An American-born, German-raised investor married to a Russian ecologist with links to global environmental initiatives, Jochen Wermuth is the definition of a planet-first entrepreneur.
Serving on the steering committees of the 100% Impact family office network and the Europeans for DivestInvest investor association, founder and chief investment officer of German family office and investment advisory firm Wermuth Asset Management, member of the investment committee for the €24 billion Energy Transition Fund and lifelong supporter of Greenpeace, his commitment to sustainable growth and renewable energy makes him a voice that needs to be heard.
Ahead of chairing the ClimateTech Investing Forum 2022 – a cutting-edge event linking innovative companies with family offices and family foundations held in Lausanne, Switzerland, on December 6 and 7 – Wermuth talks about doing well and doing good, long-term vision and the future of impact investing.
Questions of how cutting-edge technology and innovative creations can help fight the climate crisis loom large at the ClimateTech Investing Forum this year. As the chair of the event and founder and chief investment officer of Wermuth Asset Management, what are you hoping to get out of the forum?
As entrepreneurial family offices, we must invest in our future and the Occident’s competitiveness if we want to be able to defend our values. It is up to us to lead more slow-moving asset managers to start closing the €2.9 trillion global climate finance gap.
Climate change is “The human rights issue of our time,” said Desmond Tutu. But, thanks to a self-reinforcing green industrial revolution, it’s ever more profitable to invest with positive impact.
However, fossil fuel lobbies, slow-moving policy makers and conservative asset managers who prefer to lose their shirt rather than do something different from the crowd means we may not survive as a species unless we, as individuals and family offices, take action.
To invest in the middle of a global climate crisis offers the best possible returns and the opportunities on the other side are amazing: For example, with an investment equal to just one year’s worth of fossil fuel import costs, the EU can build a 100% renewable power system. This would not only get us through the dark winter periods but, for the rest of the year, we will have about five times more power capacity than we need and we will be getting, in essence, power for free.
The country or region controlling the cheapest form of energy tends to become a global power. The steam-engine led to the British Empire; the combustion engine and oil and gas led to the USSR and USA becoming superpowers; and today, 95% of the cheapest forms of energy systems, wind and solar, are being produced by China… We need to take back control over key technologies in these areas.
“Today, the challenge is to move more capital from divestment to investment in climate solutions.”
You served on the steering committees of TONIIC’s 100% Impact family office network and the Europeans for DivestInvest investor association - and have been a supporter of Greenpeace since 1992 - when in your career did you learn that doing well and doing good could go hand in hand?
I saw people dying of cancer due to the Chernobyl disaster as a young boy. When I looked at people also getting sick due to pollution from oil spills and combustion engine cars, it became clear to me that I did not want to be investing in fossil fuels anymore. We built the global DivestInvest movement on a moral basis initially. We had early backing from the Rockefeller, Sainsbury and Brenninkmeijer families, as well as famous names like Leonardo di Caprio and Desmond Tutu.
However, in the winter before COP21 in Paris, the Dubai Water and Electricity Authority (DEWA) built a solar power plant at a cost of €2 cent/kWh of output. They also calculated at what price per barrel of oil they would have been sorry to have made this investment and figured out that oil would only be competitive to a solar power plant at $4/barrel, while the lifting costs on most places around the world are above $30, in the north sea $60 etc… It therefore became clear that renewables are simply the cheapest form of energy today.
As a result, the commitments to divest went up from $50 billion to our target of $150 billion prior to Paris and then on to $300 billion. Today, the tally stands in excess of $30,000 billion ($3 trillion) committed to divest from fossil fuels.
Today, the challenge is to move more capital from divestment to investment in climate solutions. The Global Impact Investment Network (GIIN’s) family office pendant TONIIC thus has a “One hundred percenter” sub-club of families committed to invest all of their assets across all asset classes with positive impact.
Wermuth Asset Management GmbH primarily advises your own family office, but it is also licensed to provide investment advice to third parties. You pursue long/short equity strategies excluding fossil fuels on the long side and venture investment strategies via your Green Growth Funds, can you share something about them?
On the venture side, our aim is to invest in “Exponential organisations”, as defined by Singularity University - i.e. companies that can address a major challenge to humanity profitably and grow exponentially. In our case, the focus is on climate change reversal.
One of our key assets is The Mobility House (TMH) in Munich, which is developing towards the global platform (just as Google and Amazon are in their respective sectors) for the monetisation of electric vehicle batteries. Using bi-directional charging station, a car can be used as a grid-stabilisation and storage services provider. Fleets of electric vehicles therefore provides what the renewable energy system lacks. This can generate €1,000 of income per vehicle and year or €10,000 over a decade. So, a cheap electric vehicle could pay for itself over time or a producer could hand out electric cars for free as long as users are committed to plug them in when not driving. This is about to explode the spread of electric vehicles and renewables. It is an example of how transitions in the energy and transport sector re-enforce each other to drive the green industrial revolution forward.
