"Greenflation is here to stay and is probably not going to go away," says Shawn Reynolds, Portfolio Manager for VanEck’s Global Resource Fund GHAAX and Environmental Sustainability Fund ENVAX, VanEck.
So, what industries should we keep an eye on? And who are the biggest winners from greenflation? 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.
4 Industries Primed to Benefit From Greenflation
- Battery production
Video Transcript Below
Shawn Reynolds: Greenflation is really just a mismatch in supply and demand. As you pointed out, this is likely to be a 110 trillion or larger type of investment into decarbonization. Environmental sustainability demand ... demand for everything is going up related to resource transition and energy transition, and sustainability and supply are going to be strange. And one of the real points we want to make on this call in our investment thesis is that demand is going to be a lot larger than most people expect, and supply is going to be harder, longer, and more expensive to create. And that's just that's natural economics in the natural world, however, and that creates inflation. However, what that also does is create opportunity after opportunity to identify those companies who are going to be able to produce an ounce, ton, or pound of minerals cheaper than the next guy to invest in the ag-tech company, who's coming up with innovative solutions and technologies to solve some of the issues that Amara brought about. So lots and lots of opportunities, but also green inflation is here to stay and is probably not going to go away.
Veronica Zhang: First let me tackle the technology is deflationary aspect. And, there are some classic examples out here, right? So with solar, the price of panels has dropped by a factor of five in the past decade. Battery prices have dropped 90% in the past decade, so some people point to input costs as a function of this, which OK, fine polysilicon prices are down a factor of 3 during that same time. But lithium carbonate, which is one of the major inputs to a lithium-ion battery, for example, costs have actually gone up. So battery costs have come down 90% The input cost has gone up. So if you look at, you know, for example, I'm sticking with batteries here. If you look at the technological sophistication of a battery, there's probably more room for it to improve than that of a solar panel. And over the five years, we've watched firsthand the small step function changes that have been applied to, for example, the cell level of a battery to increase energy density, decrease weight. Little tweaks here and there around packaging and form factor. And this is still ongoing. And the battery industry is just one example of how innovation is further driving down prices because ultimately, regardless of whatever level of inflation we're at for raw materials, for labor, they need to be economic for mass adoption.
Shawn Reynolds: The reality is that there are very many different industries that are being affected by this and everything is moving at a different pace. And so there's going to be times when things are inflationary and times when they aren't. Longer-term, I think the real obvious win out of all this is deflation, and that's why you're getting more and more companies investing in this area because they're trying to figure out ways to lower their cost. And, you know, if that's 5 or 10 or 15 years from now, they're willing to make those investments today. And so, yes, deflation at the end of the day, lower costs at the end of the day, is where we're all headed ... it's the more subtle part of what's happening in terms of resource transition because a lot of this seems to be government-mandated or legislated. But the reality is that companies are coming to this realization that if I invest in this, I can do what I do at a lower cost and a higher return. And so I want to get involved with it.
Video Highlights | Investor Playbook: The Resource Transition
- 00:07:00 Greenflation Investing Opportunities In 2022
- 00:17:50 What Going Green Means for Companies and Investors
- 00:27:30 3 Key Issues Impacting the Future of Metals and Mining
- 00:35:30 Fossil Fuel, Solar, Wind: Biggest Trends to Watch In the Resource Transition
- 00:39:20 3 Trends Shaping the Future of Farming, Agriculture, and Land Use
- 00:53:45 Resource Transition's Biggest Challenges
- 00:58:45 Why Batteries Are a Linchpin In the Energy Transition