Rich Listers are among those grabbing the opportunities now. Iron ore magnate Andrew Forrest has perhaps the highest profile, having spent much of the past 12 months searching the world for partners in an ambitious plan to turn Fortescue Metals Group into a green energy powerhouse.
Forrest has also joined fellow billionaire and Atlassian co-founder Mike Cannon-Brookes as an investor in Sun Cable, a project that aims to deliver electricity to Singapore from a solar farm in the Northern Territory via an enormous 3700-kilometre undersea cable.
Cannon-Brookes is also an investor in green energy lender Brighte and solar start-up SunDrive. In March, both Cannon-Brookes and fellow Atlassian co-founder Scott Farquhar invested in Genex Power, an ASX-listed renewable energy venture.
Waste industry giants Ian Malouf and John Richards are developing waste-to-energy plants, while the Kahlbetzer family has invested in sustainable farming and waste-to-energy businesses. Ralph Sarich’s private investment vehicle Cape Bouvard Technologies is working to commercialise technology that would make electric vehicle batteries lighter and cheaper to build.
For billionaire Anthony Pratt, the fact that capital is now pouring into sustainability is no surprise. His late father, Richard, built Visy Industries into a packaging giant by harnessing the opportunity of turning waste into new products back in the late 1970s.
That core idea – turning trash into treasure – continues to drive the group. After buying the Australasian glass bottle manufacturing assets of United States group Owens-Illinois in July last year for almost $1 billion, Pratt immediately committed to spending a further $2 billion to help increase the recycled content in glass bottles in Australia from 30 per cent to 70 per cent within five years.
“We’ve been working at this for decades, so for us this is not Johnny-come-lately stuff – we are Johnny on the spot,” says Pratt over the phone from New York. “We’ve invested billions in it, and we’ve got to continue to invest billions in it.”
He emphasises that the family’s push into sustainability was built on economics, not environmentalism. Pratt snr hated waste and hated paying someone to take it away. Using recycled product raw material would help make Visy both more competitive and profitable.
When Anthony Pratt arrived in the US in the early 1990s to establish Visy’s American arm, he was stunned to find none of his competitors were recycling. Spotting a gap in the market, Pratt closed an existing factory in Georgia and built a replica of Visy’s recycling-oriented Australian plants.
Then he waited for 15 years while the recycling message slowly got through to US business. Former US vice-president Al Gore’s movie An Inconvenient Truth, released in 2006, shifted the dial. Later that year, retail giant Walmart introduced a sustainability scorecard for suppliers, with the use of recycled content prominent.
“As a result of that, customers were queuing up to deal with us,” Pratt says.
Visy, which has 6 per cent of the US cardboard box market and $US4 billion ($5.17 billion) in annual sales, is still the only box maker using 100 per cent recycled materials. Not only has Pratt built five of America’s largest mills using Visy’s recycled model, but he’s powering them with clean-energy plants that stand next to the factories.
“I believe that sustainability and commerciality are not in conflict,” Pratt says. “Because fundamentally, using a waste product is cheaper than using a virgin product.”
MacLeod’s dive into regenerative farming has similar capitalist origins. Following a shocking drought in the early 2000s, his goal was to save his farms, not the planet.
“Through bad management we created an economic crisis, we created an environmental crisis, we created an animal welfare crisis and – believe it or not – we created a human health crisis as well, because everyone who worked here was stressed,” MacLeod recalls.
“It was a perfect storm of crises. I looked at it and thought, there’s got to be a better way of doing this.”
While MacLeod and his team have spent the best part of a decade overhauling the management of Wilmot’s farms – improving ground cover, ensuring pastures get the right amount of rest – it’s only more recently that financial markets have latched on to the potential of soil carbon, leading to the Microsoft deal.
“Investors around the world are now talking about looking for investments that will deliver something over and above financial returns,” he says. “That’s what’s driving ASX-listed companies to say, we’ve got to find a solution to how we deliver shareholders financial returns, but also something else.”
The Stokes family’s Seven Group is an example: in February it announced industrial subsidiaries Coates and Westrac would reach net zero emissions by 2040. Chief executive Ryan Stokes says the target reflects a broader shift across industry and particularly the mining giants that buy Westrac trucks and diggers. Both BHP and Rio are targeting net zero emissions by 2050.
“We want to be a stronger partner with some of those customers who are very firm in those commitments,” Stokes says.
Goodman Group, the industrial property giant run by fellow Rich Lister Greg Goodman, is similarly scrambling to keep up with customers in the logistics sector who are demanding warehouses that not only meet the new requirements of the e-commerce boom, but are also greener.
