be concessionary.”

“Meaning, you had to accept lower returns by investing in renewables, which would never be cheap enough to compete with natural gas or other fossil fuels – At least, not without substantial government subsidies.”   

Referencing recent industry research on how renewables are now the lowest cost form of energy in many regions of the United States today on an unsubsidized basis, Sher stressed, “I think we’ve demonstrated that you can invest in renewable projects that drive meaningful impact, and you can make good returns doing it.”

Charles Wheeler, who previously managed renewable energy investing in North America for Macquarie, the global asset manager and investment bank, said the opportunity set was already very clear to him and his co-founders in 2011.  

“The renewable energy space was moving towards cost parity with fossil fuels, with the cost of solar and wind projects dropping every year. To us, this meant that sustainable infrastructure had the potential for massive growth and would need a large amount of capital for the transition to take place.”

With renewable energy infrastructure assets valued at more than $1 billion and more than one gigawatt of clean power generation capacity, Greenbacker’s growth is over the past decade is apparent.  According to Taylor Muckerman in past Motley Fool coverage, one gigawatt can power 300,000 homes.

Capturing Overlooked Investor Segments

Greenbacker’s ongoing growth is not so much the product of current public enthusiasm for sustainable energy, and more about a careful strategy to address overlooked investor segments that its team has been implementing consistently over the past ten years.

For the most part, the ESG space has presented relatively few options for high net worth retail investors who want to directly invest in physical assets involving renewable energy, from power generation, to energy storage and transmission.

To be fair, multiple packaged financial products exist that cater to the masses who are interested in ESG investing, including mutual funds and ETFs that purport to have an ESG mission.  But buyer beware when it comes to how much impact these products actually help create.

Until now, the ESG space has presented relatively few options for retail investors who want to directly invest in physical assets involving renewable energy, from power generation, to energy storage and transmission.

There are multiple packaged financial products exist that cater to the masses, including mutual funds and ETFs that purport to have an ESG mission.  But buyer beware when it comes to how much impact these products support.

Adam Malamed, CEO of Ajax Investment Partners, a Miami-based incubator for technology-driven start-ups that is active in the renewable energy space, notes, “When you dig into the actual holdings of many sustainability-focused mutual fund or ETF out there, it’s clear that many of the public companies they’ve invested in are simply engaging in ‘greenwashing.’”

The practice referred to by Malamed is the over-hyping by public companies of what they are doing for the environment.  It is alleged by critics of ESG mutual funds and ETFs that public companies frequently do so in order to check certain boxes for inclusion in ESG mutual funds and ETFs, for positive publicity, or both.

Malamed, whose firm recently acquired an equity stake in a start-up focused on the electric vehicle space, believes the preponderance of renewable energy investment opportunities that are high impact and value generative are available only to institutional investors and ultra-high net worth (UHNW) investors. This latter segment is defined by many wealth managers as individuals or households with at least $25 million in net investible assets.

“There’s a definite shortage of everyday investment vehicles for the average retail investor that can deliver opportunities to own tangible renewable energy sector assets that create value and make a difference for the environment.”

Green Real Asset Investments For The Masses

What makes Greenbacker fundamentally different is the company’s focus on delivering direct investment opportunities to retail investors who are not in the UHNW segment with renewable energy-related physical property and infrastructure.

David Sher emphasizes, ““We’re differentiated in the marketplace by our focus on delivering real asset investment opportunities in the renewable energy space to a broad universe of retail investors.”

“Our goal has always been to enable ordinary American investors to participate in the burgeoning renewable energy revolution, with the goal of generating steady, stable returns in the form of monthly distributions.”

Here’s how Greenbacker does it:

• The company generally acquires renewable energy physical plants, including solar and wind farms, that all have long term contracts to sell power to creditworthy counterparties such as utilities, municipalities and corporations.  
• Greenbacker’s 27-person technical asset management team helps to evaluate transactions, optimize the performance of the physical plants, and look for additional opportunities to generate revenues at the sites. Property upgrades
  are a must.
• Examples of these initiatives range from improving the electrical testing methods used to monitor solar panels, “repowering” old assets with new equipment, and embedding pollinating plants at the sites to reduce long-term maintenance costs from mowing (this has the added benefit of building biodiversity in the ecosystem).
• Newly acquired assets are added to Greenbacker’s Investment portfolio, which currently includes over 250 separate renewable energy power facilities, each contributing to broader investor returns Day Hill Solar,
  a Greenbacker-Owned Asset
  in Oregon
• Specific assets within Greenbacker investment vehicles may be sold from time to time when it makes sense to do so strategically

As an example of the deals Greenbacker pursues, earlier this quarter the company announced a new project to provide renewable power to one of Apple’s data centers from a solar facility in Nevada.  

According to press releases issued by the transaction parties, Greenbacker acquired this facility from Estuary Capital Partners, a minority woman-owned developer.

How Much Does The White House Affect Green Investing?

While Greenbacker welcomes the Biden White House’s emphasis on developing renewable energy sources, the company emphasizes that much of its growth in the past ten years has been under the Trump White House.

“We continued to grow and succeed over the past four years, when we had a White House that clearly favored the fossil fuel industry and was critical of the renewable energy space,” points out Robert Sher. 

In Greenbacker’s view, there has been bipartisan support across the country at the state and local levels for renewable energy that dates back to the 1970s – In no small part due to recognition in these tiers of government that renewable energy projects make economic sense and create well-paying jobs.

Greener Pastures

Meanwhile, the future looks bright for Greenbacker and other investors focused on real asset investments that are renewable energy-focused.

Renewable energy is expected to provide 64% of energy in America by 2050, according to the United States Energy Information Administration, representing an increase from the current levels of approximately 17%.

Noting that $5-$10 trillion of capital will be required to make this a reality, Wheeler said, “We plan to be one of the major players in the country’s transition from fossil fuels to renewables.”

Reflecting on the past ten years, one incident remains fresh in David Sher’s mind.

He and his colleagues had a meeting with an investment advisor in Berkeley, California known for his passion for socially responsible investments.  After walking through Greenbacker’s strategy together, the advisor said, “That’s not socially responsible.  Your investments are making too much money to be socially responsible.”

Sher said, “We just laughed to ourselves. Is it impossible to make money while doing something valuable for the community? I think we can do both, and we’ve proven it.”

James Miller is a Contributing Editor and Analyst at Wealth Solutions Report.  He can be reached via email at ContributingEd@wealthsolutionsreport.com.