Since writing Finding Silver Linings in the PG&E Bankruptcy last week, I have borne the brunt of one of my conclusions; namely, that the seemingly endless stream of bad news related to the effects of climate change is spurring industry innovation to help mitigate and adapt to it.
I say that I have borne the brunt of this effect because, as I write this, I am surrounded by piles of presentations from start-ups and listed companies that are trying to pitch me on how their solution will help. I barely have enough hours in the day to read everything I’m being sent!
In my article Winning at Climate Change Investing, I broke down the different technology stages for companies involved in this business into Evolutionary Applications, Novel Adaptations, and Revolutionary Developments. I have written about a company that I believe to be just on the cusp between a Novel Adaptation and a Revolutionary Development: Carbon Engineering. Today, I wanted to focus my attention on a few companies in the Evolutionary Application category.
These are companies that are improving present products or processes to allow current systems to operate more efficiently.
One company at which I have been looking is Shiloh Industries SHLO. This is a small-cap name that focuses on material sciences and design changes to specialize in creating strong, lightweight auto components. While this may not strike you as a climate change related business, by decreasing the weight of automobiles, fuel-efficiency is improved for gas-powered vehicles and range increases for electric ones.
Another example of an Evolutionary Application firm doing good work is a small, private company I just learned about that makes an improved version of something known as plastic mulch for traditionally-grown agricultural operations. Mulch film helps trap water in the soil — especially important as higher ambient temperatures create drier soil — and protect from weeds that would otherwise be managed through carbon-intensive herbicide application. Apparently, the company’s mulch films, while not biodegradable, can be broken down and recycled into fuel, and also have other characteristics that make them attractive to farmers.
Another company in which I’ve been interested lately is the German spin-out from Siemens’ semiconductor business called OSRAM Licht AG OSAGY. OSRAM is the second-largest producer of LED behind Japanese company Nichia, whose most important revenue source is its line of LEDs and sensors for the automotive industry.
The part of OSRAM in which I am most interested, however, is its specialty LEDs, which are being used in vertical farming applications, such as those explained in my articles Agriculture is Broken; AgTech Can Fix It and AgTech: A Great Investment for the Future.
There are still quite a few kinks to be worked out with vertical farming before it starts making money for investors, but successful vertical farms and those that are ultimately unsuccessful alike will need LED lamps.
In the mind of an option expert, OSRAM’s specialty LED business might be viewed as kind of a real call option; an investor pays a little for its current book of business, but with that small outlay, gains access to a large future upside as vertical farming becomes de rigueur.
The last company that I’ll mention is one with whose executives I’ll be speaking with next week and which I may write a longer article about soon. It is a private firm that provides concentrated solar installations that presently aid in Enhanced Oil Recovery (EOR) in oil fields, and which look like they might be applied to other uses, such as mini-grids, as well.
Two of these companies are small caps; two are private. As such, they might not appeal to or be accessible to all retail investors. That said, the opportunities exist, and the number seems to me to be expanding rapidly.
There are also businesses that are working on Evolutionary Applications embedded within very large cap companies. These are businesses that a clever private equity investor might be able to carve out and profit from as a standalone company.
While all the opportunities leave me with too little down time, it is good news for intelligent investors. Investing in a new paradigm is the only way to build and maintain intergenerational wealth in the years to come. This is where I am focusing my attention and where I think you should be focusing yours!