Principles of Transition Finance Investing

C. ROBIN CASTELLI is Head of Transition Finance Investment at Orange Ridge Capital, a private equity firm focusing on generating investment returns from high-quality, sustainable, real assets. He is the author of Quantitative Methods for ESG Finance and an expert in identifying and hedging climate risk at the enterprise level.

• 1 An Introduction to Transition Finance 1.1 Introduction on the principles of anthropogenic climate change1.2 Future evolution of CO2 levels and global temperature1.3 What is the definition of transition finance?1.4 What do we mean by transition finance?1.5 What do world business and economics leaders think about transition finance?2 Model-Based Approaches to Investing2.1 Why do we need models to invest in transition finance?2.2 How do we model climate and the impact it has on the economy and society2.3 What to model: Vendor models versus proprietary models2.4 The problem of climate data in general2.5 Data quality issues for acute physical risk2.6 Data quality issues for chronic physical risk2.7 Data quality issues for transition risk2.8 Data quality issues for climate liability risk2.9 Fat tails: Where climate risk and opportunities truly hide2.10 Are models alone enough to allow us to make informed investing decisions?3 The Problem of Back-Testing and Benchmarking3.1 The problem of back-testing, narratives, and validation3.2 Narratives and why we need them to be strong and explainable3.3 Back-testing: Why we really cannot do it and what to do about it3.4 Validation and why it is a challenge3.5 What to benchmark against?4 Types of Funds in Transition Finance4.1 What type of investments?4.2 Is it a static asset allocation strategy or a dynamic one?4.3 One approach versus multiple approaches4.4 Diversification and moving beyond purely emissions-based approaches4.5 Conceptual framework for quantitative investing in transition finance4.6 Positive screening4.7 Thematic investment4.8 Investing in the transition4.9 The four-fund/three strategy approach5 Examples of How to Build an Investment Portfolio5.1 Decide what is the climate transition scenario you believe is likely to happen5.2 Run the models based on your scenarios5.3 Challenge your model results5.4 Use subject matter expertise to apply overrides and overlays to the models5.5 Identify the set of opportunities at sector, theme, and individual name level5.6 Identify the driver for each opportunity5.7 Determine the overall Technology Readiness Level for each opportunity5.8 Determine the investment horizon for each opportunity5.9 Determine the investment maturity for each opportunity5.10 Determine the crowdedness for each opportunity5.11 Identify the root problem for each opportunity5.12 Identify what the root problem causes for each opportunity5.13 Identify what needs to happen to fix the issue for each opportunity5.14 Identify how soon the fix needs to happen for each opportunity5.15 Identify what the investment opportunity is for each opportunity5.16 Identify what the benefit of the investment is for each opportunity5.17 Identify the potential market size for each opportunity5.18 Identify the long-term investment vision for each opportunity5.19 Identify the trigger event for each opportunity5.20 Identify the primary fund in which each opportunity belongs5.21 Identify the primary strategy in which each opportunity belongs5.22 Select the investment theses that align with your individual risk appetite, investment horizon, and area of expertise5.23 Deep dive in investment theses of interest to identify targets and refine strategies5.24 Build your portfolio based on identified targets6 Investment Trigger Events6.1 What is an investment trigger?6.2 How do we identify an investment trigger?6.3 What is the likelihood and timing of a trigger and what factors affect it? 7 About Hydrogen7.1 The physics and chemistry of hydrogen and the effect on what role it might play7.2 The problems with manufacturing hydrogen in volumes7.3 The pitfalls of producing hydrogen by electrolysis7.4 The false promise of producing hydrogen by pyrolysis7.5 The mirage of naturally occurring hydrogen7.6 The deceitful idea of producing hydrogen in cheap locations and shipping it to points of usage7.7 Transporting hydrogen as ammonia is not a good idea7.8 Hydrogen in ground transportation7.9 Hydrogen for heating and steam generation7.10 Ammonia-from-hydrogen uses7.11 Hydrogen to make methanol for shipping7.12 Hydrogen for airplanes7.13 Hydrogen for grid energy storage8. Overview of Primarily Growth Fund Investment Theses8.1 Which opportunities are primarily growth opportunities?8.2 BECCS: Bioenergy with Carbon Capture and Storage8.3 Biochar8.4 Energy Efficiency for Buildings8.5 DAC (Direct Air Capture)8.6 Electric Airplanes8.7 Methane measure and VCM satellite monitoring8.8 MMRV (Measurement, Monitoring, Reporting, and Validation) of Voluntary Carbon Credits8.9 Novel modeling for hurricane, tornado and wildfire impacts8.10 Ocean-based CDR8.11 Transition and physical risk E2E model providers for financial institutions8.12 VCM E2E risk transfer solutions8.13 VCM exchanges8.14 VCM insurance products8.15 Workforce retraining companies8.16 Climate litigation8.17 Vertical farming9. Overview