meaning of ‘green’ environmental investing frenzy stretches

6/25/2021 Environmental Investing Frenzy Stretches Meaning of ‘Green’ - WSJ

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Environmental Investing Frenzy StretchesMeaning of ‘Green’Seabed miner positions itself as an ecological crusader with a planned $2.9 billion valuation, even asoceanographers warn of ruined habitats

By , and June 24, 2021 1�00 pm ET

Justin Scheck Eliot Brown Ben Foldy

The first time Gerard Barron tried to mine the sea floor, the company he backed lost a half-billion dollars of investor money, got crosswise with a South Pacific government,destroyed sensitive seabed habitat and ultimately went broke. Now he’s trying again, butwith a twist: Mr. Barron is positioning his new seabed mining venture, The MetalsCompany, as green, to capitalize on a surge of environmentally minded investment.

TMC is set to receive nearly $600 million in investor cash in a deal slated to take thecompany public in July. If successful, that would value TMC at $2.9 billion—more thanany mining company ever to go public in the U.S. with no revenue.

“We were positioning this incorrectly as a big mining, deep-sea mining project, which itwas,” says Mr. Barron, who says the metallic nodules he hopes to bring up are crucial tobuilding electric-vehicle batteries. “But it wasn’t the way that we were going to garnersupport from investors to make this industry a reality.”

Green investing has grown so fast that there is a flood of money chasing a limited numberof viable companies that produce renewable energy, electric cars and the like.

Some money managers are stretching the definition of green in how they deployinvestors’ funds. Now billions of dollars earmarked for sustainable investment are goingto companies with questionable environmental credentials and, in some cases, huge

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business risks. They include a Chinese incinerator company, an animal-waste processorthat recently settled a state lawsuit over its emissions and a self-driving-truck technologycompany.

One way to stretch the definition is to fund companies that supply products for the greeneconomy, even if they harm the environment to do so. Last year an investment companyprofessing a “strong commitment to sustainability” merged with the operator of an open-pit rare-earth mine in California at a $1.5 billion valuation. Although the mine has ahistory of environmental problems and has to bury low-level radioactive uranium waste,the company says it qualifies as green because rare earths are important for electric carsand because it doesn’t do as much harm as overseas rivals operating under looserregulations.

The stretching has been true for special-purpose acquisition companies, one of thehottest investments on Wall Street. More than 45 SPACs that have declared themselvesgreen have raised nearly $15 billion, according to data provider SPAC Track.

SPACs raise money on the stock market from investors who give them broad latitude tolook for an existing private company to acquire. SPACs typically promise shareholdersthey will invest their cash within two years. With so much money looking for deals, theycan’t be too picky. Sometimes multiple suitors converge on the same operating company,in a frenzy known as a “SPAC-off.”

A SPAC that is set to merge with TMC, the Sustainable Opportunities Acquisition Corp., orSOAC, went public on the New York Stock Exchange in 2020 and met more than 90companies before deciding on the deep-sea miner. “It’s like speed dating,” says GinaStryker, the SPAC’s general counsel.

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Even more money is coming from mutual funds and other big investment vehicles. Sincethe beginning of 2019, stock mutual funds and exchange-traded funds with ESG as part oftheir mandate—meaning they prefer to invest in companies with certain environmental,social and governance characteristics—have received a net $473 billion from investors;just $103 billion net has gone into all other stock funds, according to a Goldman SachsGroup compilation of data from fund tracker Morningstar Inc.

When it comes to green companies, “there just isn’t enough” to absorb investor demand,says Laura Nishikawa, a managing director at MSCI, a research company that compilesindexes of companies, including ESG indexes, that many fund managers follow to decidehow to allocate green investment.

A polymetallic, or manganese, nodule displayed by TMC at a mining convention in Toronto in 2019.PHOTO: CHRIS HELGREN�REUTERS



In response, MSCI has looked at other ways to rank companies for environmentallyminded investors, for example ranking “the greenest within a dirty industry,” Ms.Nishikawa says. “If you were to be too purist about where you set these thresholds youwould end up with a not-really-investable universe,” she says.

The second-biggest firm on MSCI’s Global Pollution Prevention Index is DarlingIngredients Inc., an $11 billion animal-waste-rendering company. New Jersey’s attorneygeneral sued the company in 2019 alleging rotting-animal odors from a Newark plantwere so pervasive that neighbors suffered migraines. As of March, green-investmentfunds held more than $300 million in Darling stock, according to FactSet Research data.

The company settled the New Jersey suit last year without admitting to the allegations.“We continue to make investments. We continue to upgrade the air emissions of ourplants,” a Darling spokesman says.

Ms. Nishikawa says MSCI decided to include Darling in the index despite itsenvironmental issues because its business is “clearly tied to the circular economy theme,”since it takes waste products from other companies and turns them into usable goods.“There’s no such thing as a perfectly green company,” she says.

