Managing The Future, SDCL’s Jonathan Maxwell

by Angela Madden

Jonathan Maxwell, Founding Partner & CEO, Sustainable Development Captial LLP (SDCL).

Jonathan Maxwell, Founding Partner & CEO, Sustainable Development Captial LLP (SDCL).

Through the dust storm Jonathan Maxwell saw an opportunity and so SDCL was born, writes Editor-in-Chief ANGELA MADDEN.

While Jonathan Maxwell couldn’t see down the street for the dust and smog when he was travelling on business in 2006, the opportunity and the road ahead was clear.

“When I first arrived in Beijing to develop HSBC’s real estate investment business in China, you couldn’t see down the street for the smog and the dust blowing into town from the Mongolian desert. While China was growing at an incredible rate, the pollution, energy, water, waste and land management issues were huge challenges.

“As I took all this on board, I became convinced that this level of growth was simply unsustainable without major investment in environmental infrastructure. It was clear to me that this was something that all business and governments would need to address – and quickly. I saw a huge business opportunity associated with helping to address these investment challenges and to develop infrastructure solutions based on being more efficient with the use of resources,” explains Maxwell.

And, he was right. In the long-term, China is targeting to cut its greenhouse gas emissions by 40 to 45 per cent by 2020, compared with 2003 levels and to dramatically reduce energy intensity. So, naturally, Asia is firmly on his radar.

You may not know of Jonathan Maxwell – but you will. He left what many might consider a plum job at HSBC as Director of Business Development for the company’s real estate and infrastructure investment arm to set up a fund management company with a difference, focused on energy efficiency, which is fast attracting the interest – and investment – of governments around the world.

He traded his certain position to enter the unknown by establishing a fund management firm based on the drive towards more resource efficient, lower carbon economies, based on the need to cut costs, improve productivity and achieve more sustainable growth. But the trade is paying off. Today, Maxwell’s brainchild Sustainable Development Capital LLP (SDCL) is an advisor to governments, financial institutions, major project developers and a wide range of corporates on environmental investment. Maxwell has used the knowledge he has gained to serve as an adviser to the United Nations Environment Programme Finance Initiative and is a director and trustee of the Institute for Sustainability in the UK.

So, let’s take a closer look at SDCL. Established in 2007 the company, which is headquartered in London, also has offices in Hong Kong and New York and has, most recently, added Ireland to its expanding footprint.

But, what exactly was the idea that Maxwell conceived and what is it that makes SDCL different?

Well, it is a business worthy of a new asset class and while employing all the skills associated with traditional fund management mainly the ability to identify good investments and generate investment returns, it does a number of other things too; and it is those things that makes Maxwell different.

Essentially the business is based around the simple enough concept of working with governments and large companies to retrofit buildings and infrastructure to make them more energy efficient and reduce running costs for the future. Reducing energy demand reduces costs. Where the value of the cost reduction is greater than the cost of the infrastructure investment, there are positive investment returns and a win-win for investors and the owners of the buildings.

What makes SDCL stand out is the fact that it works with energy and technology companies to deliver energy efficiency solutions as a service rather than selling equipment. SDCL seeks to help with all aspects of a project from inception, designing a fully financed solution to ensure that a project can be delivered with no up front capital cost for clients, that the project is cash flow positive and that clients achieve enduring reduction in energy bills.

In essence – it is a one-stop asset enhancer drawing upon the diverse skillset of its team members who herald from a variety of backgrounds including property, operations, engineering, infrastructure financing, investment banking and law. “We have an exceptional and innovative team that makes our work possible” says Maxwell.

So, Maxwell saw that governments needed to transition their economies to more sustainable growth models but faced considerable challenges – particularly in the raising of the necessary capital to action change.

“Efficiency and doing more with less is the key to unlocking many structural barriers in our daily environmental challenges and to identifying the growth industries of the future,” says Maxwell.

But, how does SDCL make its returns? The idea of a fund investing in a project, rather than investing it in a stake of another company, to make money is more unusual.

For once, it really can be said that this model Maxwell has honed is a win-win situation for all. And, it is worth pointing out that SDCL doesn’t get paid until the retrofit is complete and the savings known exactly

In other words, any constructions/building challenges along the way are a problem for SDCL and not the end user.

“This is why governments and business like our model. If the contractors put in the wrong lights or something else happens then we have the responsibility of fixing it – and fixing it quickly – as we don’t get paid until the job is finished”.

It is easy to see why this model has obvious appeal to governments which are on the one hand under pressure to reduce carbon emissions and move to more sustainable ways of doing business, while at the same time facing fiscal challenges and in many cases severe austerity measures. And, this is really where Maxwell has made the single biggest impression as a visionary.

