The gold rush is on
Gold Rush, by Margaret Clyde Robertson
Leadville was mad as Babylon.
There's gold in the hills! On an on,
The tale ran swift as a forest fire.
Wenches for sale! Wantons for hire!
Gold in the hills! A pick or pan
And luck in the lap of every man.1
Source: "California Clipper” illustration in “The California Gold Rush : 1840 – 1857.” Photo by Greg Ashcroft. Geologyforinvestors.com. July 17, 2014.
An old friend, now a partner in a climate-focused venture capital firm, invited me to a “climate tech summit’ last week, the SOSV Climate Tech Summit. Between giving classes at our high school, I was able to attend many of the online talks.
So, what was there to learn there?
The climate gold rush is on. The smart money has reconnoitered the terrain and staked out the most promising lots. Bill Gates got there way early, not for the first time. His investor team at Breakthrough Ventures also includes fellow billionaires Virgin founder Richard Branson, Facebook’s Zuckerberg, Amazon’s Jeff Bezos, Alibaba’s Jack Ma, LinkedIn’s Reid Hoffman, and Michael Bloomberg.
Philanthropists, all? Gates made one motivation very clear:
In an interview that aired Wednesday as part of the virtual SOSV Climate Tech Summit, Gates said future returns in climate investing will be comparable to what the biggest tech companies have produced.
“There will be eight Teslas, 10 Teslas,” Gates said. “And only one of them is, is well known today.”
The electric car company led by Elon Musk has doubled in value in the past year and is up over 2,000% in the past five years.
“For the winners, anybody who invested in Tesla is feeling very smart,” Gates said.
He predicts the gains will be spread out over a wider swath of companies.
“There will be, you know, Microsoft, Google, Amazon-type companies that come out of this space,” Gates said.2
Bill Gross, also a billionaire, and founder of Idealab, the oldest venture incubator, summarized the conjunction of circumstances that have suddenly opened up to create immense profit-making opportunities:
[This is the] best time in history for climate change/energy transition entrepreneurship. There’s finally money available. Demand is off the charts. The whole world is reachable. Almost every part of the energy business can be disrupted with new technology. The world finally cares!3
Let’s take a closer look at each of Bill Gross’s points:
There’s finally money available. The world is awash with savings looking for profit opportunities. The top 1% increased their share of wealth to 45%, a percentage point higher than in 2019 during the pandemic and, frankly, doesn’t know how to spend it all. “Amid all the misery and mortality, the number of millionaires rose last year by 5.2 M to over 56 M, according to the Global Wealth Report published by Credit Suisse, a bank.”4 Investments in environmental, social and governance “ESG” funds is exploding. According to The Economist,
Global flows into ESG funds topped $178 Bn in the first quarter of this year, up from $38 Bn in the same quarter last year, according to Morningstar, a research firm. ESG funds accounted for 24% of total fund inflows so far this year, up from 11% in 2018. On average about two new ESG-focused funds are launched each day.5
Demand is off the charts. The debate is over: Human-induced global heating is real, and extreme climate change already visibly ravages every continent. Even in the U.S., 59% agree that climate change is very or extremely important to them; only 19% consider it not important at all or slightly important.6 Climate was the #1 issue in last month’s German elections, and increasing numbers of people around the globe demand action from governments and industry. Says Gross: “It’s not 50-50 or 75-25 as it was fairly recently. People actually believe that the energy transition is real, is important and is happening. And that timing is really a tailwind for all climate work right now.”
The whole world is reachable. “[From my 25 years of venture experiences,] I found that timing accounted for success or failure more than idea, funding, or business model…The world must be ready for what you are offering…Right now, timing is so valuable and accepted for climate work. The world is finally accepting it.” explains Gross. Unlike tech markets, which look to fracturing into two, driven by U.S.-China rivalries, everyone needs and wants green technology. McKinsey reports from a recent meeting with top clients worldwide: “The climate crisis has made its way to the center of almost every corporation’s agenda, as investors, employees, customers, governments, and students increasingly demand action.”7 It’s become clear to smart investors that the market is huge because the need is immense: “Humanity’s biggest challenge is powering the world renewably”.
Almost every part of the energy business can be disrupted with new technology. As explains Breakthrough Energy’s mission statement:
Nearly everything we rely on to live a modern life produces greenhouse gases – how we generate electricity, build basically everything, grow food, cool and heat our spaces, and move from place to place. We need to eliminate emissions from all of those activities and we have just 30 years to get it done…There’s an added complication: for a century, we have designed our markets to make the building blocks of our society, like cement and gasoline, cheap and abundant. As a result, those technologies are great at the jobs we ask them to do. But they’re also dirty and cause climate change. Now, we have to replace all of those cheap technologies with ones that do the same jobs just as well, but without threatening our future on this planet.8
In short, we need to quickly develop fundamentally new ways of doing the most common human activities!
