Abolishing the green premium

Sustainable investing is a necessary answer to a real problem. It is also, in its current form, an inefficient one. The finance academic Vesa Puttonen has made the case at length that the sector’s priorities are misplaced in ways that are measurable, and his argument is worth taking seriously rather than agreeing with politely: much of what the sector counts as progress does not survive contact with the numbers.

Three things that do not work

The E crowds out the S and the G

The framework is meant to be holistic. In practice it tilts heavily environmental, and the social and governance halves get thin treatment. The consequences are not neutral. Divestment from high-emission industries — the Canadian oil sands are the standard example — has largely moved assets to owners with less scrutiny, less capital and less inclination to spend it on abatement. Emissions did not fall. Ownership changed.

The numbers are not verified

Standardised, reliable data is the precondition for everything else, and corporate greenhouse gas reporting is not yet that. Frameworks such as the EU’s Corporate Sustainability Reporting Directive have improved the shape of disclosure without solving the substance: much of it remains voluntary, and much of it is unverified by any third party. Data nobody has checked cannot carry an investment decision, however neatly it is presented.

Returns come from the label

A significant part of ESG return has been demand for the category rather than value created inside the asset. That is a green premium, and a premium paid for a label rather than for cash flow behaves the way premiums usually do. It inflates, it attracts capital on the strength of having inflated, and it reverses. Building a sustainability thesis on it is building on the least durable thing in the market.

The part that survives

The way out of a premium is a cost advantage. If a technology is the cheapest way to solve a problem, it does not need a label to attract capital, and it does not stop working when sentiment turns. Two things we look for:

Modular infrastructure. Microwave-assisted pyrolysis reactors are a useful example: they turn mixed waste into synthesis gas, biochar, biocrude that can be refined onward into sustainable aviation fuel, and electricity. Because the design is decentralised, the logistics stay simple and the unit can be sized to the place rather than the place to the unit. In practical terms it can be deployed quickly and in awkward settings, which is most of the settings we work in.

Energy transitions that lower the bill. Small island states are economically exposed largely because they import fossil fuel at the end of a long supply chain. Solar microgrids and wind, balanced by waste-to-energy, move them toward energy independence. The immediate benefit is a stabler cost of power. The durable one is resilience at the edge of the grid, which for an island in a cyclone belt is not an abstraction.

Neither of these requires a premium in order to make sense, which is very nearly the test.

Engagement, rather than divestment

Divestment is the sector’s most common lever and often its least effective. Selling out of a high-emission business hands it to someone with less capital, less experience and, frequently, more appetite for the parts of the operation that a listed owner would not touch. The asset keeps emitting. The seller reports an improved portfolio.

Ownership is the alternative, because ownership comes with influence. Working alongside a government on how a technology fits its own development plan, under an agreement long enough for both sides to plan against, changes what actually gets built. It is slower than selling a position, and it is the only version that changes the emissions rather than the reporting boundary.

Measurement someone can check

Transparency is what makes any of the above credible, and it has to be specific.

• Carbon accounting to ISO 14064. A standardised framework means reductions and offsets can be tracked consistently and compared across projects, rather than each project grading its own homework.
• Community metrics. Jobs created locally, waste diverted, measurable public health effects. These are the outcomes that matter to the people living next to an asset, and they are the ones most often left out.
• Returns without the premium. Financial performance and impact should come from the same place. If the return depends on someone paying more for the label, the impact was never the product.

What the numbers look like on the ground

A single modular bioreactor of the type described above, in a Vanuatu deployment:

Per unit
Mixed waste processed	33 kg/hour
Biocrude oil	220 litres/day
Electricity	38 kWh/day

Scaling the same unit economics gives a sense of what a fleet does, wherever the feedstock exists to support one. At 5,000 units:

Fleet of 5,000
Biocrude revenue	>$450,000/day
Electricity revenue	$38,000/day
CO₂ sequestered or avoided	>540,000 t/year

Those revenues imply about $0.41 per litre of biocrude and $0.20 per kWh — worth stating explicitly, because a fleet illustration is only as good as the prices underneath it. The fleet figure is a unit-economics illustration, not a deployment plan for Vanuatu; the waste arisings of a single small island state support a small fraction of that number, and the constraint on deployment is feedstock, not capital.

Where this leaves us

Sustainable investing is not obviously short of ambition. It is short of arithmetic. The sector’s structural problems — the environmental tilt, the unverified data, the premium — are all tractable, and all of them come down to preferring a measurable outcome to a defensible-sounding one.

Our position is that the future of this depends on financial objectives and real-world impact being the same objective, rather than two that have to be traded off. Where a project is the cheapest way to solve the problem in front of it, that alignment is automatic. Where it is not, no amount of framework will hold it together.