Editorial from the launch issue of GCV’s sister title, Global Impact Venturing, by Mike Foster, financial journalist
It’s hard to be optimistic about the potential impact of the climate crisis. Four degrees of warming this century would melt ice caps, flood coastal cities, torch rainforests and trigger mass migrations. And scientists say we are heading that way, as carbon dioxide emissions steadily grow. The damage done to the global economy and stock markets would be extreme. The impact on society and healthcare, worse. Ecosystems on land, and at sea, are in grave danger.
Emissions will surely be cut. Governments talk of zero carbon emissions by 2030, or 2050. But people are really, really, bad at making sacrifices to deal with long-term issues.
Australians told opinion pollsters climate change was their top concern this year, but ended up voting for a government keen to boost the economy. In 2016 US Democrats warned climate change had to be avoided. So people voted for Trump instead. And don’t even mention the impact of Brexit on cross-border climate initiatives.
Innovation is the only way forward. Carbon will need to be recaptured. New systems for energy, transport and planetary engineering will require a fast track. Technology, automation and engineering support is crucial, along with public sector support. And all this just might generate economic growth, with a following wind from a more constructive approach in the ballot box.
Win or lose, it amounts to the most stunning opportunity for corporate and impact venturing the world has seen. And because it will be driven by saving the human race, as well as making profits, the very nature of capitalism will change. Shareholders will continue to matter, but stakeholders will matter just as much.
Let’s call it disruption, with social attitude.
Climate venturing is already changing the oil, auto and electricity distribution sectors. The visionary Elon Musk has tapped the capital markets over and again for his Tesla electric car, battery and solar panel businesses. Large corporate ventures are snapping at his heels.
As well as corporates, institutional investors and the public sector, climate venture funding will come from wealthy families out to burnish their reputation as social saviours, while making the world safe for their children (and themselves) The cause is led by Microsoft founder Bill Gates. The Rockefeller family is another strong supporter: many members severed their links with oil and gas in 2016, despite the role they played in building the dynasty. Funding agriculture is more to the Rockefeller taste, these days.
Breakthrough Energy is an altruistic gorilla in the venture capital room, dedicated to finding power systems which will cut emissions to zero, while providing a comfortable living for all. It has raised $1bn for an exploratory fund, with the backing of corporate backers and 28, or so, billionaires, led by Bill Gates, Ray Dalio, Jeff Bezos, Meg Whitman, Mark Zuckerberg and Jack Ma.
Central banks are rallying to the cause. Bank of England Governor Mark Carney has condemned the ‘Tragedy of the Horizons’ as climate responsibilities are being shirked. He believes enormous climate risks are facing insurers and banks across the world – not least where they, or their clients, operate at sea level.
The United Nations has laid out 17 sustainable development goals, such as zero hunger, clean energy and climate action which investors should aspire to meet following the 2015 Paris Agreement between climates on climate change. The University of Cambridge is launching a research facility to explore whether the Arctic can be refrozen by pumping sea water into the atmosphere. Imperial College London backs the Grantham Institute’s drive for carbon solutions. And so on.
Investors are also swinging behind the movement following the publication of a series of strategy reports which prove that weightings in sustainable stocks can protect portfolios against the risk of loss and help them generate higher returns.
They can produce yet higher returns by investing in companies which agree to start on a responsible journey. Fair wages, decent training and good working conditions improve productivity, according to MIT. Diversity in the board room improves the quality of decision making.
Large pension schemes are increasingly viewing themselves as Universal Owners, where they manage external risks through active ownership, public policy and sustainable investment strategies. Investment consultants are pushing for change from the smaller fry. Fiduciaries used to invest for profit. Now they are expected to invest for profit in a responsible way.
Generation Investment Management, co-founded by climate campaigner Al Gore, has been backing companies with a sustainable approach since 2007. Since then it has produced a total net return of 150% against 65% from the MSCI benchmark.
Generation IM has now raised a $1bn sustainable business fund dedicated to the health of the planet and its people. It backs a decarbonised economy, improved employment conditions and circular business models, which continually recycle waste. All of which amount to a dose of good old British liberalism, far removed from the cut-throat capitalism of yesteryear, and not too far from socialism.
