ScopeFour Newsletter

May 31, 2023

Investor Letters

Welcome to the 2nd edition of the ScopeFour Capital newsletter. Here we’ll share opportunities, challenges, musings and silver linings into what is current and relevant at the intersection of climate and capital. We believe the decarbonization trend is a generational investment opportunity akin to the digitization of our economy – it involves electrification, scaling technology, net zero buildings, industrial efficiency, consumer habits and rethinking our global food system.

ScopeFour Capital has six investment themes. Each quarter we’ll focus on one of these critical themes. This quarter, we highlight Clean Technology.

In The News
These recent stories grabbed our attention.

Climate solutions across the renewable energy and electric vehicle space have been big beneficiaries of the climate transition, but what will be the next big winner? BloombergNEF posits that electrification of heat – including required equipment, software, construction, services, and more to generate heat using electricity – will conservatively grow to a $500 billion per year investment opportunity by 2037. Much of this tailwind will be driven by technological innovation and increased demand in the heat pumps market.
Big Data has been called the ‘new oil’. Similar to ‘old oil,’ investors who are able to access and refine data will benefit. For example, one way to solve for the grid’s fragility, is through distributed energy resources (DERs). The ability to identify where to deploy DERS will require massive amounts of analytics and synthesis to account for rates, structures and ultimately asset values.
ChatGPT is all the rage due to its wide-ranging usefulness. It can also be used for buffing up on climate information. A group of European researchers trained this tool using the most recent IPCC report. You can now ask ChatClimate about the where, what and how of climate, and how to mitigate it.
In addition to ChatClimate, The Boston Consulting Group has developed a framework for using AI to address climate in a multidisciplinary way. It spans the gamut from measurement to forecasting. AI can also be used to prevent plastic pollution, cool data centers, reduce electronic waste, control fertilizer use and prevent wild fires.

So how is Clean Tech implemented in ScopeFour’s Portfolio?

Clean Technology doesn’t always translate to AI or big data. Sometimes the implementation of and scaling of technology we already have is equally, if not more impactful. While some of our companies are on the forefront of technology like using drones for afforestation, many are centered around energy efficiency and scheduling. This approach is both a scalable approach to emission reduction and a viable to way invest in proven technologies that lead to revenue growth and stock price appreciation.

Companies in our Clean Tech theme contribute to decarbonization by producing and distributing controllers, sensors, software, hardware and also consult on the growing application of the aforementioned technology. Buildings, as an example, account for 27% of energy emissions. As building standards and codes increase, there will be an increase in retrofitting buildings to lower emissions. In the United States alone, the government’s central purchaser is already beginning to allocate $3.4B received under the climate law to building efficiency projects.

Some of the specific portfolio companies that will benefit from these tailwinds include, Lennox, a U.S.-based company that provides energy efficient HVAC systems; Schneider Electric, a French company that specializes in digital automation using controllers, switches and sensors; Carlisle, a U.S.-based company that provides roofing and weatherproofing solutions; Azbil, a Japanese company that retrofits older buildings for increased energy efficiency; and Irish-domiciled Accenture, which offers consulting solutions to optimize a building’s entire energy ecosystem.

Check out our 2-pager for more information on the opportunity in Clean Technology

Thanks for sharing our enthusiasm for mitigating climate change while generating attractive, long-term risk adjusted returns.

Yours,
The ScopeFour Capital Team

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