An investment that will pay dividends for decades, if not centuries
It’s not among the big banks, large-cap mining companies or highest-quality stocks in the world where you’ll find the best long-term opportunities.
Australia as a whole, and the individuals who make up the nation, will derive the greatest benefits from investing billions – maybe even hundreds of billions of dollars – in building a modern power grid. So says Ian Simm, founder and CEO of Impax Asset Management.
The specialist fund manager focuses on opportunities arising from the transition toward what is now commonly described as a net zero carbon economy.
Simm founded the company around 25 years ago, and as he explains in the following interview, his ambition to create the business has its roots in an unlikely venture he undertook while in his early 20s.
What was it? A 27-day trip undertaken by Simm and a team of like-minded individuals hellbent on completing a record-breaking 2,000km summer trip across the Sahara – on a tandem bicycle.
“I learnt … that if I had an idea for a project and it was ambitious and I put my mind to it, that I could succeed,” Simm says.
He believes this fostered leadership skills and the tenacity to take an entrepreneurial venture from start to finish, a drive that helped propel Simm and his team at Impax to where they are today.
In the following interview, Simm explains what he regards as the biggest issues in the net-zero movement currently. He also outlines where various nations, including Australia, are positioned in the transition to a sustainable global economy; and what needs to change here for Australia to take a leading role.
Note: This video was recorded on 28th February 2023. You can watch the video or read an edited transcript below.
I'm Ian Simm, the founder and chief executive of Impax Asset Management, which is based in London but has offices around the world.
What is one thing very few people know about you?
When I was in my early 20s – back in the late 1980s – I put together and completed, with my team, an expedition to complete the first summer crossing of the Sahara Desert by tandem bicycle.
The largest desert in the world, the summer temperatures in the Sahara reach nearly 50 degrees centigrade. It's 2,000 kilometres from north to south, and about 40% of that distance has no road at all, so it's particularly difficult to cycle across.
Now, when we did this expedition in the late 1980s, we found out that the desert had been previously crossed by tandem bicycle but in the winter. It had never been crossed by tandem bicycle in the summer, so that's what we set out to do.
The 27-day trip was a gruelling experience, but we got there in the end and set a record for doing that.
How did that experience shape who you are today?
What I learnt in the course of that two-year experience was that, if I had an idea for a project and it was ambitious and I put my mind to it, I could succeed.
And we managed to raise about AU$350,000 to support the logistics for the trip. And we also did some scientific fieldwork when we got to the other end of the Sahara. So, that gave us, if you like, an altruistic purpose for the expedition.
I also learned a lot about leadership, about taking an entrepreneurial venture from start to finish. That set me on my way to starting a company 25 years ago, Impax Asset Management, and following it through for a long period of time to where it is today.
What other boards do you sit on?
In addition to my work at Impax, I sit on a number of external boards.
The first of those is the UK Government's Net-Zero Innovation Board, which brings together the chief scientific advisers from the major departments plus three independent members, and is the main debating area for how the UK government can accelerate innovation around the net-zero transition and use public sector funding as efficiently as possible.
Secondly, I'm on the board of the Institutional Investors Group on Climate Change. This organisation brings together asset owners and asset managers who are working on policy representation and bringing ideas back to the government, also trying to agree on standards amongst themselves.
And the third one is the Confederation of British Industry’s Decarbonisation Board, which is the main industry policy group. The members of that group – across oil, gas, renewables, and power utilities in the grid – come together to try and agree on policy positions they can then reflect back to the government.
What are the big issues you are hearing at the coalface?
What's critical in these policy debates at the moment are issues like how can governments best support the development of the power grid. Moving from fossil fuel-based energy, which is typically centralised, to a more decentralised power system with, for example, solar panels or small wind farms producing power in remote parts of the system. It's quite a challenge to develop the grid so that these more decentralised sources of energy can be integrated into the system.
As we move towards much more adoption of electric vehicles, then consumers are going to have the ability to provide storage as a service, if you like, back to the power grid. So it requires quite a lot of investment in control and instrumentation in data services, providing policy for the right price signals. So that's a major theme.
Another major theme, particularly in Europe, is the efficiency with which buildings are managing energy. We have quite a cold climate in Europe in the winter, and so buildings are typically not constructed to be draught-proof. A retrofit program is required to improve energy efficiency, both to stop the leakage of heat but also to substitute the natural gas used for the primary heating supply with a low-carbon form of heat. For example, by using air source heat pumps, and having an electricity-based heating system.
Which countries are leading the pack?
One of the fascinating things about this transition to a sustainable economy is that there's no one country that is streets ahead or leading the pack. Many different countries are making different contributions.
So, for example, in Denmark, you've got the home of the world's leading wind turbine manufacturers.
China is typically the market leader in solar panel manufacture.
In Australia, I think you're in a fabulous position here because of your enormous natural resources, both in terms of the land that's available, and the sunshine, which is a fabulous foundation for a massive solar power industry. There's also your almost unparalleled access to rare earth minerals, which are crucial for this clean energy transition, alongside battery metals lithium and nickel, for example.
Australia has the opportunity to be the supplier of the key ingredients, if you like, for the clean energy transition, way up at the start of the value chain.
What needs to change for Australia to become an electrification and decarbonisation leader?
Well, I think in Australia you now have a political climate that seems to be very supportive of accelerating policy to address climate change,
And of course, with the terrible weather-related issues in the last few years, particularly in 2022 and going into 2023, it's very much front and centre of Australian citizens' concerns around where the weather trajectory is going and what's behind it.
So, I think that political consensus around being an early mover and a fast mover in climate risk mitigation on the one hand, but also perhaps ensuring that you seize the ground for leadership in these new industries, Australia's really well-placed.
One of the key things that I think needs to happen here, as it does in the UK and many other countries, is a clear trajectory around the development of the power grid.
I think Australia is a very strong case in point that the resources, particularly around solar and wind energy, are a long way from the points of consumption.
So, finding a way to structure the power sector so that the grid entity can attract low-cost capital from the private sector, billions if not hundreds of billions of dollars required to extend the grid - that will be an investment that will pay dividends for decades, if not centuries to come.
Finding a smart way to regulate that transformation is right at the heart of the conundrum here in Australia.
National markets attract inbound investment and innovation, which can then lead to export markets. So, I'd really encourage the Australian government to do as much as it can to create viable clean energy markets here.
If that capital can be deployed, maybe initially with the importing of equipment, that will lead to innovative domestic companies that ultimately can then rise to the top of the pack, if you like, in terms of their products and services. They'll get their costs down because they've got scale, and will rapidly lead to export opportunities. Of course, that then leads to a great balance of payment benefits, and lots of local jobs.
Impax offer a range of investment solutions, which provide opportunities to invest in the transition to a more sustainable economy. Each is underpinned by proven, proprietary investment tools. To learn more, visit their fund profile or website.
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