Why investors should care about COP27
For the past two weeks, world leaders and decision makers have gathered in Sharm El Sheikh, Egypt...
Neil Goddin, co-manager of the Artemis Positive Future fund, discusses how they categorise holdings via the UN Sustainable Development Goals, which gives them a solid base for stockpicking. He notes how companies with products that promote accessibility and positive inclusion are favourites, and how we can all benefit from a cleaner, greener approach. He also comments on investment opportunities in the US, following the adoption of the Inflation Reduction Act of 2022. Neil wraps up using the example of a special climate-adjusted beer, brewed with non-traditional ingredients. Spoiler alert: it didn’t sell very well.
I’m Darius McDermott from FundCalibre. Today, I’m delighted to be joined by Neil Goddin who is co-manager on the Artemis Positive Future fund. Neil, good morning.
[00:10] Good morning, Darius. Thanks for having me.
Thank you for coming on. One of the unique things about this fund is your reporting. You categorise holdings via the UN Sustainable Development Goals and the biggest area you have represented in the fund at the moment, is the SDG 3: Good health and Wellbeing, which are big subjects at the moment.
Could you tell us a little bit about this area, and one or two of the companies that you have here?
[00:37] Yeah. thank you, Darius. So, just taking a quick step back, we often invest in small companies that we hope and believe are having a big impact. We invest in three areas mainly: climate change, healthcare and education. So, when you talk about good health and wellbeing, you’re focusing around the education and good health areas. Now for us, that ranges from cancer treatments, diagnostic tools, low-cost genes, bike helmets, diabetic treatment, and hearing loss. So, just some of the examples of some of the companies we own today, there’s many more areas. So, although it is an area we are invested in in size, the end markets are varied and very different from each other.
But if we take one or two examples, let’s start with Amplifon, it’s probably a company many people know, you’ll see the shops on the streets of the UK and all around the world. So, at heart, they are a company that supplies hearing aids.
Maybe it doesn’t sound like the most exciting investment in the world area, when you first hear about it. If I take a step back though, the history of Amplifon starts in1946, after the war. So, they started the company then, because, unfortunately, there were so many people coming back from the war that had hearing problems.
So, the history of the company starts with one of having a positive impact on the world. And that’s really carried on, you know, hearing is so important, to include people with hearing problems in society.
We are beginning to focus a lot more on the total cost of care, and this is another key factor with areas like hearing. So, what’s the issue? The issue is that, actually, we look at the cost of a hearing aid and say, well, that’s expensive. And what we don’t think about is, if someone who can’t hear, isn’t included in society, what is the cost in society of that total cost? So, hearing aids can be a really good way to help people who have hearing loss feel included, and do normal things, like have a job, and all that kind of stuff. There are lots of trends behind hearing that are really exciting and big tailwinds. The key one being we’re getting older. I mean, I think the average patient that Amplifon see is 81 years old, these are not young people, but as we get older, we do suffer more from hearing loss and people are living longer, which is great, but we need to ensure that they have good lives too.
Now on top of that, also, unfortunately, there are trends in the world that we all know about, but are meaning people are losing their hearing younger. But one of the key areas being headphones, unfortunately, causing hearing loss [in] younger ages.
So, what I’m setting out, is a story where you can clearly see there are trends that are helping the whole sector. Now, what gets me really excited about Amplifon is, a few years back, they introduced their own brand of hearing aids. These hearing aids are far cheaper than the other companies you’ll know out there that manufacture hearing aids. You know, hearing aids can be, can often start at 2-3-4,000 pounds. The basic hearing aid that Amplifon supplies starts at 500 pounds.
Now, interestingly for Amplifon, they can actually make more money on their own brand hearing aid, despite it being cheaper, than they can selling other people’s. So, this trend, within their business, of selling more of their own private label hearing aids is both more inclusionary, because more people can get it – it’s not just the products for the more affluent in the world. You know, anyone can now get a hearing aid and feel more included in society, but it’s also good for the company. And that really highlights what we look for. You know, we’re looking for companies that are both having a positive impact and doing it in a way that we can make some money and the company can make some money.
Great. I mean, it does sound like they’re making it much more accessible. So, let’s turn our attention to the US and the Senate approved the largest single investment in clean energy in the country’s history in August. How do you see the landscape changing with your investment hat on, and what areas might you benefit with that huge US government support?
[05:02] Yeah, I mean, I do genuinely believe this is a huge moment in history if you like, especially when you couple this inflationary Act [Inflation Reduction Act of 2022] with problems that are going on in the world around energy security.
First and foremost, we all know the sad stuff that’s going on in Ukraine. So, when you couple the fact that you’ve got increased energy prices, you’ve had a highlight to us as all a human race, how fragile our energy infrastructure is. All of this oil and gas often comes out of places that aren’t politically stable. There’s no point in sugar coating it any other way, and it isn’t sustainable – forgetting the climate impact for second – you know, the energy security risks that we have today are huge. And that’s what’s caused a lot of the issues that are in the world right now, you know, in terms of the cost-of-living crisis.
So, this Act in the US really is a huge game changer. It’s a game changer across wind, solar, heat pumps, and geothermal, batteries, hydrogen, you name it, this helps push renewables over fossil fuels like we have never seen. The combo [combination] of the two, between actually often today, renewable energy is cheaper now than fossil fuels anyway, but couple that with the subsidies in terms of tax breaks that this Act brings, is massive.
