A fund manager who 'aggressively pushed' Jeremy Grantham's GMO to launch its first climate change fund shares how to capitalize on clean energy before it's too late — including 4 top stock picks

  • Lucas White is the portfolio manager of the $220.3 million GMO Climate Change fund, which he "aggressively pushed" the firm to launch in 2015. 
  • White believes that the economics for clean energy are so compelling at this point that they will drive transformative changes in industries such as biofuels, electric vehicles, as well as solar and wind energy.
  • He shares four top stock picks of companies that are positioned to benefit from the climate change-driven trends.
  • Visit Business Insider's homepage for more stories.

Lucas White is not a die-hard climate change activist but he does want to save the environment — and make money at the same time.

"Unfortunately, the environmental situation is looking bleaker and bleaker, but on the positive side of the ledger, the costs for wind, solar, energy storage, electric vehicle batteries are falling very dramatically," White told Business Insider in an interview. 

In 2015, White started to push "aggressively" within GMO — the investment firm co-founded by Jeremy Grantham — to launch a climate change strategy.

Two years later, he and co-manager Thomas Hancock oversaw the launch of the now $220.3 million GMO Climate Change fund, which has allocated the majority of its assets to the clean energy and energy efficiency industries. 

"I don't know when the world is going to wake up to climate change," White said. "But even if it doesn't, the economics are so compelling for clean energy solutions at this point and they're going to be more compelling as time goes on, that the economics alone will drive transformative change in many of these industries."

He also expects governmental support to sustain the long-term growth of these industries.

"If global governments finally get their act together and recognize the urgency with which we need to address climate change, that would be a huge deal as well," he said.

Four major trends sped up by climate change

To capitalize on growth areas with long-term potential, White has identified four major investment opportunities.

One of them is the electric vehicle value chain, which counts for about 30% of the fund.

"We think that electric vehicles are brilliant and that they're going to take over the world," he said. "But that doesn't mean we think Tesla is an attractive investment."

Instead of investing in EV makers with "expensive price tags," White is looking at the value chain that leads up to the finished product, such as battery producers, semiconductor companies, and raw materials that go into making the batteries or vehicles. 

"There are various ways of playing that technology or solution and so we try to be very thoughtful about the industry dynamics along all those links in the chain," he said. 

Biofuels are also an "exciting" investment opportunity on his radar. Biofuels are liquid fuels converted from biomass such as organic matter or wastes, according to the Department of Energy. 

"When you're talking about biodiesel, renewable diesel, or sustainable aviation fuel, they're either blended with fossil fuels to make a cleaner mix or they're substitutes for fossil fuels," he said. "And you don't need a whole new infrastructure or anything like that. You just need some support and something pushing them along."

Solar and wind energy are other areas that have captured White's attention. 

"We are excited about solar and wind. For wind, it's more of the prospects for wind that we're excited about, it's a little harder to find exciting investment opportunities for us right now," he said.

He continued: "For solar, there are a lot of solar companies that we wouldn't touch with a 10-foot pole, but we can find some idiosyncratic individual companies in the solar industry that we're excited about."

Lastly, the fund is also significantly invested in clean energy materials such as copper and nickel that underlie the transition to clean energy. 

The trend may appear to be at odds with the fund's climate change mandate, but White explains that without these materials, electric vehicles as well as solar and wind energy development will take "tremendous amounts of time."

"I am on board with getting off of fossil fuels. But if you want to get off of fossil fuels, you're just moving the burden from one set of materials to another set of materials," he explained. "So rather than using fossil fuels, you need more lithium, you need more nickel, cobalt, copper, vanadium. It's just a different set of materials that you're going to rely on."

Four stocks to capture the trends 

Renewable Energy Group (REGI) is a biofuel company poised to take advantage of the energy transition in the future, according to White. 

"Renewable Energy Group has historically been more focused on biodiesel but they've just announced some capacity expansion and renewable diesel," he said. 

Graftech International (EAF), which is the largest position in the fund, produces ultra-high power electrodes for electric arc furnace steel manufacturing. 

"Traditional steel manufacturing is incredibly carbon-intensive whether you're using coking coal or metallurgical coal," he said. "And you have to combust it, you need an incredibly high amount of heat to smelt metal or sell steel."

He continued: "Graftech is involved in an alternative form of steel making and Graphtech's electric arc furnace steel manufacturing has about 75% less carbon emissions than traditional steel manufacturing."

Canadian Solar (CSIQ) is an example of a solar manufacturer that has stood out in a massively competitive solar industry.

"They produce solar panels but also develop solar projects and do grid integration and other work as well that's related to increasing solar in the market," he said. "So they're a company that we've been very excited about."

Grupo Mexico, a copper miner, is a way to capitalize on the clean energy materials trend. 

"We are going to do, in our opinion, what makes sense from an environmental perspective and from an investment perspective, which is to make pragmatic reasonable trade-offs," he said. "And if clean energy revolves around copper, we're going to have some copper miners like Grupo Mexico."

He added that the firm is also actively engaging with Grupo Mexico and other miners in the portfolio to improve their operation and environmental impact. 

Climate change sentiment in a Biden win

Approaching the November 3 election day, utilities and clean energy stocks have been deemed by many strategists to be potential winners in a Biden victory given the presidential candidate's fiscal and climate change policies. 

White agrees that a Biden presidency would be "great for the sentiment" in clean energy circles. 

"To go from a president who's in denial about climate change and pulled us out of the Paris Agreement, killed the Clean Power Plan, incentivized coal, and tried to disincentivize biofuels," he said of President Trump.

He added: "To go from someone like that to someone like Biden, who wants trillions of dollars into clean energy and sees it as a huge risk to the world, to the US economy and to our human species in general, it would be a huge deal for sentiment."

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