of Primarily Public Strategy Fund Investment Theses9.1 Which opportunities are primarily Public Strategy Fund opportunities?9.2 Aluminum mines and smelters9.3 Copper mines9.4 Electric transportation (cars/trucks/trains/motorcycles)9.5 Insurance companies with novel modeling approaches for coastal areas9.6 Nuclear reactor manufacturers9.7 Critical mineral mines9.8 Uranium mines, prospecting and processing9.9 HVAC manufacturers and installers9.10 Sustainable steel9.11 Emissions-free shipping10. Overview of Primarily Infrastructure Strategy Fund Investment Theses10.1 Which opportunities are primarily Infrastructure Strategy Fund opportunities?10.2 CCUS (Carbon Capture, Utilization, and Storage) infrastructure10.3 Electric grid infrastructure upgrade10.4 Energy storage10.5 Geothermal energy generation companies10.6 Hydroelectric power generation companies10.7 Sustainable Aviation Fuel10.8 Biofuels and waste to energy10.9 Tidal power generation companies10.10 Water10.11 Wind and solar power generation companies10.12 Sustainable concrete10.13 Ocean Thermal Energy Conversion (OTEC)10.14 Coastal tidal protection11. Overview of Primarily Climate Alternatives (Physical Asset Plays) Investment Theses 29411.1 Which opportunities are primarily Climate Alternatives/Physical Assets Fund opportunities?11.2 Abandoned subterranean mines11.3 Forest land plantation forest11.4 Forest land primary forest11.5 Northern Latitudes Farmland11.6 Paper recycling facilities11.7. Real estate in climate sanctuary cities12. Sample Deep Dive: Geothermal Energy12.1 Which is the climate driver for geothermal energy?12.2 Which unds does geothermal energy fall under?12.3 What is the TRL for geothermal?12.4 Determine the investment horizon for geothermal12.5 What is the investment maturity for geothermal?12.6 How crowded is geothermal?12.7 What is the root problem for geothermal?12.8 What is the root problem for geothermal cause?12.9 What needs to happen to fix the root problem for geothermal?12.10 How soon does the fix need to happen for geothermal?12.11 What is the investment opportunity for geothermal?12.12 What is the benefit from investing in geothermal?12.13 What is the market size for geothermal?12.14 What is the long-term vision for geothermal investments?12.15 What is the trigger for geothermal investments and has it already occurred?12.16 Which new companies have been identified in early stages for geothermal (VC targets)?12.17 Which new companies have been identified as emerging players for geothermal (PE targets)?12.18 Which established players exist in geothermal (private credit targets)?13. Sample Deep Dive: Northern Latitudes Farmland13.1 Which is the climate driver for Northern Latitudes Farmland?13.2 Which funds does Northern Latitudes Farmland fall under?13.3 What is the TRL for Northern Latitudes Farmland?13.4 Determine the investment horizon for Northern Latitudes Farmland13.5 What is the investment maturity for Northern Latitudes Farmland?13.6 How crowded is Northern Latitudes Farmland?13.7 What is the root problem for Northern Latitudes Farmland?13.8 What does the root problem for Northern Latitudes Farmland cause?13.9 What needs to happen to fix the root problem for Northern Latitudes Farmland?13.10 How soon does the fix need to happen for Northern Latitudes Farmland?13.11 What is the investment opportunity for Northern Latitudes Farmland?13.12 What is the benefit from investing in Northern Latitudes Farmland?13.13 What is the market size for Northern Latitudes Farmland?13.14 What is the long-term vision for Northern Latitudes Farmland investments?13.15 What is the trigger for Northern Latitudes Farmland investments and has it already occurred?13.16 Which geographies have been identified for Northern Latitudes Farmland?14. Sample Deep Dive: Energy Efficiency for Buildings14.1 Which is the climate driver for efficiency reconversions for buildings?14.2 Which funds does Energy Efficiency for Buildings energy fall under?14.3 What is the TRL for Energy Efficiency for Buildings?14.4 Determine the investment horizon for Energy Efficiency for Buildings14.5 What is the investment maturity for Energy Efficiency for Buildings?14.6 How crowded is Energy Efficiency for Buildings?14.7 What is the root problem for Energy Efficiency for Buildings?14.8 What does the root problem for Energy Efficiency for Buildings cause?14.9 What needs to happen to fix the root problem for Energy Efficiency for Buildings?14.10 How soon does the fix need to happen for Energy Efficiency for Buildings?14.11 What is the investment opportunity for Energy Efficiency for Buildings?14.12 What is the benefit from investing in Energy Efficiency for Buildings?14.13 What is the market size for Energy Efficiency for Buildings?14.14 What is the long-term vision for Energy Efficiency for Buildings investments?14.15 What is the trigger for Energy Efficiency for Buildings Investments and has it already occurred?14.16 Which new companies have been identified in early stages for Energy Efficiency for Buildings (VC targets)?14.17 Which emerging companies have been identified as emerging players for Energy Efficiency for Buildings (PE targets)?14.18 Which established players exist in Energy Efficiency for Buildings (private credit targets)?