1. Tell us about what you do at Galvanize Climate Solutions.
I am a Portfolio Manager and the Head of Engagement at Galvanize Global Equities (“GGE”), which is the public investment arm of Galvanize Climate Solutions. As the Head of Engagement, I am responsible for developing the frameworks and processes that guide our engagement with portfolio companies. We want to be thoughtful partners to our companies and value-added owners that can be useful for management as they look to accelerate their transition journeys; while each situation is unique and requires a lot of bespoke research, we want to drive the adoption of best-practices across companies and industries.
One of the things that we believe makes GGE unique relative to other public market investors that are focused on climate is that at GGE the same team that underwrites the fundamentals of an investment also works on climate engagement; we view climate as intertwined with (and leading to) value creation at our portfolio companies. We think this alignment fundamentally changes the nature of the relationship with the company and improves the quality of the dialogue we have with management. We are investors and owners who believe a focus on the transition is in the best interest of our companies.
2. Why did you choose to join Galvanize?
It felt really obvious and came down to three items that were all self-reinforcing.
The first was the chance to spend the next years working on an incredibly powerful secular opportunity. In public market investing, there is a temptation to think very short term and react to near term change. But if you step back, the most interesting and compelling investments are made when you identify a large secular trend–a nonlinear change in the economy– and invest behind that. It is clear that the energy transition is one such phenomenon. In some sense, in terms of the quantum and the breadth of it, it is really unparalleled since the Industrial Revolution.
The second is that I believe the impact approach we have — the manner in which we engage with companies to try and accelerate their transition journey — is really robust. It is unique to have an engagement hypothesis where you can benefit the company in the long term, and where you believe you can direct capital and management focus towards something which can improve financial returns, reduce major risks to the company, and that will benefit all stakeholders in the long term.
The third is the caliber of the team that had been assembled at GGE and at Galvanize more broadly. You don’t get many opportunities in your career to join a high caliber cast at the early stage of an organization’s development and be part of something that feels important and obvious.
3a. What is the Galvanize Global Equities team’s approach to engagement?
We think about our engagement approach in three ways.
The first, what we call Tier 1 engagement, focuses on the measurement, target and disclosure of a company’s climate footprint. I believe every company we have spoken to accepts that this is an important part of risk management, and yet there remains a lot of work to be done for many companies to have performed this analysis in a robust, thorough, and scientifically verifiable manner.
Tier 2 engagement is where we work with companies on a specific theme that we believe is particularly urgent to their company’s Transition journey—these are themes that cut across companies, sectors and industries. Today, we are focused on aligning executive compensation to a company’s declared climate goals. We think this is a key requirement for these goals to be credible, and for them to be consistent with maximizing value creation for shareholders in the long term.
Our third tier of engagement is what we call “value-added ownership.” Our view is that, as a climate-focused firm, holistically focused on this single theme, we can be useful partners for our companies to help them think through, problem solve and innovate on their energy transition journey. We want to help companies build their networks within or across industries and across the public and private markets, as well as with policy experts, scientists, and other thought leaders, so that they can discuss, brainstorm and collaborate on the work they’re doing around the energy transition. In some senses, this change is still at an early enough stage that there is value to be created by helping transcend silos and facilitate cross fertilization of ideas. As a shareholder, we can help do this with a clear, aligned agenda.
3b. What specifically does this type of engagement require?
When you engage with a company, public or private, my experience has been that while companies know their businesses incredibly well, they are also very receptive to thought partners who have meaningful content and domain expertise. Our methodology is to engage from a place of humility. That is, first, knowing that they know their businesses better than anyone else can or will. And second, to offer value as partners by sharing our expertise on the technical, regulatory and commercial aspects of the energy transition. We want to be advocates for the company with regards to climate and work with all stakeholders and interested parties at the company to try and drive change around climate.
We believe content is the crucial prerequisite for doing this successfully; showing up with intention or emotion or just conviction is not sufficient. We believe the way you can advance the conversation is to have research and analysis that is germane to the company specifically, and use that to accelerate the discussion around the value proposition of accelerating their transition work.
It is really important that as we approach these companies we demonstrate – through our structure, our research and our work — that we are not an oppositional advocacy entity, but rather, owners of their stock whose ultimate objective is creating value for the company, and to that end, are aligned with what management is working to do everyday.
4. What are some of the benefits of working in a multi-strategy firm with an integrated platform solely focused on climate?
Over the course of my career I have found that the cross pollination of ideas is an incredibly important part of the discovery process essential to good investing, and it has always been valuable to spend the time to research and explore beyond what is immediately in front of me. So much of what is going to happen around capturing the value created by the energy transition is going to be happening concurrently – the playbook hasn’t really been written. People think we’ve been focused on this subject for 20 years, but I think the reality is we are in the early days of how the global economy will change through this restructuring. Having the cross pollination across the different strategies at Galvanize, and daisy chaining from some of the concepts that our venture and growth, real estate, science and technology, and regulatory affairs teams are seeing is hugely powerful. It gives us real world knowledge and insights from multiple angles. The magic moment is when a clear or recurrent pattern emerges across all these different perspectives; those obvious investment theses are often the best, the most resilient.
With GGE, many of the companies we’re looking at partnering with have been investing behind this phenomenon for 10, 15 to 20 years. And for many, now is when they are finally becoming commercially relevant or are seeing the acceleration in these businesses– we think many winners are simply hiding in plain sight. So, to be able to assess this embedded value and identify the seeds that have been planted, I think we need to be able to take a highly integrated approach and have a broad perspective.
5. What do you think others are missing when it comes to investing in the energy transition?
It’s two things. One, from a broader perspective, is the enormous investment opportunity in the public markets created by the massive secular change from the transition. According to the CDP, approximately 80% of non-government emissions come from companies in the public market. This not only shows the source of where the bulk of the problem lies, but it also shows where the opportunity lies as well. Given that public markets tend to have a short-term focus, and the energy transition is long-term change, we believe this creates a major inefficiency that leads to an opportunity to invest at a discount in big, obvious secular change.
The second aspect that’s really compelling is, to date, a lot of public market investing around the energy transition has been focused on either clean technology, infrastructure or what is essentially “do no harm portfolios”. What is exciting now is that the rate of change is accelerating, and so we have the opportunity to build a portfolio of companies that will be major beneficiaries of the energy transition across a broad set of industries.
6. What trends are you paying attention to this year in terms of public markets and climate investment?
First, there are a bunch of companies – we call them the Improvers – that have historically been seen as cyclical companies or “old world” industrial companies. But in fact, these companies (these are the “hiding in plain sight” companies) have incredible climate-aligned technologies or business units embedded within them that are poised to scale.
Second, there is a convergence between the energy transition companies and those that address the emerging strategic and geopolitical imperatives. There is a broad realization that the need to drive industrial policy, certainty, and security is directly aligned with accelerating the energy transition in the United States and in Europe. This, to some extent, is responsible for the Inflation Reduction Act, and is going to be an important tailwind.
The third is the continued increase in climate alignment within corporate governance, driven by shareholders and boards. Over the next few years, we believe companies will be showing that they are prepared to make meaningful changes to how they operate and how they increase the amount of disclosure, how they think about their executive compensation and aligning incentives, and that their commitments are credible.