Energy efficiency is vital; another strategy is to build multi-storey warehouses that have a smaller energy footprint. “These things are major moves and these moves are creating opportunities,” Goodman says.
Pratt cannily tapped the financial market’s hunger for green investments many years ago by striking so-called green bond deals – essentially 30-year loans linked to sustainability targets – with global pension funds, which continue to press hard on such issues. He believes 2021 has brought a new momentum to the movement.
In part this is driven from the top, with Pratt pointing to US President Joe Biden’s ambitious green agenda as a big catalyst for change. China is also aggressively tackling emissions – for example, it instantly shut down a raft of steel producers in March to curb emissions – while Europe has committed billions to post-COVID-19 decarbonisation projects and, like the US, is considering carbon tariffs. Locally, Prime Minister Scott Morrison has come close to committing to net zero emissions by 2050 – without quite getting there.
These changes are important, but Pratt also believes the momentum is coming from a more grassroots source: ordinary consumers.
Naturally enough, he sees this most clearly through the prism of the humble cardboard box. The changes the pandemic has brought to the way we live, work and particularly the way we now shop have made consumers only too aware of waste, Pratt says.
“The packaging ends up in someone’s house. When the consumer is receiving the box they are even more sustainability-conscious than if it was thrown in the back of a supermarket.”
This gets pushed up through the supply chain. Visy recently received a $US30 million order from a large online retailer for 100 per cent recycled bags and has experienced a boom in demand for its paper-based alternative to polystyrene. Demand for greater recycled content in bottles is also surging from customers, such as drinks giants Diageo.
“They now rate sustainability in their top-three key performance indicators. It used to be a ‘nice-to-have’ but now it’s an essential KPI.”
What’s particularly fascinating about the preparedness of the wealthy to embrace sustainability is that in many cases, they are taking leaps of faith. MacLeod, for example, says soil carbon gives agriculture a chance to contribute to decarbonisation. But he concedes there is a lot more work to do to refine the concept and more effectively monetise it.
“There’s a big question mark around what the potential is for soil carbon in terms of the extent to which it can help us with our carbon accounts – but there’s a big question as to how much hydrogen can help us too,” MacLeod says. “The journey is very exciting in terms of what potentially might result from this.”
Pratt likes to use the analogy of a toboggan when describing Visy’s approach to sustainability – a toboggan starts slowly, but then builds more and more momentum.
He also provides an important reminder of how capitalism can underpin environmentalism. The man with a $20 billion fortune likes to stay paranoid by telling his family and his team that Visy is only ever two years from bankruptcy, from being wiped out by some new product that hasn’t been invented yet.
The more sustainable he becomes, the more efficient Visy gets and the harder it can compete – then the less likely its cardboard boxes can be replaced in the market.
“Most people think you’ve got to choose between sustainability and profit, and that they somehow are enemies,” Pratt says. “I see them as mutually reinforcing.”
Carbon is soil’s secret sauce
Could the solution to the agricultural sector’s decarbonisation challenge come from the land itself? That’s the question being explored by Alasdair MacLeod’s Wilmot Cattle Company, which this year signed Australia’s biggest-ever deal to sell its soil carbon credits to tech giant Microsoft.
Soil is a natural store of carbon – there is more carbon in soil than in the atmosphere and all the world’s plant life combined – and regenerative farming has long focused on improving farm management to lift soil levels.
MacLeod joined the movement almost 20 years ago, following a terrible drought. The focus at Wilmot’s properties is on ensuring ground cover across its pastures is maintained. Software is used to manage the amount of rest that the pastures receive.
“It’s about ensuring we’re maximising the productivity from our pasture while at the same time minimising any damage that we might be inflicting from overgrazing,” MacLeod explains.
The amount of carbon in Wilmot’s soil has more than doubled since 2012. The potential for soil carbon sequestration was further underlined last year when the federal government named it one of five priorities in its low-emissions technology road map.
MacLeod praises that decision, saying the level of interest in the potential for soil carbon has surged in the past 12 months. “There’s a big opportunity for agriculture to demonstrate it can be part of the solution rather than part of the problem.”
Soil sequestration does have its doubters though, and MacLeod is refreshingly honest about the amount of work still required to prove the technology, including actually measuring soil carbon levels.
“It is quite expensive to measure this accurately,” MacLeod says. “There’s enormous potential. The thing is, we don’t know enough about what the potential is.”
Find out who are Australia’s richest people in the Financial Review Rich List 2021, out on Friday, May 28.