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Business Hypothesis Testing On Economic Viability: Investing in CCUS

September 26, 2019
Mike Callis

The Solution

One of Pangea SI’s investment clients held a share of a major company taking a strategic decision to spend heavily on initiatives related to Carbon Capture, Usage and Storage (CCS / CCUS).

Our client did not know of any evidence for believing that a return on investment from technologies in this field will be possible, and – indeed – the company in question had not really presented a vision for economic viability. Instead, the move into CCS had framed development of the technology as an environmentally conscious move. The investor we worked with believed that if the company wished to present itself as environmentally conscious, then the only real strategy was to make steps not to produce carbon in the first place, rather than searching for ways to offset carbon emissions.

Our client’s hypothesis was, therefore, that the company it held investments in was making a bad decision.

Faced with choices about whether to adjust their portfolio (reduce investment in the company and look at alternative businesses), the client opted to do some rapid learning on CCS, and our service presented the perfect platform for doing so.

The Challenge

We identified multiple CCS Experts matching the client brief and the client selected four to consult with over the phone. The whole process - from receiving the request, to completing the project - took under a week. The client was able to learn everything it wanted to know without sharing its own name, its hypothesis, or directly revealing that it held investments in any particular company. Open-ended questions, and an open-minded approach were key. The client was fastidious in ensuring that it approached their enquiries from an unbiased perspective, genuinely hoping to learn about CCS. This enabled more information to be gathered, and more possibilities to be uncovered than if a particular agenda had been pushed.

….After the consultations, the client told us that two Experts had agreed with the hypothesis, and various negative scenarios were discussed in depth. However, two other consultations provided opposite analysis: firstly, the likelihood of medium-term implementation and enforcing of Carbon Tax regulation in a couple of the company’s key locations meant CCUS investment was an inevitable upcoming spend. Secondly, despite disproportionate press attention, the company had positions in several other areas that suggested its long term was stable enough for it not to be a concern, regardless of whether CCS investment was a good thing or not. Lastly, the growing opportunities for using the carbon and monetising that (the ‘U’ in CCUS) had both future financial potential and generated significant enough interest to be of value from a corporate branding perspective.

The Results

Our client remains on the fence about CCUS. Nonetheless, in just a few hour-long telephone consultations through Pangea SI’s service, it was able to make the informed decision to hold on to its investments and monitor the situation on a regular basis.

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