Stockholm (Ekonamik) – “When I set up the firm ten years ago, I had a clear goal. I wanted to finance energy transition,” explains Tobias Reichmuth, CEO and Founder of Swiss sustainable infrastructure asset manager SUSI Partners during his latest visit to Stockholm.
“Even though we started with a renewable energy fund in 2009, I did not want to be confined to this sector,” says the CEO. “We need to match demand and supply beyond what can be achieved by focusing exclusively on renewable energy sources to reach the 2050 targets.” To this end, SUSI Partners has complemented its two original 2009 and 2014 renewable energy funds with the SUSI Energy Storage Fund. Launched in 2016 this fund targets projects mostly in the USA, Canada and Australia. This fund provides storage capacity and makes renewable energy available when demand is there.
Innovative Energy Efficiency Fund
However, Reichmuth’s enthusiasm is most visible regarding the SUSI Energy Efficiency Funds, the first one of which was launched in 2013. This fund retrofits private, industrial and public large scale infrastructure in Europe. “Energy efficiency retrofits allow for the highest emission savings per euro invested. We were the first ones to do energy efficiency,” the CEO explains.
“Consider a hypothetical municipality with annual energy costs of €15 million,” Reichmuth says. “Through our technological partners, we know that it is possible to reduce energy costs to €11 million per year. However, say that this would require an €18 million upfront investment in LED street lighting, for example, which for budget or political reasons might be unfeasible for the town. SUSI can fund 100% of the project in exchange for a share of the savings generated during the first years of the project,” the asset manager adds.
“Say that we agree to receive 70% of the savings every year for ten years. The infrastructure owner would still save €1.2 million per year and renew its infrastructure while avoiding the cumbersome investment decision process and SUSI receives €2.8 million annually,” he adds. The SUSI investment of €18 million would like this generate €28 million over a 10-year duration. “For the infrastructure owner – in our example the municipality – this means free lunch,” says Reichmuth.
The investment is relatively safe and ultimately has fixed income features, according to SUSI Partners’ founder. “Investors get a dividend but also a share of the original investment. It’s similar to an amortising bond in that they receive an annuity. The major risk taken is counterparty risk, which is very limited given the nature of our counterparties – often municipalities or solvent multinationals.”
Easier Fund Raising but Stricter Reporting
The rise in popularity of sustainable investments has had a visible impact on SUSI Partners’ ability to raise funds. “It was more difficult to raise money ten years ago,” the CEO explains. “Investors required more convincing, particularly about the urgency of the problem and the potential financial benefits available. Nowadays we have the wind on our backs. We benefit from the fact that the news and the EU is pushing for this.”
“Pension funds are particularly responsive to our investment argument and are dominant in our funds. Prominent investors in previous funds have included SEB Old Life, PRI Pensiongaranti, IKEA’s Imas Foundation, and MN Pension from the Netherlands.” Other investors include insurance companies, foundations, endowments and family offices.
“Reporting-wise, there has also been progress. The low hanging fruit is to report how many tons of CO2 emissions were saved by our projects,” Reichmuth explains. “However, we are preparing for GRESB, an ESG reporting framework that is very detailed and includes information on many parameters per project. “
Energy Transition, Impact and Controversies
Taking stock of the insights it has gleaned over the last ten years, the sustainable asset manager is launching the Asia Energy Transition Fund and the Energy Transition Fund (OECD), which will target renewable, efficiency and storage projects. “The difference between the two funds is in their geographical focus which has implications for the type of returns available,” Reichmuth explains. “For the Asia fund, estimates of returns in the mid-teens, while the OECD transition funds target returns of 10%.”
One ESG concern arising from the Asia transition fund is the inclusion of countries such as Myanmar, the Philippines and Malaysia. “When we operate in countries with a controversial track record in terms of human rights or working conditions, we try to account and control for these ESG risks. We aim to make sure that our subcontractors pay fair wages,” the asset manager explains. “However, it is important to take into account that in these regions you can achieve the highest impact with your sustainable investments. These countries have a much higher carbon footprint in their energy production than Sweden. Helping them make the transition to cleaner energy infrastructure is much more impactful.”
Looking further ahead, SUSI Partners will focus on electric mobility and charging infrastructure for electrical cars. “Consider the case of Norway, where 50% of all new cars are electric. The infrastructure is not ready and there have been blackouts. We need the back end infrastructure to be able to bring so many KWh to these cars. That is the bottleneck that we hope our next fund will help overcome.”
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