IMCO's Fundamental Equities and Global Infrastructure Unite for Sustainable Investments

IMCO's Fundamental Equities and Global Infrastructure joined forces in a strategic collaboration to drive sustainable investments and make significant strides towards IMCO's net zero targets. In June, IMCO announced a joint commitment of US$400 million to support Northvolt, Europe's leading lithium-ion battery platform, marking a milestone in IMCO's dedication to managing global climate change.

We caught up with Michael Tsada, Senior Portfolio Manager of Fundamental Equities and Matthew Mendes, Managing Director, Head of Infrastructure to learn more about the deal.

What is attractive about investing in the electric vehicle ("EV") transition?

Michael: We've been researching the EV transition for a few years and expect to see massive growth in the industry for the following reasons: the convergence of tightening emissions regulations, greater model availability and improving range, price and charging solutions all point to a very strong EV future. Demand for EVs is expected to represent at least 60% of all new cars produced and sold in Europe by 2030.

What initially captured your interest in Northvolt?

Photo courtesy of NorthvoltPhoto courtesy of Northvolt

Michael: Penetrating the EV battery industry is notoriously hard given significant technological and operational hurdles, and yet, Northvolt has achieved its ambitious goal to become Europe's leading EV battery platform. With its first gigafactory up and running in Northern Sweden, Northvolt demonstrated the company's significant commercial, operational and financial capabilities.

We were also impressed by Northvolt's ability to align its mission of producing the industry's most sustainable EV batteries to the needs and wants of automakers, regulators, and consumers; as evidenced by its multibillion dollar secured-order book which includes customers such as BMW, Volkswagen and Volvo.

Why is Northvolt a sound investment?

Matthew: Northvolt is a remarkable example of a company that has taken one of its core values - ESG leadership - and turned it into a competitive advantage. By putting the environment at the forefront of their business plans, they realized the need to vertically integrate their business processes to reduce carbon emissions. They have established facilities for processing raw materials, enabling them to better manage rights issues by sourcing materials directly. They are also developing one of the world's largest battery recycling facilities, reducing dependence on material extraction and opaque supply chains.

This not only benefits the environment but also provides better margins, enhancing their economic viability by improving raw material pricing, internalizing processing margins, and recycling waste, eventually turning used batteries into new ones.

Michael: Northvolt's drive to enabling carbon free transportation and onshoring of production also aligns with several pillars of our World View, and our 5-year Strategic Plan to prioritize the energy transition. Our investment in Northvolt demonstrates significant progress towards our net zero targets, specifically, to invest 20% of our portfolio in climate solutions by 2030.

Can you expand on IMCO's involvement in battery infrastructure and how these fit in with IMCO's Infrastructure strategy?

Matthew: Absolutely. IMCO's Infrastructure portfolio reflects a disciplined, forward-looking approach to investing in infrastructure assets. We invest in high-quality companies with strong contracted cashflows and barriers to entry. We look for seasoned and strong management teams to back across regions and sectors, most notably in the energy transition, transportation, utilities, social and telecommunication sectors.

In 2021 we established Pulse Clean Energy, a trailblazer in UK energy storage. Under our ownership, we built upon their core skills of locating and building flexible energy generation in highly valuable areas, and transitioned the way they provide this by decommissioning their diesel power generation plants and converting them to battery storage. We expanded their battery development pipeline and are working with National Grid to provide essential services and ensure the reliability of the system. Pulse is committed to helping the UK bring more renewable generation by building battery storage critical in providing stable, reliable, and clean electricity to the grid, making it a pivotal player in supporting the UK's transition to a net zero economy.

Our partnership with Northvolt not only reinforces our macroeconomic outlook for the battery sector but addresses a more fundamental issue: to drive down the carbon intensity and cost of the production of battery cells themselves. Given the strong barriers to entry, the significant progress the business has made commercially, and their strong focus to build the world's greenest battery, this investment fits well within our portfolio.

How does IMCO's investment in Northvolt align with Fundamental Equities' long-term growth strategy?

Michael: Our mandate spans the full range of capital needs, from targeted liquid investments in public markets to a "Fundamental Plus" approach, such as the one taken with Northvolt, where we identify and pursue negotiated transactions for meaningful equity stakes in public and pre-public companies. We are committed to investing in best-in-class companies and our team's agile, partnership-oriented approach will help Northvolt meet the burgeoning demand for sustainable batteries.

What does this investment mean for IMCO's clients?

Matthew: This investment allows our clients to actively participate in the transition to a low-carbon economy, which we know is materially important to them. The surging demand for EVs along with the broader push towards green energy transition represents a significant opportunity for our clients to participate in these tailwinds.

Learn more about IMCO's Fundamental Equities.
Learn more about IMCO's Infrastructure.
Read IMCO's Electric Vehicle Research report.
Learn more about IMCO's net zero targets.