"​This is going to be the most important investment theme for the rest of your life.”

By Henry Thornton, Fund Manager, Garraway Oriental Focus Fund and VT Garraway Asian Centric Global Growth Fund

“This is going on as far as the eye can see. It’s an unfair advantage for green investing. There may be a bubble that will affect this for a year or two, but it will come back bigger and better than other groups because of this tailwind. This is going to be the most important investment theme for the rest of your life.” Jeremy Grantham, the 83-year-old co-founder of GMO, commenting recently on ESG investing.

It is dangerous to ignore the likes of Jeremy Grantham. Included in the article was a chart, source attributed to DNV GL, that predicts that investment in offshore wind power will account for nearly 50% of all energy investment by 2050. ESG investing is no longer a fad – it is a reality - but we wonder if blindly buying the likes of TESLA or a Korean or Chinese battery manufacturer is the solution where our objectives are twofold; (1) to make money for our clients and (2) attempt to reduce the impact our investments have on the environment. There are multiple ways to approach this.

Taiwan has a looming problem. Electricity shortages have been an issue in 2021 for the first time in living memory. In round numbers 50% of Taiwan’s electricity is produced by coal fired power plants, a further 20% come from nuclear. Following the Fukushima disaster, Taiwan (like Germany) decided to close its nuclear power plants and they will be decommissioned steadily over the next few years. While there are plans to replace the coal power plants with more environmentally friendly gas fired power plants, there remains a huge gap between demand and supply that needs to be filled. If Government plans are taken seriously, this deficit will be closed primarily by building offshore wind farms that can take advantage of the excellent wind conditions that prevail in the Formosa Straits.

Enter the somewhat obscure Century Iron and Steel Industries (CISI). Listed in 2003 and a small player in Taiwan’s steel industry, CISI has moved swiftly in recent years to become the leading manufacturer of offshore wind farm jacket foundations, the lump of metal attached to the seabed to which you then attach your wind turbine unit. CISI has developed partnerships with Dutch concerns Welcon (a wind tower manufacturer) and, more importantly, Bladt Industries (a wind turbine jacket foundation manufacturer). While the learning and transfer of knowledge has been heavily impacted by COVID and the associated travel restrictions that ensued, CISI has emerged as the leading domestic jacket foundation player. They have a long-term lease at Taipei Port and have constructed what we understand to be the world’s largest indoor jacket foundation assembly plant. Localisation rules, and the physical impracticalities associated with importing foundation jackets, place the company in a very strong position with only one smaller competitor, Sing Da Marine, in play. CISI has a strong order book with Copenhagen Infrastructure Partners (CIP) and state-owned Taipower among the client base. Government plans to install 20GW of offshore wind power between now and 2035 will keep CISI fully occupied over the next fifteen years. Returns on equity, asset and investment have picked up significantly over the past couple of years and are set to continue to improve. We purchased the stock earlier this year and, while there will be bumps in the road every now and then, the long-term future of the company is simply excellent as it plays its role in an industry that will significantly reduce Taiwan’s carbon footprint.