Australian impact small cap equities
Updated: Dec 12, 2019
As many large industrial companies struggle with climate change, investors are looking to high impact small cap equities such as these from Australia.
There was an interesting article in the Financial Times recently (“Investors must reset expectations of action on climate change”: Fiona Reynolds, Financial Times – September 11, 2019).
Fiona Reynolds, the CEO of The Principals of Responsible Investment, argues that many investors have not sufficiently priced in the future cost of government action (and legislation) on climate change.
There is clear warning that investor’s portfolios currently overweight in sectors having an adverse impact on climate change will carry a greater regulatory risk rating and therefore values will be re-rated by the market moving forward.
Also, impact investing will likely see a move away from away from companies that contribute to climate change towards companies that produce a service or product that benefits society.
Listed on the Frankfurt Stock Exchange are many Australian based high impact companies that could be an effective way for European investors to diversify portfolio risk, combat climate change, reduce legislative risk, increase geographic portfolio footprint and diversify sovereign risk.
Below are a few high impact, high quality companies dual listed on the Frankfurt Stock Exchange and hence easily accessible to EU investors.
Wide Open Agriculture (ASX: WOA), (FWB: 2WO)
Wide Open Agriculture (WOA) is the only listed regenerative agriculture business with its own food brand (dirty clean food). The company was listed on the Australian Stock Exchange in 2018 and subsequently listed on Frankfurt Stock Exchange.
A third of the earth’s land is severely degraded - largely due to industrial style agriculture - and this has serious consequences for climate change. Arable soil is being lost 100 times faster than it is formed; humans are increasingly using fertilisers to try and maximise output from limited soil fertility. These fertilisers are packed with synthetic nitrogen made from natural gas or coal. Emissions from which are a major source of greenhouse gases. On top of this, deforestation is the largest source of agriculture related carbon dioxide emissions.
Regenerative agriculture combats climate-change through a set of farming practices that borrow largely from pre-industrial agriculture and result in improved soil health and eco-systems. A healthy soil together with healthy plants will work to take carbon from the atmosphere and send it back into the soil. Resulting in greenhouse carbon being converted to organic carbon matter (carbon sequestration).
WOA is building partnerships with farmers and is committed to rebuilding healthy soil, enhancing biodiversity and restoring waterways. The company is building a strong, sustainable business as well as making a positive, measurable impact on the ecosystems and communities in which they operate.
Consumers are increasingly demanding grass-fed, regenerative beef and lamb and sales from this side of the business have exceeded expectations. On the agenda are also oat milk, dry foods and healthy snacks with expansion into key export markets such as South-East Asia and Europe.
For impact investors, WOA offers a high impact business. The company is dedicated to delivery of not just financial returns for shareholders, but also meaningful and measurable natural, inspirational and social returns. WOA’s major shareholder is the Dutch Commonland Foundation and the share registry is tightly held.
PharmAust (ASX: PAA), (FWB: ECQ)
PharmAust (PAA) is a clinical-stage company developing targeted cancer therapeutics to address both human and animal healthcare. The company specialises in repurposing marketed drugs lowering the risks and costs of development.
There is a significant unmet need for oncology drugs for dogs, with over 6 million dogs diagnosed with cancer annually in the United States. Most are now treated with expensive chemotherapy. PAA has exclusive use a drug – monepantel. This drug is a repurposed drug already approved as an anti-parasitic in sheep by Elanco Inc. in the USA. PAA has patented monepantel as an anti-cancer drug and has an option agreement with Elanco for veterinary cancer applications. PAA also benefits from revenues (about AUD $4.2 million) from its wholly owned subsidiary, Epichem which specializes in product sales and services in synthetic and medicinal chemistry.
Clinical trials are now underway, and the drug will be tested (and eventually commercialised if trials are successful) in a new palatable and high-dose tablet form in order to treat treatment-naïve B cell lymphoma in dogs. There is also potential for clinical trials to evaluate suitability of the drug for testing cancer in humans.
Many studies have shown how dogs and companion animals can help reduce stress, anxiety, and depression, ease loneliness, encourage exercise and playfulness, and even improve your cardiovascular health. Any drug that can improve the life of companion animals without significant cost and reduce the stress to animals of chemotherapy drugs must be classified as a high positive impact business.
ClearVue PV (ASX: CPV), (FWB: CKJ)
ClearVue PV (CPV) has been working for years perfecting a technology that utilises an age-old building material - clear glass.
The patented technology allows visible light to pass through a pane of glass, while the invisible wavelengths of light are deflected to the edges of the photovoltaic glass where they are converted into electricity.
CPV technology can transform a glass building into a massive solar panel, generating power where it's needed, reducing power transmission requirements across large distances. The technology is cost effective, environmentally friendly, and provides a sustainable and innovative new power generation capacity.
The company has secured a manufacturing partner, based in China, with the capability to manufacture one square metre panels at a rate of three hundred thousand per annum.
CPV is high impact business seeking to transform energy to localised renewable generation and carbon paybacks. 2020 will be a big year for CPV with manufacturing partners readying for commercial scale production and global distribution partners in place.
The above represents just 3 of the many high impact small cap equities dual listed on the ASX and Frankfurt Stock Exchange. Australia is becoming an engine room for small cap, high impact, low carbon footprint equities. They are worth considering for global investors (both retail and institutional) looking to diversify a portfolio and reduce climate change risks.