President Trump, funded by several fossil fuel producers, continues to dismiss the risk of climate change, which is a bore. But he depended on elderly white males to seize power. Brexit was also favoured by the old rather than the young.
The power of demographics means a new generation of forward-thinkers, already in power in local and regional assemblies, will move into positions of greater power in due course. Western Europe is seeing a continual voting swing in favour of the greens. China and India are taking a pragmatic view, not least because the climate crisis is bad news for social cohesion.
The new thinking, in the West, is led by Millennials aged between 25 and 40. According to the Pew Research Centre their numbers will outpace. baby boomers this year. Changing attitudes in the investment community can be explained by their growing influence within pension schemes and assets managers. They are leading a series of ventures, and they are steadily penetrating the corporate C-suite.
Millennials, often struggling to pay back their student loans, are dubious about traditional forms of capitalism. They are loyal to causes rather than brands – deep generalists who use technology to assist their decisions. They challenge authority but believe in big government.
The social media has influenced their world view, typified by Sir David Attenborough’s warnings on Netflix. Future weird weather, and disturbing visual images, will reinforce their views.
A lobby of young employee shareholders is trying to force US distributor Amazon towards zero carbon emissions. An individual called Mark McVeigh, aged 23, representing Generation Z, is suing his pension scheme in Australia for failing to protect him against climate change risks.
Officers of Millennial age are active in Climate Action 100 + which represents institutional investors worth $33 trillion. Its members have forced Shell into a series of sustainable pledges, plus executive pay benchmarked on enviromental targets. It has persuaded commodities group Glencore to put a cap on its production of coal. It is taking on Exxon.
Young lobby group Extinction Rebellion has learned to use holacracy, a potent form of organisation, where teams think of themselves as leaders within a fragmented structure and clean up the mess if they get things wrong. Inspired by teenager Greta Thunberg, schoolchildren across the world have been taking part of a series of school walkouts and strikes.
A so-called US Green New Deal proposal has been supported by US Democrat Alexandria Ocasio-Cortez, aged 29, to deal with inequality and sustainability. It would amount to an unprecedented multi-trillion dollar programme of public works, financed with the help of money printing. Trump is hostile (surprise) but support for it among Millennials is strong.
Climate venturers will be aware there is no shortage of ideas jostling for attention on a smaller scale. Around 250 startups involved auto electrification have attracted more than $20 billion in venture capital, notably from a broad array of corporations across multiple industries, according to Reuters, ranging from Intel through to BMW, Nissan and Alibaba. A new genertation of nuclear reactors and tidal energy will need government funding, but a role for the private sector is inevitable, if plans get approved.
Now that wind and solar power have achieved grid parity in many weather conditions, thanks to public sector subsidies, the number of corporate clean energy ventures has mushroomed, with support from the likes of National Grid and Saudi Aramco. Investment in generation is slipping but grid networks and battery technology ventures are seeking funds. Tax efficient opportunities exist in green energy transmission, whether it is through hydrogen boilers, heat pumps or fuel cells.
The Forum for Climate Engineering Assessment, backed by several wealthy families including the Carnegie Endowment is assessing ways to use engineering to reduce emissions. There is interest in mechanical “direct air capture” ventures, such as Climeworks and Carbon Engineering, which is backed by BHP of Australia. The UK’s Sir James Dyson, best known for his vacuum cleaners, is among those keen to eradicate city pollution, a particular concern of the Chinese
Plant life is under the microscope at Salk Institute, which is researching ways to breed plants which can store carbon dioxide in their root structures and enrich the soil. In April, the process received a hefty donation from wealthy donors, including Joseph Tsai, co-founder of Alibaba.
Arborea has just teamed up with Imperial College, London. It is developing ways to develop efficient plants which can also be a source of food. Plants are also being put to use at Beyond Meat, backed by Bill Gates (him again). As the name suggests, the company believes plants can be a engineered into an alternative to animal flesh, which is no longer viewed as a sustainable way to produce nourishment.
Which if nothing else is further food for thought.