26 January 2012

Michael Churchill, Director, Climate Capital Pty Ltd

Michael Churchill is one of the founders of Climate Capital, a specialist sustainability

investment bank formed in 2007 to facilitate the development of profitable businesses

which help to ‘rebalance nature and humanity’.

Geoff Harrington spoke to Michael about the origins and business of Climate Capital.

“The Climate Capital vision is big - and premised on the basis that the environmental

footprint of mankind is much bigger than the planet can offer up – hence the objective of

rebalancing nature and humanity”

“The way we currently live means that consumption is in direct competition with

conserving our natural resources for future generations – we are consuming more than the

environment can replenish – which is the essence of sustainability”

Readers could be forgiven for thinking that Climate Capital is a not-for-profit organisation

but it’s not. Like all good investment banks, its business model is all about sharing in the

benefit of removing capital market ‘friction’ in the process of commercialising and

capitalising profitable businesses.

It’s important to note that the word ‘profitable’ has been used twice: one of the core

beliefs of Climate Capital is that sustainability cannot be achieved for the planet without

businesses that sustainably generate appropriate returns on the capital invested in them.

What led you to form Climate Capital?

“At one level there’s a simple answer and that is I saw a market opportunity for a lifetime

of corporate finance skills which could be applied to this big vision of rebalancing nature

and humanity.”

Like most simple answers though, there is a more interesting story behind the punch line….

Tasmania: Australia’s toilet?

Michael grew up in the north west of Tasmania – today, regarded as one of the cleanest

environments on the planet. However, near the home that Michael grew up in was an

acid plant, tioxide plant, pulp mill, and an abattoir – all delivering up unprocessed waste

to the air and sea.

“Looking back thirty or forty years it seems quite incredible that what most regard today as

a pristine environment was in fact an industrial wasteland.

As a 10 year old I was fortunate to ride on the bridge of the waste ship that every

afternoon dropped a couple of hundred thousand tonnes of acid waste direct into Bass

Strait – right on the horizon that most of the people of Burnie looked out on.

It had a lasting impact on me as this was the same ocean that I would regularly go fishing

in with my grandfather.

Then, spending hours cycling the Tasmanian landscape (in between the busy-ness of

breeding sheep and cashmere goats) as a teenager I guess I had a sense of what the

scientists started telling us in the 80’s: that the rate of consumption of mankind had begun

to exceed the capacity of the planet to support the population in the manner to which

we had become accustomed.”

Roll forward some more years and what really prompted the formation of Climate Capital

was the arrival of my own children. I began to realise that the potential consequences of

global warming and over-consumption generally is likely to deliver up to them and their

kids a world which is worth contemplating only for the purpose of avoiding it.”

Life begins at 40

In between the two bookends of childhood observations of environmental damage and

the sense of concern for the environment that his children might confront, Michael spent

two decades years working in the corporate finance world – authoring one of the only

Australian texts on business and securities valuation, speaking at endless seminars about

capital raising, financial analysis and the economics of infrastructure businesses and

working with all types and sizes of businesses.

For the last handful of years, Michael has been CEO of a specialist valuation practice,

Value Adviser Associates, which, amongst other things, values infrastructure investments of

superannuation funds located here and around the world.

Those investments range from water filtration plants and integrated water and sewage

businesses in the UK to wind farms, gas fired generators to the dirtiest of brown coal fired

generators in the La Trobe valley in Victoria.

Climate Capital was the joint brain child of Michael and his co-director, Rod Douglas. Rod

is a passionate environmentalist and strategy visionary. Rod had spent years restoring the

environment of a 200 acre former dairy farm on an escarpment in the Gold Coast

hinterland and chairing Greening Australia in Queensland. Michael credits Rod with the

clarity of vision that has emerged for Climate Capital.

Current projects and achievements

Climate Capital is coming up to its fifth birthday this year. What are some of the

achievements of that time?

“We’ve worked on the sustainability strategy for one of the big four banks and developed

the commercialisation strategies for a number of emerging businesses that are focussed

on the fundamentals of sustainability (food, energy, air, water and waste). We’re also

working with companies such as MicroHeat to get them investor-ready and attract the

capital to achieve their potential.”

“We’re constantly amazed at the capacity of the business to attract quality talent – there

really are a lot of people that share the same vision for a world where investment returns

are in lock-step with the creation of a liveable future. One of our early recruits, Alan

Edwards, is an example of the marriage of high-level investment banking capabilities with

the vision of rebalancing nature and humanity. Alan is currently leading the development

of the IM and capital raising plans for MicroHeat Technologies.”

Is the capital market ready for investing in sustainability?

“I work with a lot of fund managers and superannuation funds and it’s interesting to see

the maturity that is entering the investment market. One of my mates is chief investment

officer of a super fund and has a provocative view which is that his investment strategy is

still “long brown, short green” – which means he is not yet prepared to take the plunge

into ‘green’ investments. He’s missing opportunities though – we’ve needed a policy shift in

order for the conditions to exist for capital to be attracted to wind farms, waste treatment

plants etc. That policy shift has started to occur and is evident in the fact that we can all

now – for example - see wind farms dotted around the country. Those wind farms are

owned and operated by very smart investors – not wild-west risk takers but custodians of

superannuation monies of this country’s workforce. They know what they are doing and

have invested in projects which produce reliable, low-risk returns.”

“The key to attracting capital in a market which is directly impacted by policy and

regulatory settings is to de-risk projects wherever possible. This means – for example -

putting power purchase agreements in place for green generation businesses, tolling

contracts for waste processing plants and distribution agreements with minimum supply

hurdles.”

I understand that is one of the features of the MicroHeat business?

“That’s right, Geoff. We see a lot of emerging businesses which have great technology but

sorely lack a commercial focus. MicroHeat has simultaneously been evolving its

technology and manufacturing processes at the same time as negotiating commitments

from manufacturers and distributors which provide an effective underpin to the expected

cashflows.”

Climate Capital and Geoff Harrington have partnered-up on the capital raising for

MicroHeat Technologies. More later in this newsletter….