William Page, Senior Portfolio Manager
Essex Global Environmental Opportunities Strategy (GEOS)
For background: I manage a global, listed-equity clean technology strategy, GEOS, and have been focused on thematic investing to climate solutions for over 10 years, after 20 years of ESG-focused investing. I found the paper by Ryan Cook quite interesting and insightful, as I have never heard of Blue Carbon (BC). Therein may lie the challenge. BC may be too esoteric—too much at the periphery of environmental investing—to garner asset owner attention. This should not be the case, however, since Mr. Cook’s convincing thesis supports BC as an asset class, given the impressive carbon sink richness of the coasts when compared to more terrestrial carbon sink methods.
Paper and Methodology
In the discussion of responsible investment, the reference to ESG NGO signatories can be misleading, because ESG assets under management/advisement generally include negative-screened ESG assets, or listed-equity sustainability funds. These assets tend to be large-cap and listed-equity in nature, and tend to track ESG investment strategies that hold companies exhibiting strong ESG corporate behavior, and not companies with services or technologies that are solving environmental and climate degradation. The latter case is thematic and solutions-oriented—true sustainable solutions that can include clean tech and direct environmental solutions such as BC.
I believe the ESG industry needs to place more emphasis on moving the case for climate change solutions well beyond ESG behavior to direct investment in solutions. There is a strong degree of cognitive dissonance among asset owners and their advisors in this regard. Owners and advisors hesitate to invest in solution-oriented environmental investment offerings that do not align well with historical, classical methodologies such as asset-allocation assessment. I believe this is the primary reason that BC did not resonate as a prioritized investment strategy in Mr. Cook’s study. This issue is reflected in the reference to the UN Principles of Responsible Investment (PRI). While asset owners and their advisors are joining NGO initiatives such as the UN PRI, little is being done to truly move the needle beyond ESG risk assessment to investing in intentional climate solutions. Thus, I believe the asset values of the signatories of efforts such as the UN PRI misrepresent asset owner intent in truly solving and abating climate change.
As far as the methodology of this study is concerned, I believe the market research effort was strong and rigorous. I did wonder how the sample population of Australian respondents was determined and uncovered. As the author mentioned, a broader sample outside of Australia may have led to greater confidence, yet I believe it would not generally change the conclusion since Australia is an established, mature capital market, with long-standing environmental investment disciplines.
I was struck by the 93% of respondents who reported having invested in the past in an environmentally themed initiative. An interesting follow-up would be getting more detail on the nature of these investments, and why the asset owners were comfortable with such investments. What were the terms for investment, and the nature of the asset classes? Was it merely ESG investing, or more solutions-oriented? Another interesting perspective would be describing the social media context of BC. A quick look on Twitter showed little BC content, which is consistent with the study’s conclusions that BC awareness is very limited.
It is clear from this thesis that blue carbon is a relevant solution for climate change, and investors with interest in climate should review BC investment options. An effort to raise awareness of BC, from academia to the investment industry, is necessary in order to create the case for investment and design investment options and offerings.
I would recommend involving NGOs and affinity groups to drive awareness and education in BC. For a good example of successful environmental campaigns, look to the ocean plastic efforts of the past few years. In very little time, strong public relations and media content has centered worldwide awareness and action on ocean plastics. While BC is more esoteric and less tangible, a solid and simple campaign centered on BC as a sequestration solution would be effective. Through public information, the parallels of BC should be drawn to climate change, carbon abatement, and seacoast storm mitigation and coastal climate adaptation. Research and messaging of the ancillary benefits of BC could catalyze asset owner interest. I would also recommend alignment with NGOs and academic institutions that have interest in climate change mitigation and coastal preservation. One such effort that comes to mind is the SSPEED Center at Rice University in Houston (https://www.sspeed.rice.edu/).
As an educational campaign for BC is undertaken, a simple scientific description should include why BC is more effective than terrestrial plants at sequestering carbon. A media effort coupled with NGO involvement speaking to the benefits of BC should then be supplemented with investor offerings in direct mitigation projects, with aggregation in mind for inclusion in green bond and impact offerings.
Thank you for the opportunity to learn about an important and evolving carbon-abatement method.