With guest Luke Oliver, Managing Director, Head of Climate Investments; Head of Strategy at KraneShare.
RECORDED JAN 20, 2023
Luke Oliver:
More and more, we're coming up against this challenge where people say, hey, anyone who's talking, you know, won't name names, but there's certain pensions that have been vocal on if you are an ESG. Manager, we're not going to invest with you. We don't agree with that we agree with only risk in return. Whereas I'm saying, and so, you know, we're not the only people saying this, we to only look at risk return. And we think that there are increased risks of not being in the right places, and the return. But people are saying, Well, do you take on more risk or lower returns to go green, we're saying there are places in the market where it's, there's massive return opportunities. And that doesn't rely on your moral ethic view on this. So just as an example, right, we have massive spending the IRA in the you know, inflation Reduction Act, Europe has to fit to 55. Europe has also got repower EU, which is to fight against Russian energy dependence. They're pumping money, the government's, and the corporations are pumping huge amounts of money into innovating away from fossil fuel. It doesn't matter if you like that or not, that's what's happening. And so there's a few places here that I think we could go on a fat pitch that you mentioned, but there's carbon markets, there's the commodities, the very specific commodities, and then there's the transition equity. So there's three, what we feel are the three fat pitches. And we've talked about one or two of them today, that right down the middle, hit this from a purely investment, you can look your green investors in the eye and say, I'm doing something to help the planet and make you some money. And you can look at your investors who, for whatever reason, have no interest in the planet and say, I've got you this great thing to diversify it. And it's gonna make you a lot of money. And of course, let me just not say something, I promise it make you a lot money has a lot of potential to make you a lot of money in this environment that's developing.
Clint Sorenson:
Well, Luke, you mentioned it, you said that demand, I mean, we can't understate the demand. It's a wall of stimulus. I mean, think about it. This is the UN Climate Action report, right to limit warming to one, this is from their report to limit more warming to 1.5 degrees Celsius above pre industrial levels, which is the goal, right? As part of the Paris Agreement, you have to peak global gas emissions by 2025. And then there's estimated to be 1.6 to 3.8 trillion each year through 2050. To transition that way. So think about what that means, from a demand perspective with a lot of these, and you're the commodity expert. So love your thought on this, that wall of demand, which you know how governments spend money, I can't remember a time of government has underperformed your top end of the band with spending money. So let's just put that out there. And then next, that wall demand with what is commonly referred to as tight supply. I mean, we've got really tight supply if you think about a lot of these key metals. So let's start there walk me through that supply, demand imbalance and what that could potentially mean.
Luke Oliver:
So first of all, the numbers that we'd be looking at even higher than the numbers you're quoting, right, you're talking like two to three, I'm thinking about five, it's about 130 to 140 billion between now and 2050. It's a huge number, I wrote it myself, but I think is a really good paper, if you if you want to check it out, it's called the biggest short, because, obviously, one I'm trying to connect it to the Big Short to get people's attention. But I think if this is the biggest short squeeze, we have polluted and pumped carbon into the market, we now need to cover that we put too much into the atmosphere, we need to pull that back and stop putting out there. And to close, that short squeeze is going to cost us 140 trillion. I said billion earlier 100 and 40 trillion. To me, this is like Independence Day, this is if the aliens came down, we'd all jump in, we'd all learned to be fighter pilots. And we'd all do, we'd all fight the whole world would fight against the aliens. We need to react to this globally. And so, you know, even with the globalization occurring, this is something that we're actually getting closer on, you know, look at COP 27 this year or un PRI and various other global discussions are also at Davos is on right now, I haven't heard a lot of reports at Davos this week yet, but I bet they're talking about energy transition and funding it and where are we find where the investments are? This is where the money is moving trillions 100 over 100 trillion is moving. You want to be there and position for where that money's going. So it's a huge amount. And yeah, so just just talking about like electric vehicles as an example.
Clint Sorenson:
Yeah, I think that's a great place to start from a short like amount of metals is required. And then you think about like, I read somewhere that just based on Tesla's expected production, which is probably lower than what we saw previously. And this was the 2021 report that they take down something like 130% of global lithium production. And I was thinking that is pretty massive. So you start to think about that. Then you think about copper shortages, and it's
Luke Oliver:
So how this is it this is this is totally it. So this is why we launched our metals fund that does exactly this. It has copper, it has lithium, it has cobalt, it has...
Clint Sorenson:
Tell the crowd what the symbol is. So...
Luke Oliver:
K-M-E-T. KMET. K for Krane and MET for metal. KMET. And we hold all of those metals, aluminum copper. Now if you're talking EVs everyone goes okay, that's, that's your lithium battery batteries, you need lithium. But we, the thing I hear from the naysayers is how can we all have electric cars, the grid isn't powerful enough for everyone to be on electric cars. So guess what, all this where this money is going to upgrade the grid, we're gonna need more copper than we've ever needed before they say it's you know, could be up to 4x the amount of copper between now and 2030 than we've been been using currently. So to put it into context, in your gasoline car, you've got a big chunk of iron in the front, the engine blocks made of iron. So it's like less than 50 kilos of these metals. In in a nice car, internal combustion engine. In the electric car, it's almost a completely different creature just looks kind of roughly the same. You've got I think it's over 200 kilograms of copper, aluminum, zinc, nickel, graphite, lithium, that manganese, creating this. So there's so that when we switch cars, we might need less iron, but we're going to need a lot and less steel, maybe we're going to need a lot more of all of these. They're not rare earth metals. Some of them are but these are these are more niche niche metals, and we're going to completely change the demand and the demand for the traditional metals like copper and aluminum.