By Emily Chasan
(Bloomberg) —
“Past performance isn’t indicative of future results.” That old refrain from the mutual fund world can pretty much be applied to the state of the economy today.
Everyone says the future economy is going to look very different from the legacy version. The system created after the industrial revolution built an economy that, at least in the U.S., is concentrated in a relatively small number of counties. But the energy transition, climate change and social demographic trends are set to create a world where everything is more decentralized. One example of what may be coming is in Japan, which this week announced that it’s planning to revamp its green power law to promote distributed solar power.
We’re already getting a major preview of the future thanks to the coronavirus. Quarantines around the world are creating the world’s largest work-from-home experiment as employees try to reimagine how to do their jobs from the kitchen table. It’s significant for the planet also, because they aren’t using transport or food systems to get to work. China is the world’s biggest polluter, but lower electricity demand and weak industrial output have already cut its carbon emissions by 100 million metric tons.
Energy transition trends like distributed power grids, electric vehicles, renewable power, regenerative and plant-based agriculture, carbon offsets and carbon capture will eventually push investment into places it hasn’t necessarily been before, creating an economy with a more distributed endgame. So what’s a sustainable investor to do?
If the stock market of the past few weeks is any example, there might be a rush into the few, pure play green assets that are already publicly traded. Still, there aren’t a lot of green public companies that have made it through the various stages of investment to become scalable, so there’s some risk of a bubble or overpricing in the early movers.
I asked two of the world’s wealthiest impact investors to weigh in, and they said the climate crisis will require a radical reorientation when it comes to building companies, and investing in them.
“There’s a lot of development required to prep the market for an impact company,” said Karam Hinduja, a longtime private equity investor at Timeless Capital. “If you’re a company providing solar energy panels to a third-tier market in the middle of India, there’s a lot of work to make sure that the city and region can support that, and there’s infrastructure set up.”
The companies of the future that make this leap won’t necessarily fit with the traditional venture capital timeline, he said. One venture capitalist wholeheartedly agreed: He said time is running out.
“The decisions we make today determine where we end up as a society 30 years from now,” said Ibrahim AlHusseini, CEO of FullCycle Energy, a company that seeks out market-ready, climate-focused businesses that can be rolled out almost like franchises. “In venture, it takes a 12-year cycle to go from an idea to commercialization, and that’s assuming it succeeds,” AlHusseini said. “We don’t have that kind of time: we need market ready technology that is quantifiable and climate critical, and can be deployed to evade 1 gigaton of carbon a year.”
Sustainable Finance in Brief
Citigroup names the winners in the plastic packaging backlash: aluminum container makers and scrap metal recyclers. Banks, insurers and money managers face $1 trillion in climate risk. Finnish pension funds are racing to become carbon neutral. JPMorgan Asset Management joined the Climate Action 100+ group, saying it overhauled its fossil fuel lending policies. Yale University hasn’t technically divested itself of coal yet, but its endowment’s private coal holdings are essentially gone. Meanwhile, U.S. coal companies are hoarding cash, betting on a turnaround. JetBlue is the first airline to line up a sustainability-linked loan. Warren Buffet warns that CEOs are looking for “cocker spaniel” board members rather than “pit bulls.”
Emily Chasan writes the Good Business newsletter about climate-conscious investors and the frontiers of sustainability.
To contact the author of this story: Emily Chasan in New York at echasan1@bloomberg.net
Bloomberg.com