Three governments have launched energy efficiency funds and all three – the UK, Ireland and Singapore – have selected Maxwell’s SDCL to manage them.

Owen Lewis, Chairman of the Irish Green Building Council said that Maxwell’s company had huge potential: “Energy efficiency is the extraordinary opportunity that is constantly overlooked, as for some reason, more column inches and debate have been focused on renewable energy.

“However, it is well and good saying that you will get your money back in a short period of time but if you do not have the money to invest in the first place it is a mute point. So, if SDCL is a mechanism to raising the money needed and seeing the project through to the end, it is very welcome indeed and will allow business to make the move to energy efficiency.”

SDCL’s story was really kick-started when it was awarded a £50 million ($83 million) mandate from the UK Government. Backed by the UK Green Investment Bank (UK GIB) which is designed to accelerate private sector investment in the UK’s transition to a green economy, the fund has attracted a further £50 million ($83 million) to support a £100-200 million ($166- $332 million) investment programme.

The fund, UK Energy Efficiency Investments, was designed to co-invest alongside other sources of private sector capital in projects that reduce the demand for energy in non-residential buildings, industrial facilities and urban infrastructure in the UK.

SDCL’s story was really kick-started when it was awarded a £50 million mandate from the UK Government

That deal is believed to have made SDCL the first in the world to manage a government-backed fund dedicated to energy efficiency.

More was to follow quickly as Maxwell turned his sights to the east and Singapore which has committed to achieving a reduction in carbon emissions from 2012 levels by between seven to 11 per cent in 2020. With energy efficiency identified as one of key ways to help meet this target, the market was open for Maxwell’s SDCL.

So followed the company’s second government-backed fund. Last year (2013) Sustainable Development Capital Asia launched the Singapore Energy Efficiency Investment Programme for up to SGD $200 million to finance the transformation of manufacturing facilities with energy efficient systems and technologies.

Maxwell also knew that strategic partnerships with key local players in the market with a solid reputation in the area of sustainability would be a key to success.

Sustainable Technology Investments Limited, managed by UK financial services doyens Stephen Lansdown and Gordon Power, established a partnership with SDCL to launch its dedicated energy efficiency fund manager in the UK.

“Energy efficiency is good for business. It reduces costs, improves productivity and growth; it makes a real difference to the bottom line and can also go a long way to maintaining profitability.”

Similarly, SDCL Asia is a joint venture between SDCL and the First Eastern Investment Group – a Hong Kong-based investment group pioneering in the field of direct investments in China. Founded by Victor Chu in 1988, First Eastern and its associates have invested into over 100 projects in China covering infrastructure, light industries, real estate development and financial services, generating more than $7 billion of total investments.

More success was to come from Asia when in December 2013, it was revealed that SDCL Asia was launching the UK China Energy Efficiency Investments Fund, which would seek to invest up to $200 million in energy efficiency projects and opportunities.

This deal was announced when SDCL was invited to take part in the largest-ever British business delegation to China led by UK Prime Minister, David Cameron. But it has been years in planning. (See photo at beginning of this article).

Chairman of the First Eastern Investment Group, Victor Chu, says: “First Eastern established the UK China Fund partnership concept during the Prime Minister’s first visit to China in November 2010 to bring the best of British business to China. SDCL was our key investment in the green economy. Now is the perfect time for us to connect its achievements in the UK with the huge opportunities in China.”

But, what exactly does this fund aim to do? Maxwell explains: “Essentially this is a major initiative to bring the best efficiency technology and service solutions from the UK to China, and visa versa.”

Following swiftly after that news was the announcement that SDCL was the Preferred Applicant for the creation of a €70 million ($96 million) Irish Energy Efficiency Fund announced by Energy Minister Pat Rabbitte – although, not surprisingly, Maxwell’s plans to grow the fund are much more ambitious. “This fund is structured in a way that we provide matched funding and initial commitment is up to €35 million ($48 million) each but I would hope that was just a starting point and that it would grow significantly beyond that expectation.”

But, perhaps Maxwell sums up the opportunity best when he says: “Energy efficiency is good for business. It reduces costs, improves productivity and growth; it makes a real difference to the bottom line and can also go a long way to maintaining profitability. Simultaneously, energy efficiency also offers the most direct and affordable route to lowering greenhouse gas emissions. He concludes “Energy efficiency represents the ultimate sustainable investment – and it pays for itself!”

To date SDCL has raised some $250 million for its energy efficiency funds – but somehow you get the feeling that that’s only the start of Maxwell’s journey.