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­EV Private Equity on impact investing and the energy transition

© Supplied by EV Private EquityEV Private Equity
Helge Tveit

EV Private Equity co-founder Helge Tveit explains the company’s philosophy of impact investing, and why the energy transition provides greater opportunities.

Once dominated by supermajors, national oil companies (NOCs) and listed independents, increasingly it is private capital driving North Sea energy deals.

But outside of energy production, much is being put to work developing some of the solutions needed to drive the energy transition, in the oil and gas sector and beyond. One leader in the space is EV Private Equity, a fund which targets “high-growth, differentiated technology businesses” with a particular focus on energy and emissions reduction.

Speaking with Energy Voice, managing partner Helge Tveit outlined the firm’s strategy: “I think when it comes to the evolution of EV, we have always been focused on energy technology throughout, but since 2017 we looked at: ‘Where we think the market is going to move? What’s going to be the most significant contribution and most significant opportunity for us going forward?’”

“We concluded that the energy transition at that point represented a significant opportunity to create value and to create positive impact through technology by reducing CO2 emissions.

“That’s one of the key criteria going forward for our investments – that all of our opportunities have to deliver CO2 emission reduction.”

Mr Tveit formed EV Private Equity in 2002 with co-founder Ole Melberg. The firm grew with investment from institutional investors, initially from Norway, but later with growing international interest. It has raised six funds since its inception, with total committed capital of approximately $1 billion. True to its energy heritage, it now has offices in Stavanger, Aberdeen and Houston.

EV currently has around 25 companies in its portfolio, grouped into four broad technology areas: sensor technologies; software and decision support; integrated hardware solutions; and process efficiency. Recent investments include Noova – a Norwegian company helping B2B customers reduce energy costs using monitoring software and smarter tariffs – and Wireless Seismic, which manufactures the only wireless seismic data acquisition system with real-time data return.

In turn, these companies provide solutions along three key “themes”, as Mr Tveit describes them, of energy efficiency, renewable energy, and the decarbonisation of existing processes.

But with EV’s core focus on impact, he is clear that its investment candidates must have a broader outlook than pure-play oil and gas. Neither will the company’s funds invest in E&P companies directly.

“The reason is that we are an impact-oriented fund. If you look at the investor side, the compatibility between a clear impact target and an oil and gas inclusive mandate is not great, so you have to make a choice there.”

“There are many, many businesses within oil and gas that could deliver substantial impact – and we have made a number of those investments in the past – but with this investor preference to have less exposure to oil and gas that we see, that’s why we decided to exclude that going forward.”

As much as this strategy is informed by investor preference, Mr Tveit also believes that this helps reduce EV’s risk to a market that has been “extremely challenging” since the oil market downturn seen in 2014.

“Our philosophy and our thinking is that the energy transition market is going to be more stable and provide more predictability,” he added. “The volatility that we’re seeing and still seeing in oil and gas – the feast and famine is a disadvantage.”

There’s no magic around it – it’s just common sense

So how is this potential for “impact” assessed? Mr Tveit said that typically its targets will be small technology focused companies of 50-150 employees with a comparatively small emissions footprint of their own, but which can enable significant emissions reductions for their client businesses. In the case of Noova, for example, a 5-15% energy saving in a larger business could equate to a much more significant energy saving.

“What we’re taking into account is the enabling effect for the portfolio company that we’re investing in – how much are they enabling their clients to reduce their CO2 emissions.”

These investments are evaluated using a proprietary sustainability framework called xIQ, a software tool in which EV has also invested. This provides a “holistic approach” to CO2 reduction, and ensures investments are aligned with Task Force on Climate-Related Financial Disclosures (TCFD) and EU requirements.

EV has also pledged that all its investments will, on average, generate an accumulated net reduction of one tonne of CO2 equivalent per $300 invested, over a ten-year period.

The approach has led to a long-sighted yet straightforward approach to environmental and social governance (ESG). Mr Tveit neatly separates this from ‘impact’, which he describes as what a company can “over and above” its basic commitments.

ESG, on the other hand “just makes sense. It’s just the way a company should be operated,” he said.

“Obviously you should try to minimise use of resources when you are manufacturing or delivering your services. Obviously you should look at the diversity of your workforce,” he continued. “There’s no magic around it – it’s just common sense!”

His position appears to be paying dividends – last year EV Private Equity was shortlisted as a finalist for Business Green’s ‘ESG Investor of the Year’ award.

It also makes good business sense: “What we have experienced when we sell companies is that businesses that score very high on ESG also achieve a premium valuation,” he added.

Types of taxes

Despite the company’s eschewing pure-play oil and gas, Mr Tveit is pragmatic as to the need for an orderly, all-energy transition. Decrying windfall taxes which have been mooted in the UK sector of late, he added: “My basic view is that absolutely we need to pursue energy transition very, very hard, but it needs to be done in orderly fashion, whereby companies that are actually exploring and delivering natural gas or help bring us energy independence from Russia should not be punished.”

He is concerned that the current environment is disincentivising investment in areas where it is needed most. “You want to have an orderly transition, but we we’ve come to a place where perfect is the enemy of the good,” he added.

In supporting that transition, he is also a keen proponent of carbon taxes as a means of providing clearer framework for investors and producers alike. “If we’re going to pursue an orderly energy transition, there also needs to be a level playing field for renewables and hydrocarbons,” he explained. “And that is a CO2 tax, which absolutely has to be implemented. We can’t allow the externality of climate change not to affect prices for hydrocarbons.”

Looking at the wider appetite for the North Sea amid rocketing commodity prices, Mr Tveit sees increasing options for private equity players. Indeed, he notes that many investments are likely to be attractive on the basis of dividends alone as the sector finds itself awash with record cash flows – making for significant upside.

With increased profitability “the optionality for these players will increase,” enabling companies to invest, deliver returns to shareholders and make their exit, he said.

The only issue is the inherent volatility of oil and gas – private sector players “like a certain degree of stability,” he reminds.

It’s also why he believes talk of windfall taxes is “extremely unhelpful” for would-be investors. “If you want private equity to flow into that market to underpin further exploration and development and production, those signals are saying you shouldn’t do it because we’re going to take your profits if you make any money.”

“People seem to forget that there has been a situation with massive losses in [the E&P] space and what needs to happen now in Europe is to pursue all things energy.”

At a time when governments are calling for increased production of oil and gas from the North Sea, Norwegian Sea and the Barents Sea, he added, “to set taxes on the very companies that is going to reinvest and deliver this seems completely misguided.”

 

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