The Last Word: Higher returns, lower emissions

Before the Trump administration reversed a plan to aggressively regulate coal plant emissions, coal had already lost its role as the US’s number one energy source to natural gas and other alternatives. Clean energy and infrastructure have garnered a sizable and growing investment from private funds like Vision Ridge Partners, which finds opportunities by navigating public policy as well as economics. 

Q Vision Ridge is currently deploying from its sustainable asset fund, which closed on $430 million in 2014. What type of investments do you generally make?

We are looking for our capital to meet three criteria – a target return range competitive with private equity, an asset orientation, and positive environmental impact – or we won’t do it. We are not investing ‘concessionary capital’ or investments below market returns because the projects do good. Our goal is to do deployments where we can make a lot of money for LPs and do good for the planet. The projects include sustainable agriculture and energy efficiency, solar and wind, transportation, water projects, etc. We are not making venture debt investments,but we are otherwise ecumenical as far as a structuring basis. We have done equity and mezzanine debt and all sorts of other structures.

Q Is having a social mission within the investment strategy becoming more common?

In general, there aren’t a lot of value investment firms doing what we are doing, which is seeking private-equity like returns that are real asset based and trying to positively impact the climate. That said, there has been a broader push for ESG investing, primarily coming from corporations, family offices, endowments.But it’s not just making people feel good,because in a lot of ways, this interest is driven by the need for resource efficiency too. Doing power generation, transportation, and water in a sustainable way is better economically and environmentally sustainable.

Q So what does a director of policy at a private investment firm do?

If you don’t understand how policy regimes are impacting a particular investment, then you may not understand the core value. So if somebody brings us a deal, I’m not going to say, ‘Solar is going to go up to X dollars.’ But what I can say is if the value is subject to risk of policy changes, etc. My job is to bring a policy lens to the deal table. And in general, our team welcomes me and others as a ‘black hat’, or the person that is going to push the deal team lead and be a thorn in their side when everyone agrees.

Q How will the Trump administration’s reversal of the Clean Power Plan affect the value of Vision Ridge investments?

When we looked at our portfolio, we saw that most of Vision Ridge exposures to policy are on a state level. So even though there may be things in Trump’s agenda that are bad for the environment, this should be okay for us and might even be good where opacity in the market lends itself to mispricing.

Q How will this reversal affect investment in sustainable energy in the US?

I would say that the administration can’t stop economics, and economics have been driving clean energy deployment.
And as far as this particular decision, the administration is still required to figure out how they are going to regulate carbon emissions. So legally, the Environmental Protection Agency still has to come up with a plan for that. The fact that now the government will take a longer period of time to figure out how to regulate carbon, that’s something that is not necessarily going to be helpful to move forward with clean energy, but won’t stop the underlying economics.