“The opportunity is clear. Governments are mandating investment in these areas. Companies are moving towards that,” says Shawn Reynolds, Portfolio Manager for VanEck’s Global Resource Fund GHAAX and Environmental Sustainability Fund ENVAX, VanEck.
So what impact will government intervention have on the resource transition? And what are some of the biggest opportunities and risks? That was one of the many topics discussed during TheStreet’s Investor Playbook: The Resource Transition, hosted by Susan McGinnis, which includes an all-star team of portfolio managers and analysts.
- Shawn Reynolds, Portfolio Manager for VanEck’s Global Resource Fund GHAAX and Environmental Sustainability Fund ENVAX, VanEck
- Ammar James, Deputy Portfolio Manager, and Analyst, focused on agriculture, paper, and forest, VanEck
- Veronica Zhang, Deputy Portfolio Manager, and Analyst, focused on renewable energy, VanEck
- Charl Malan, the Senior Analyst, focused on minerals and metals, VanEck
Editor’s note. The webinar was recorded on December 22, 2021.
Video Transcript Below
Shawn Reynolds: I really do want to almost harp on the point that companies are doing it because governments are funneling capital that way or demanding that you funnel capital that way. But some industries and companies are doing this because it’s good for themselves. It’s good for their investors. So that’s really critical and we always use this term, sustainability requires sustainability, which means if you want to make a long-term sustainable impact on the environment, you better have a sustainable business model. So that’s important.
But the government involvement part, if you think about it here in the U.S., it’s really based right now on electric vehicles, but it has to broaden from there. You only have to look at Europe and they’re a few years ahead of the United States. But they’re broadening well beyond power generation and automobile transportation. Looking at all sorts of things from the Ag front to battery supply chain, to industrial processes and trying to decarbonize those.
The risk to the whole thing is that governments sometimes don’t always make clear policy choices or sometimes they flip-flop on those. We don’t have to look much further than California, which has a mandate that every new build single-family home in California has to be wired for solar. That’s great for the solar industry and for the solar panel developers.
Very recently, the California Public Utilities Commission discussed some new regulations that will be a little bit more punitive to those who have solar power and how they interact with utilities and sell their power back into the grid. And that’s been very, very negative for the equities just very, very recently.
Veronica Zhang: California being the leader in EV adoption in the U.S., solar adoption, the fact that they put out a policy that was a little bit more beneficial to utilities and to non-solar supporters was actually a little bit surprising. But if you zoom out of all that, it just kind of dives a little bit more into the tug of war that’s going on in the sense that everyone thinks that we should be focused a little bit more on a greener economy, renewable resources, bettering the planet, reducing greenhouse gas emissions, right? So everyone is on board, presumably with that bigger, loftier goal. The way to get there is very, very staggered.
For utilities, for the longest period of time, they’ve been losing money. They’ve been losing money while, to put it very, very simply, solar customers have come in and basically used the grid. They control the grid. They have to go in there and pay the transmission and distribution fees to maintain a grid. And this grid is 40 years old. So it’s not really a very nimble network that’s easily used and adaptable to new sorts of technologies. So they’re here basically trying to put the wires together and trying to get the grid to function. And meanwhile, you have in their view, solar customers who are coming in and just basically using a free asset. So to them, they want the money back for that. They want to be paid for that.
And at the same time, you have the push from the government that’s kind of saying like, we need to recharge the grid. We need to make infrastructure changes. We need to have more EVs. All of the stuff just pushes us towards, I think, a bigger, bigger investment from policymakers into the National Grid and sort of landscape for electrification infrastructure. This is something that I think that a lot of people understand, but maybe don’t really talk about because you kind of try to piecemeal everything together. You kind of say, OK, there’s solar opportunities here, there are battery opportunities here, there are EV opportunities here.
But ultimately, the thing that keeps everything together is a shared resource, and that is the grid, and the grid is the thing that kind of needs the most amount of work and the most amount of help from the federal level.