Cumulative value of sustainability-focused SPAC initial public o�erings

$20 billion

SPACs have �iled foranother $6 billion of IPOs

15

10

5

0

2021

Note: Through June 15Source: SPAC Track



Of all the industries seeking green money, deep-sea mining may be facing the harshestenvironmental headwinds.

Biologists, oceanographers and the famous environmentalist David Attenborough havebeen calling for a yearslong halt of all deep-sea mining projects. A World Bank reportwarned of the risk of “irreversible damage to the environment and harm to the public”from seabed mining and urged caution.

More than 300 deep-sea scientists released a statement today calling for a ban on allseabed mining until at least 2030. In late March, Google, battery maker Samsung SDI Co.,BMW AG and heavy truck maker Volvo Group announced that they wouldn’t buy metalsfrom deep-sea mining.

TMC’s Mr. Barron says they’re misguided. Existing battery mineral miners dig uprainforests and sometimes use child labor, he argues, making deep-sea mining a betteroption.

Much of the world’s known deep-sea metal lies under international waters, where miningis regulated by the U.N.-created International Seabed Authority. The 168-member-countrybureaucracy has never issued a mining permit—and in its nearly three decades ofexistence hasn’t yet even decided on mining rules.

TMC’s Mr. Barron has been trying to overcome such obstacles for two decades. A serialentrepreneur from rural Australia who once imported batteries from China, published amagazine and built a software company, Mr. Barron says he was introduced to deep-sea

Greenpeace activists display a banner reading ‘Stop Deep Sea Mining’ in April near the MaerskLauncher, a ship chartered by TMC.PHOTO: MARTEN VAN DIJL�GREENPEACE�REUTERS

https://www.seabedminingsciencestatement.org/



metals by his tennis partner, David Heydon, around 2001. Mr. Barron decided to invest inMr. Heydon’s Canadian startup, Nautilus Minerals.

Working through Pacific island nations including Tonga, Vanuatu and Nauru, Nautilustried to get access to the seabed in international waters, but the process moved slowly.

The territorial waters of Papua New Guinea, where geothermal vents created vast mineralstructures over thousands of years, seemed to offer a way forward outside the reach ofinternational regulators. The local government there invested $120 million in Nautilus,which began grinding up the sea floor to test the viability of mining there.

Mr. Barron boosted his Nautilus stake in 2005. Months later the company went public viaa reverse merger, similar to a SPAC listing. Mr. Barron cashed out in 2007 and 2008,making about $30 million in profit, he says. Mr. Heydon left around the same time.

Alarm bells were already sounding in Papua New Guinea. Villagers said Nautilus’sexploration was driving away sharks they lured in, killed and ate in traditionalceremonies. Government officials and environmental groups called for a halt inoperations. “It became obvious that the destruction outweighed the very, very minimalbenefits,” says Jonathan Mesulam, an activist from a nearby village.

Nautilus disputed that, but the company exhausted its funds before it could beginproduction. It lost its boat to creditors and Nautilus went broke, according to liquidationfilings. The Papua New Guinea government lost its investment, and two other investors,one from Qatar and one from Russia, acquired Nautilus assets.

A subsea mining machine being built for Nautilus Minerals in England in 2014.PHOTO: NIGEL RODDIS�REUTERS



Messrs. Barron and Heydon had already started DeepGreen, later renamed The MetalsCompany, planning to reacquire old Nautilus holdings in international waters wheremetal nodules could be picked up “like golf balls,” Mr. Barron said, in an area he called “adesert.” Exploration work by TMC and prior research by others found a large number ofthe nodules, enough to produce high volumes of metals used in electric-car batteries, inareas more than 2 miles deep.

Oceanographers countered that, rather than a desert, the area roughly midway betweenMexico and Hawaii, is actually a little-explored ecosystem where new species are stillbeing discovered. Recent finds include a bright-yellow sea cucumber with a tail like asquirrel’s and a “walking squid” that traverses the bottom with spindly tentacles.

The metal nodules TMC wants to mine are located in some of the area’s only animalhabitat, the scientists say. A recent study in the journal Scientific Reports showed that 26years after a trial project sent a robot to a similar habitat, the seabed and its animalshadn’t recovered.

Hoping to assuage some of the environmental concerns—and to prepare studiesnecessary for mining permits—TMC granted $2.9 million to researchers to study thebiology of the mining area. Many scientists signed on because it is a rare opportunity toexplore one of the world’s most remote environments and to catalog what might be lost.

Among them was Jeff Drazen, a University of Hawaii biology professor and a leadingauthority on the area. After Mr. Drazen publicly criticized seabed mining, a TMCemployee warned he might lose access to funding if he continued, say two people familiarwith the matter. Mr. Drazen declined to comment on the conversation. A TMC spokesmansays the scientists are free to speak their minds.

TMC decided to frame itself as green in 2017 around the time it tried and failed to gopublic on the Toronto Stock Exchange.