Another key asset is NexWafe, which has technologies to produce solar wafers directly through deposition of silicon steam on a mother wafer, saving many production steps, reducing material loss by 95%, energy and CO2 footprint by 70% and producing wafers not just at 50% of the cost of Chinese competitors, but also super-thin wafers which, going forward, have the potential of being integrated into next-generation solar cells and modules with significantly higher efficiency. With this technology, a fully self-sufficient and highly competitive European or US solar wafer, cell and module production industry is possible again.
Finally, we have Solar Foundry, which has plans to put to together the latest solar-cell and solar-module technologies to be able to produce competitive solar systems in Europe. We are raising some working capital of €5 million now and will raise €250 million in private equity to set up a 5GWp production line for €1.1 billion, expected to produce €350 million of EBITDA, with the German government offering to guarantee 80% of any debt funding. It is led by Peter Pauli, the former chairman of NexWafe and former CEO of Meyer Burger, previously a global leader in supplying solar manufacturing equipment. The 5GWp units are expected to be scaled up to larger units in various locations globally. While today 95% of solar panels come from China, given that global solar manufacturing capacity is around 200GWp today, but we need to reach some 6000 GWp globally to reach our 100% renewable energy system, there is a chance here for Europe and the US to become major players in this market again and thus have access to the cheapest form of energy.
“Impact means doing something above and beyond what you would have done anyway.”
As the founder and chief investment officer of Wermuth Asset Management, a German family office and investment advisory firm committed to sustainable investments, do you feel that ultra-high-net-worth individuals and family offices increasingly have both the means and mindset to invest sustainably and responsibly?
From my understanding of family and family businesses who think about passing assets and values to the next generation, they are natural long-term investors and, as such, are natural sustainable or impact investors.
I believe it is becoming increasingly clear to intelligent long-term investors, that impact investing is not some ‘Nice to have’, but that it is about both positive impact and positive above-market investment returns, certainly over the long-term, because eventually both positive externalities and negative externalities will reflect on the performance of an investment. Therefore, to ignore impact investing is simply irresponsible speculation.
I also believe doing business with trusted individuals or relatives has the advantage that honesty is a very important value and one is less likely to be cheated by some sales guy. I was frankly shocked by the Volkswagen Diesel scandal. I am even more shocked by Allianz Investment Management, which offers a ‘Coal-free fund’ in which one of the largest positions is Germany’s biggest coal producer and open-pit-miner, RWE. How is that possible? Allianz simply defined ‘Coal-free’ as any company with less than 30% revenue from coal. Even after the German TV channel ARD did a whole documentary on this subject, they changed little and now say “No more than 25% of revenue from coal”. That is like selling alcohol-free beer with 25% alcohol!
Allianz also manages to lead both the global “Net Zero Asset Owner Alliance” and insurance and funding of coal investments in Africa. Deutsche Bank has a new hashtag “Positive impact” and they mean funding for land-mines and coal companies…
The ESG or Principles for Responsible Investment “PRI” movement now has some €140 trillion in asset owners committed to it, but there is no control over its own self-reporting.
I am confident that family offices and any upright citizen will take action to move from ESG / PRI to true impact investing and to making sure that full impact reporting will be the new standard.
It is important to note that impact means doing something above and beyond what you would have done anyway. Only those who take the entrepreneurial risk of investing in the development of new renewable energy plants or in afforestation or similar can take credit for having a positive impact. I am confident family offices will understand and embrace impact investing first.
What would you advise to family offices looking to get into ClimateTech investing but don’t know where to start?
Great resources are the RethinkX studies by Tony Seba of Stanford University and Jamie Arbib. They provide a clear vision of the new world post the green industrial revolution. Also, the Project Drawdown study is great. It provides an overview of the top 100 technologies that can reverse the climate crisis and actually draw-down CO2 from the atmosphere.
What will the impact investment landscape look like in ten years?
Just like Sir Ronald Cohen, head of the G20 Impact Investing Task Force, I am certain that even much earlier than ten years – possibly as early as 2024 – company accounts will no longer be signed off without a clear statement as to the impact caused by that company.
Just as it was unthinkable to have international financial reporting standards (IFRS) prior to the great depression, they became standard thereafter. Similarly, the International Sustainable Standards Board (ISSB) is likely to add proper impact accounting to the IFRS standards very soon from its new headquarters in Frankfurt in Germany.
In ten years’ time, there will not be an investment or an investment professional who is not aware of the externalities – positive and negative – of its investments.
Jochen Wermuth will chair Campden Wealth’s ClimateTech Investing Forum 2022in Lausanne, Switzerland, on December 6 and 7.
For more information and to book a place, visit www.climatetechinvesting.com.
To participate, email Anton Paul via email@example.com.