. 2022. Bruce Usher. Columbia University Press.
The scientific consensus is that climate change is real, happening now and potentially catastrophic. As a result, most countries have committed to reducing greenhouse gas emissions, with the goal of achieving “net zero” emissions by the mid-Twenty first century. Achieving the reductions would require large-scale innovation and investment.
Bruce Usher from Columbia Business School approaches the subject from the investor’s perspective, identifying each the impact of climate change on the investment community and the ways through which investment capital allows us to “save ourselves from ourselves.” The role of investors is nothing lower than “financing the future of the world,” he says.
Early within the book, Usher reports on technological developments that may mitigate the results of climate change – renewable energy, electric vehicles, battery storage, green hydrogen and carbon removal. This discussion serves as a beneficial introduction to later sections that address the impact of such climate solutions on the investment community.
One section identifies the choice strategies the investor can use:
- Risk reduction
- Disinvestment
- Environmental, Social and Governance (ESG) investing.
- Thematic impact investing (to finance firms that address a particular environmental or social challenge reminiscent of climate change)
- Impact First Investing (where investors concentrate on solving social and environmental problems and are willing to simply accept a below-market financial return in exchange for greater impact)
Each of those strategies is suitable for a particular kind of investor. University foundations can select divestment, large fund managers can select ESG, specialist fund managers can select thematic impact investing, and philanthropists can select impact first investing. Some approaches help control risk; others (in response to Usher) can improve returns.
Claiming that “all investors should understand the rewards and risks of investing in real assets that provide climate solutions,” the creator then considers each financial and real assets. The material assets include projects within the areas of renewable energy, real estate in addition to forestry and agriculture. His evaluation examines the valuation issues relevant to large renewable energy projects, together with insights into government incentives and expected returns (internal returns of 6-8% for solar and wind projects and potentially higher returns for riskier battery energy investments). . storage systems). The real estate discussion is transient but includes considerations reminiscent of the risks of flooding and wildfires and the advantages of energy upgrades – The Empire State Building is an interesting example. The importance of carbon markets is illustrated within the chapter on forestry and agriculture.
The creator’s evaluation of monetary investments includes chapters on enterprise capital, private equity, public equity, equity funds, and glued income. We get interesting examples of successful and failed investments, in addition to the next approaches to evaluating investments within the era of climate change:
- Does an organization minimize risk by reducing its direct and indirect emissions?
- What impact would a price have on CO2?
- Is the corporate a longtime representative of an industry or a disruptor? If it’s a disruptor, how likely is it to achieve success?
The chapter on equity funds identifies many varieties of climate-focused funds and exchange-traded funds (ETFs) currently available. The evaluation covers the differences between low-carbon funds, fossil fuel-free funds and climate transition funds. The creator notes that a few of these funds are particularly large and successful: “BlackRock’s Carbon Transition Readiness ETF raised $1.3 billion on its first day of trading, making it the largest launch in the ETF’s three-decade history -industry.”
A successful fund launch is an example of how investing in climate solutions has develop into mainstream. This also applies to the creation of bodies reminiscent of the Glasgow Financial Alliance for Net Zero – “a global coalition of 450 financial firms managing more than $130 trillion in assets and committed to reducing greenhouse gas emissions to zero.”
The creator predicts that bond markets might be most significant for financing climate solutions. The reason for that is, on the one hand, the dimensions and, however, the proven fact that many projects with regular money flows over long periods of time are suitable for debt financing. An necessary area is “green bonds”, whose market is known as “red hot”. $500 billion price of green bonds were issued in 2021. Other innovations in the realm of fixed-interest investments include the securitization of solar leasing contracts and loans.
In this book we read several estimates concerning the costs of needed climate solutions. The various numbers may be confusing, but all of them broadly agree with a Boston Consulting Group estimate of what is required: $3 trillion to $5 trillion per 12 months. This massive level of investment is a large step forward from where we’re today (spending roughly $600 billion per 12 months, in response to Usher). But the investment is needed, particularly because other possible answers to climate change may be convincingly rejected. (These alternatives include adaptation and population growth control.)
A welcome aspect is that the overall tone of the book is optimistic, with an emphasis on solutions slightly than resorting to despair. However, this approach sometimes implies that certain risks to climate goals are covered up. For example, livestock farming is a big contributor to greenhouse gases (in the shape of methane), but other than references to the success of Beyond Meat, the creator offers us few solutions to the livestock problem. Nor does it say anything about how emissions attributable to cement production may be reduced. Furthermore, while he writes that “perhaps the biggest challenge to reaching net zero lies in the inability of countries to work together,” he says little about how dependent we’re on fragile global supply chains for solutions like battery storage systems. However, the creator makes it clear that his goal isn’t to explain all possible solutions to the climate crisis, but slightly to concentrate on the impact of climate change on investors.
draws on a wide range of sources and is each well researched and simple to read. Some readers could also be aware of much of the fabric, but for others it might be an inspiration to speculate in mitigating climate change – in pursuit of investment opportunities and our shared future.
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