Maybe, if we just highlight one to keep it simple: hydrogen. So, hydrogen, hydrogen is green, which means it comes from sources that aren’t from fossil fuels, it comes from wind and solar and hydro-power or geothermal as the source to create the hydrogen. You can get up to $3 per kilogram of hydrogen that’s produced. Now, to give you a flavour of that, to be competitive with oil, gas, and the hydrogen that’s already produced through fossil fuels, we needed to get a green hydrogen price of about $2 a kilogram. We’re presently at say $5 or $6 a kilogram. So, overnight you’ve literally made green hydrogen cost competitive with what we phrase is grey hydrogen, which is hydrogen that comes from fossil fuels. Now that price of $2 a kilogram for the grey hydrogen was based off the long-term price of natural gas essentially, we all know what’s happening there.
Yeah, not the current price of natural gas, clearly.
[07:42] Not the current price. So, right now today, it will be cheaper often to create green hydrogen over grey hydrogen, even, you know, they’re probably about on the par with each other now, using today’s natural gas price before you put this subsidy in place. Now that this subsidy [is] in place, it’s a complete game changer.
I think about it as, and this isn’t just green hydrogen, but all of these different factors, you had a big boulder at the top of the mountain that needed pushing, and we’ve just pushed it. And once you push that boulder, it’s very difficult to stop it. You know, why would you want to, from an energy security point of view? Even if you don’t believe in anything to do with climate change, you think we should just focus on the money, and it should just be all about that, these products are cheaper today than they ever were, and cheaper than the option that is out there, which is fossil fuels.
So, sticking with the US. We know that generally the US public has a love affair with their cars, and, you know, those sort of mid-size trucks that they tend to drive are big polluters. Do we generally see a runway to electric vehicles in the States, as it appears to be that there is in Europe at the moment, or are we sort of, you know, hoping for the best, but not necessarily going to get there?
[09:09] Well, I mean, the simple answer is we better have, because you know, many of these sort of regulations against selling combustion engines sort of start not long after 2030. So, we’re going to have to find a way, I mean, it is fair. You know, if you compare the UK to the US, the average US driver drives 12,000 miles, and this is just a private driver, and the average driver in the UK drives around 8,000 miles.
So, immediately you can see that there’s clear differences. Now, when you add into that, if you’re talking about SUVs, you are talking in general about a large slug of them being people who work in a trade or work for themselves or work for a big company, and they do often [have to] drive their cars more and they do often have big weights in them. So, definitely it’s more complicated around those big trucks.
Now, as you see in the UK, if you do the school drop off like I do sometimes, I’m not sure everyone [that] is driving a big SUV in the UK, or US, really needs one. I’m not sure all those Range Rovers are really needed in the UK. And I’m probably not sure that the big Toyotas are all needed in the US. So, maybe some people will have to give up on their big truck, but there are certainly people who really need them.
And it’s certainly more complicated for a battery electric vehicle to run for the time and distance it’s needed to, but it’s not impossible. No, I mean, is the simple answer.
Interesting what you’re seeing across some of the manufacturers and what you’re seeing across some of the end users. So, people like Amazon who, you know, obviously, and UPS and all these guys who use lots of trucks, is the kind of blended approach. So, you’ve got things like e-fuels, which is like your biofuels, bio diesel etc., popular. You’ve got battery electric vehicles, and you’ve got some that they’re running off either hydrogen fuel cells, or much more realistically, a combo of hydrogen and battery. You know, I think this is a big, underestimated trend that you’ll see in these trucks and vans, that weight is important and, at the same time, so is the distance you drive. So, you’ll see a combo of batteries, some fuel cells, but not loads, as answers to some of these questions to put people’s mind at rest around range anxiety [not being able to reach your destination], really, which is a key factor.
Thank you, Neil. All very interesting. Maybe then we could just do a quick roundup on a subject close to my heart, which is something that you’ve mentioned at a recent update about new ingredients to make beer. Sounds very important. Tell us a little bit about that, please.
[11:48] It could be, and I’m not sure it’s in a good way. I mean, if we think about it in the quest to try and make the world at large, realise that climate change is here now, it’s not a future generations thing.
You have to understand that some things are going to change quicker than others. And if we keep having these hot summers with lack of rain as the norm, some of the crops we grow today are going to become really expensive.
Maybe it’s impossible to use, you know, traditional barley to make beer. So, there was in 2020, there was a beer company in America that came out with a climate adjusted beer, and it had dandelions in it and it had some other crops that were resistant to climate change, in terms of heat and stuff like that. And they also added into it some smoke-ridden water, because again, you know, the water might taste different in all over America and Australia and Africa if we keep having these bushfires.
So, water scarcity is going to become a problem and getting clean water. So, they were just trying to highlight what a beer [would] taste like in the future if we keep on the present path and it didn’t sell very well, I’ll leave it there.
I mean, jokes aside, it is a problem for wine, it’s a problem for coffee, it’s a problem for drinking water. You know, all these factors. There’s more people in the world today than there was 50 years ago. And by any measure, there’s likely to be more in 50 years than there are today. And some of these resources aren’t getting any bigger. We eat more meat than we ever used to as a race. I think I saw one statistic was, if everyone in the world ate as much as the average American, we’d need five times as many globes as we’ve got today. And that’s before you add in complications around stuff we’re talking about, in terms of change in temperatures that we just don’t know the impacts. But yeah, the point behind it is to try and get people to realise that you could be drinking different beer in your lifetime, which is pretty sad and depressing.
Neil, thank you very much. Let’s end it on that high note [bombshell!] … I think the point you’re making is that we all have to expect some, and in some cases, some substantial change in the way that we go about our lives in the future, so a nice way of crystallising that there at the end.
If you’d like more information on the Artemis Positive Future fund, please do visit fundcalibre.com.
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