If you were told that one of the most dynamic, environmentally friendly companies in Europe was controlled by a man described by The Times last year as an “oil tycoon”, what would you say?
Well, that is just the case. The company is Aker Horizons, and the tycoon is Kjell Røkke.
Asset Value Investors (“AVI”) has invested in family-controlled businesses for over 35 years. We have long contended that the influence of the right kind of controlling shareholder is a benefit – not a burden as is often suggested. In this vein we seek to align capital with exceptional families who act as active stewards of capital, creating wealth for themselves and minority shareholders. As a result, we have spent a lot of time over the years thinking about the G for governance in ESG.
What we are witnessing in 2021 is that families – famed for their long-term time horizons – are reacting to arguably the world’s greatest challenge: climate change. As such, we view family businesses as natural supporters of environmental issues. We see this across our portfolio; from EXOR, the holding company of the Agnelli family who are pushing electrification at Stellantis and Ferrari, to the Wallenberg’s Investor AB who talk of “future-proofing” their portfolio.
It is however Kjell Røkke’s Aker that has been most active. So, what have they done and how does it provide an insight into how to think about ESG?
In 1996 Kjell Røkke became the largest shareholder in Aker – an industrial group dating back to the 1840s. Aker re-listed in 2004 and has subsequently achieved annualised shareholder total returns of +21%. These strong returns have been built on active portfolio management and deal making, principally in oil and gas and related sectors. In the early years, Aker’s performance was built on the boom in oilfield services, followed more recently by growth in oil exploration and production (“E&P”). This culminated in the creation of Aker BP – the product of a merger between Det Norske and BP subsidiary BP Norge – in 2016.
In 2020 Aker announced the creation of Aker Horizons – a “holding company dedicated to developing and operating companies within renewable energy and low-carbon segments”. Initially Aker Horizons’ portfolio consisted of stakes in two assets spun-off from Aker Solutions: Aker Off- shore Wind and Aker Carbon Capture. In 2021 these have been complimented by the acquisition of a 75% stake in Mainstream Renewable Power (“MRP”), a company active in wind and solar energy internationally. The investment in MRP, inclusive of new equity, totalled €758m and was funded through a private placement, as well as the issuance of a convertible bond. Aker took part in both, and made a further loan to Aker Horizons, highlighting how holding companies can support their operating asset’s capital market activities. Subsequently, Aker Horizons has launched and listed Aker Clean Hydrogen, a company operating in the industrial clean hydrogen market.
Taken together, Aker have created a diversified collection of renewable energy and technology companies. Collectively, Aker Horizons’ companies are active across the whole value chain – from energy production, to transmission, and even the capture and storage of emissions. As is indicative of how family run businesses manage risk, the diversified nature of Aker Horizons’ operations means that success is not wedded to one future energy market outcome.
Aker sees this strategic development not as a step-change as some have depicted it, but rather as an extension of a trend that forms an integral part of Aker’s history. This evolution should be seen within the context of Aker having continually adapted and moved with the times, from a manual workshop to shipbuilding; from offshore construction to oilfield services; and now from oil and gas to renewables. At each stage in Aker’s history, the knowledge, skills and capital of the prior step inform the next.
For example, expertise in deep water offshore wind is built on 40 years’ experience in designing, delivering, and servicing semi-submersible drilling and production platforms in the oil and gas industry. Likewise, Aker’s proprietary carbon capture technology has been developed since the 1990s.
An ESG strategy that seeks to exclude certain companies might well miss out on this accumulated knowledge and technology. We believe such an approach to ESG is hollow. Collective knowledge and history are crucial to problem solving and as such blanket exclusions are not useful.
Over the coming years, Aker Horizons intends to invest 100bn NOK (approx. $12bn) in “planet positive” investments. In doing this, they are targeting the removal of 25 million tonnes of Co2 per year by 2025 which is equivalent to half of Norway’s total annual emissions.
As and when Aker achieves these lofty ambitions, we think it will serve as a valuable case study for how AVI thinks about ESG. Not only will success here add credence to the idea that exclusionary conceptualizations of ESG are sub-optimal, but also to the idea that families interested in long-term wealth creation and preservation are natural stewards of the environment and will aim to create value in a sustainable way. For over 35 years, AVI has benefited from investing alongside families to outperform global equity markets. We are therefore optimistic that such family run businesses will rise to the challenge and capture opportunities over the next 35 years.