We know our members invest for the long term. Many of our investment vehicles invest into closed ended funds with 5-10 year durations. It is therefore critical when making such decisions that we ‘horizon’ and look not for trends we see in front of our eyes. Those we see and have sight of, over the coming decade. We saw this in the results of our investor survey, with assets like Infrastructure and Forestry both in the top five most sought after asset categories.
This week I want to focus on one of the highest ranking categories in that survey and one that cannot be too far from all of our minds. Not only because we have just gone through one the hottest and driest summers since records began. I am, of course, talking about climate change and the carbon and net zero focussed funds that address it.
We have now truly reached an inflection point on the commitment of governments to tackle climate change – 7 years after the UN’s 17 Global Goals for Sustainable Development (SDGs). Timing is everything when investing so why does now feel like a good opportunity to invest in net zero?
The answer isn’t solely the commitments which we have been hearing for years – although these commitments would require radical transformation of our major industries, switching of our energy production to new sources as well as sequestration of existing carbon.
The answer as always is money flows
I will inevitably start with the inflation reduction act (IRA) and the climate policy contained within it which brings the world’s largest economy closer to those commitments made in the Paris Accords. There is little point even attempting to summarise it as this has been well done both here (BH https://climatepodnotes.substack.com/p/inflation-reduction-act) and here (Rhodium https://www.ctvc.co/rhodium-taking-stock-of-paris-targets/) which will help you understand what is being achieved and how.
I am just going to give you a number $369bn that is being ploughed into the sector over the next 8 years to help get us to net zero. We would expect other developing economies to follow suit (perhaps lower percentages of GDP than the US given the need for catch up).
Follow the money
Secondly, the private investment pouring into the sector. This transition poses an enormous challenge but will throw up tremendous wealth creation opportunities along the way for those that pick the winners. In 2021 $40bn was invested into climate tech startups and another $19bn in H1 2022.
And keep following it
This is no longer a bleeding edge investment. This is not Angel stage investments. These are institutions investing at seed and series A-D. Institutions with track records in the sector who are now on fund 2 or fund 3.
Much is written about the 4th Industrial Revolution – the acceleration in technological advancements that will drive our society forward in the coming decades. However, right at the centre of this sits Net Zero.
Previous industrial revolutions advanced economic development, but have largely come at the expense of the planet. However, the 4th Industrial Revolution will be the first sustainable industrial revolution. If you want to invest in the ‘picks and shovels’ of 4IR you invest in technologies related to Net Zero.
The problems of the world are not going to be solved by buyout funds though – conscious and responsible investment will drive change as investors vote with their dollars.