Mr. Barron took over as CEO and hired Erika Ilves, an executive at a space-miningcompany, to help steer strategy. Mr. Barron and Ms. Ilves are raising their twin daughterstogether.

The once clean-cut Mr. Barron now sports shaggy hair, a scruffy beard and leatherbracelets coiled almost halfway to his elbow. He travels with a metal lump from the seafloor in his bomber-jacket pocket. When it sets off airport metal detectors, Ms. Ilves says,Mr. Barron offers security guards an opportunity to invest.

https://www.nature.com/articles/s41598-019-44492-w



“I’m doing it for the planet and the planet’s children,” Mr. Barron said on a company-funded podcast. It hired a marketing firm that began promoting him as the AustralianElon Musk.

While Mr. Barron is TMC’s public face, the business of securing mining rights—this timein international waters—was handled privately by co-founder Mr. Heydon and his sonRobert Heydon, now a TMC executive. Seabed Authority rules let any member nationsponsor projects in any international waters, and gives favored treatment to developingcountries. The Heydons decided to seek an exploration license via a company based inNauru, partly, they say, to help the struggling eight-square-mile Pacific island nation of10,000 people.

Mr. Barron’s company hired a marketing �irm that began promoting him as the Australian ElonMusk.PHOTO: SASHA MASLOV FOR THE WALL STREET JOURNAL



“I’ve always been very dedicated to the fight for justice,” says Robert Heydon.

The Nauru company first was owned by Nautilus, then by an investor group that includedthe Heydons and later by two Nauru-government-controlled foundations formed toprovide financial benefits to Nauruans. In 2012, the foundations’ directors gave thecompany to TMC.

Robert Heydon wouldn’t provide details of the ownership changes, calling them “a privatesort of transaction.” He says the only money TMC has paid to Nauru is for public benefitsincluding college scholarships for two students. One recipient is the niece of the Nauruofficial in charge of deep-sea mining when the government transferred ownership toTMC, former Trade Minister Mike Aroi.

Mr. Aroi, who is still a government official, says he didn’t believe his niece received thescholarship due to his position, but rather because she was one of a very few applicants—around 10—who qualified for a university education. He said he wasn’t involved in theNauru foundations’ decision to transfer ownership to TMC, and that no one ingovernment raised issues with TMC paying for his niece’s education. A governmentspokeswoman didn’t respond to requests for comment.

“It’s obviously misleading, false and patronizing” to imply Nauru officials could be bribed,Robert Heydon says. TMC didn’t pay the Nauru foundations for the company, Mr. Barronsays, and in fact Nauru invested about $100,000 in TMC after the transfer. A TMCspokesman said the Journal’s reporting is “riddled with inaccuracies andmisrepresentations.”

With the Heydons handling government relations, Mr. Barron set out to attract money tothe venture.

As investor interest in green companies heated up, Mr. Barron says, would-be backersapproached TMC with offers to invest or outright buy it. In the months leading up to theSPAC deal, Mr. Barron says he held negotiations with a large mining company and a largeoil company that were looking to get into the electric-vehicle supply chain in addition togreen-focused investors.



He said TMC negotiated term sheets with “several” SPACs before being approached bySOAC. Mr. Barron says he liked SOAC’s sustainability-focused mission—its founder ScottLeonard calls it “the first ESG SPAC,” though other ESG-focused SPACs preceded it—andsigned a deal to stop negotiating with any other potential investors while SOAC and TMCworked out acquisition terms.

SOAC’s Ms. Stryker said she was initially skeptical that TMC would be a good fit. But afterexamining its business plan and weighing the environmental impact of deep-sea versusland-based mining, the firm was won over. The companies soon began seeking otherinvestors with a presentation labeling seabed nodules an “EV battery in a rock.”

The deal gives TMC $570 million in cash and values it at $2.9 billion, much more than anyother mining company that has gone public in the U.S. with no revenue, according toUniversity of Florida business professor Jay Ritter. TMC’s projections call for thecompany to raise more than $3 billion in additional funding before it turns profitable.

In a regulatory filing Wednesday, TMC added a new risk factor that warned theenvironmental impact of its mining techniques on sea-floor life “could potentially be moresignificant than currently expected” and require further study.

Mr. Barron’s stake is now worth about $175 million.

Write to Justin Scheck at [email protected], Eliot Brown at [email protected] Ben Foldy at [email protected]

Then-Nauru President Baron Waqa, left, along with TMC’s Gerard Barron, ISA President MichaelLodge, Maersk representative Jonas Agerskov and Nauruan politician Milton Dube tour the MaerskLauncher as it departs from San Diego in 2018.PHOTO: SANDY HUFFAKER�DEEPGREEN RESOURCES�ASSOCIATED PRESS

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Appeared in the June 25, 2021, print edition as 'Eager Investors Stretch Meaning Of ‘Green’.'

meaning of ‘green’ environmental investing frenzy stretches

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