Massif Capital: In Carbon Neutral Transition, Some “Green” Stocks Don’t Pass The Sniff Test

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In Carbon Neutral Transition, Some “Green” Stocks Don’t Pass The Sniff Test by Massif Capital

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Q2 2020 hedge fund letters, conferences and more

A Reckoning Maybe On The Way For Many Green Business Models

As governments around the world seek to reduce their carbon footprint, there are no two ways around it: Real asset industries are due for a shakeout. But it’s not just the old-line energy, materials and industrial companies that investors should inspect closely. A reckoning may be on the way for many “green” business models as well.

In a recent Q&A, we discussed the paradigm shift under way for real asset industries, and why many old and new business models deserve scrutiny. An excerpt from the Q&A explains our rationale, and the reason we believe a long/short strategy is the best way to approach real asset investing in this period of great change:

“A long/short strategy also allows us to fully express our views on a paradigm shift transforming real asset industries. Governments’ urgency to address climate risk means dramatic changes for real asset businesses, which are the world’s largest polluters, but also essential to the global economy. We view an economically feasible path toward carbon neutrality as the North Star for our evaluation of real asset business models. Sustainability cannot be considered just an environmental issue; businesses must be sustainable before they can compound. Understanding the path forward for a business in the context of a transition to a low carbon economy is essential to maximizing returns while limiting drawdowns.

Lowering Carbon Footprint

“Some incumbent companies are acting quickly, becoming first movers to innovate and lower their carbon footprint. Others are making only incremental changes, and others are stubbornly refusing to evolve.

“At the other end of the spectrum, some new ‘green’ business models will prove successful, while other companies will look to take advantage of the appetite for green investing with a business model that might be environmentally sustainable but is not economically sustainable. Many of the economically unsustainable business do not work without constant access to capital markets. A significant issue that will result in the permanent loss of capital for investors in many of the newly popular but less nuanced ESG strategies. A long/short strategy is a good avenue to fully invest with an eye toward winners and losers during this critical transition.”