Gunung Capital sets its sights on ESG assets with $500 million war chest
When it comes to decarbonisation, investment firm Gunung Capital believes firmly it should begin at home.
The private investment company aims to invest $500 million in environmental, social and governance (ESG) assets, with a portion earmarked for decarbonisation initiatives for the steel business of its Indonesia-based portfolio company Gunung Raja Paksi (GRP), said Gunung Capital’s managing partner Kelvin Fu to AsianInvestor in an interview.
He said the bulk of the capital is expected to be allocated over the next five to seven years to three core sectors: clean energy infrastructure, industrial transition, and carbon mitigation.
Deployments in climate tech, food and agriculture, building infrastructure and the Internet of Things (IoT) would also be on the company’s radar, he said.
It is in industrial transition that Gunung Capital finds itself well-placed to invest in and help heavy industry companies make the green transition by leveraging its experience from GRP’s decarbonisation journey, said Fu.
Established in 2020, one of Gunung Capital’s main responsibilities is to help GRP – a family-owned business that operates the largest steel mill in Indonesia – modernise its operations and diversify its investments beyond the building material space.
GRP was listed in 2019 on the Indonesian stock exchange.
“We set up Gunung Capital as a holding company that looks at investments with a private equity lens, as an asset manager and not as an operator,” said Fu, adding that it is not a private equity firm and does not raise third-party funds.
One of the first tasks Gunung Capital undertook was to strengthen GRP’s talent pool with external hires to replace some of the family members in the company and digitalise its business processes.
DECARBONISATION BEGINS AT HOME
The next critical step was in getting GRP to adopt sustainability measures for its steel business and speed up its green transition to avoid becoming stranded assets like coal.
“We don't stand still. We look at our carbon footprint and said we need to drive it down. And there’s a strong business opportunity here because by driving down the low carbon footprint, we're able to get green premium,” he said, adding that the company can then price its steel higher than its competitors.
To achieve that, the company invested in a modern Light Section Mill Machine that was able to increase the steel production efficiency by 500,000 metric tonnes a year, resulting in reduced gas and power consumption by almost 50%.
“We installed a new Enterprise Resource Planning (ERP) tool from SAP in our pursuit towards becoming a more digital company and to march towards Industry 4.0,” said Fu, adding that the ERP enabled decision making from inventory control to product pricing with real-time data.
GRP also installed smart electricity meters in its steel plant to monitor energy usage and carbon emissions granularly. The company also invested in electric arc furnaces - to recycle scrap metal into steel – at 20% of the carbon footprint of blast furnaces which makes steel using iron ore and coking coal as raw materials.
“We have gone one step further to certify the environmental footprint of our products and we are the first in Asean to achieve Environmental Product Declarations for a few products,” said Fu, adding that EPDs are recognised internationally.
Through Gunung Capital, GRP has also purchased carbon offsets from Climate Impact X (CIX), the global carbon credit exchange market backed by Temasek Holdings, DBS, Standard Chartered, and SGX that aims to drive environmental impact at scale.
“We have done sustainability and understand what it means. So, when we evaluate companies, we have stronger insights into how tough it is to change a business,” Fu said, adding that it selects portfolio companies that are prepared to trial new change methods and technologies under Gunung Capital’s lead.
CLIMATE TECH OPPORTUNITIES
Gunung Capital plans to invest in clean energy infrastructures such as wind farms and solar plants and supporting industries such as cable laying and power grid extension, Fu said, as well as carbon storage and sequestration facilities to mitigate carbon emissions.
He sees huge potential in climate tech such as analytics platform that can predict and assess climate impacts. “For example, if there's going to be flooding in parts of Asia, we want to know where it is because that really affects what kind of investments we can make in that particular area,” he said.
However, he believes that there are more climate tech opportunities among companies in the US and Europe because of the scale and scientific expertise they have over their Asian counterparts.
Fu said Gunung Capital is developing a dedicated Asean decarbonisation strategy.
“Some of the near-term opportunities will probably be in the food and agriculture space, like alternative protein or increasing farming yields,” he said.
Within Southeast Asia, he sees huge potential in Thailand and Vietnam because of their young, educated workforce and strong consumer spending power, while Indonesia has the advantage of a huge population and recent infrastructure developments, such as expressways, ports, and telecommunications, that have piqued foreign investor interests.
The article has been edited to state that the steel production efficiency has increased by 500,000 metric tonnes a year.