There are just two historical precedents for economic change of this magnitude: One is the Agricultural Revolution, which humankind adopted almost universally, gradually, over about 10,000 years. It saw humans transition from nomadic hunter-gatherer groups of a few dozen people to complex civilizations numbering in the millions. The other is the Industrial Revolution, whose adoption remains incomplete in this, its third century. That kicked population growth rates up tenfold, and installed capitalist competition and material progress at the center of all major human societies.
Source: USHistoryImages.com
Our much more populous, complex human society of 2021 has just thirty years to make this new revolution happen, and it will likely bring similarly far-reaching economic and social developments.
Few think that the energy transition will go into reverse. They argue that the prospects for the sector as a whole are promising, even if some firms end up being duds. Comparisons to the tech industry at the turn of the century abound. Like the internet, decarbonisation will lead to structural change in the global economy. Capital will have to flow towards cleaner technologies. The process will create winners and losers…It is worth remembering that, two decades after the dotcom bust, tech firms make up 38% of the market capitalisation of the S&P 500.9
Even if humanity misses this timetable, a lot of money will change hands in highly motivated efforts to reach it. Established players will invest to transition in ways that preserve their advantages. Would-be challengers will invest to replace them. Hence, Gates and company!
Good for these tycoons, you say, but how good for the rest of us? Not surprisingly, there is disagreement about this.
Radical ecologists will likely see it as a new episode in the development of “disaster capitalism”. Eco-feminist Naomi Klein defines this as “the use of cataclysmic events to advance radical privatization combined with the privatization of the disaster response itself”.10 Klein argues that business leaders have learned to exploit crises created by nature or war to move the world toward a new economy, with themselves at the center. By 2050, Bill Gates and friends will likely own big chunks of the “8-10 new Teslas” whose rise he predicts. Man will still exploit man, even more so than now.
Source: Tim Eagan, 2014
Others will argue, “Which part of ‘climate change is an existential threat to humanity’ did you not understand?” Any port in a storm! If Gates and friends are the only ones developing genuine practical measures to eliminate carbon emissions, we would be crazy not to accept, and reward them. Are there any other saviors within sight?
As we approach the start of the UN Climate Change Conference, COP26, next week, we can see progress—but no grounds for complacency.
Climate Action Tracker estimates that if every country met its net zero pledge, the world could potentially limit warming to around 2 degrees Celsius by the end of the century….
Scientists have made progress, too. And their findings are dire: They have gathered stronger evidence that even small temperature increases can be powerfully damaging…When the Paris agreement was signed, nations agreed that they should keep total global warming “well below” 2 degrees Celsius and make a good-faith effort to stay at 1.5 degrees. But in the years since, a slew of studies have found that 2 degrees of warming is vastly more harmful than 1.5 degrees…
That extra half a degree sounds small, but it could mean tens of millions more people worldwide exposed to life-threatening heat waves, water shortages and coastal flooding. Half a degree may mean the difference between a world with coral reefs and Arctic summer sea ice, and a world without them.11
Here are the four possible global heating future pathways defined by the Climate Action Tracker research group. Note that the 1.5° C pathway requires radical emissions reductions immediately.
How to steer the world to an eventual safe harbor? Ultimately, this is a political challenge beyond the capabilities of even gifted businessmen like Gates and company. They recognize it:
No single person, policy, or technology can get us to zero alone. That’s why we are bringing together a diverse group of stakeholders, including governments, researchers and scientists, investors, entrepreneurs, business leaders, activists, and citizens around the world to ensure we work together to scale solutions and transform our global economy.12
Our students and children would do well to join this coalition, and take active part in its discussions. Economically, socially and politically, major aspects of their future lives are already “in play”. It’s urgent they inform themselves, and speak on their own behalf.
What are some “take-aways” for climate education?
The climate challenge is one of great risk, but now, also of great opportunities for businesses, investors and national economies. Comparatively few know of this; we should get out the word.
To date, climate activists have rung alarm bells about the dangers of climate change—and scared people off the topic. The “carrot” of genuine opportunities offers a novel way to pitch the climate challenge. We should use this to spark interest in a broad range of climate-related topics.
The emerging climate crisis gold rush abounds in major economic, social, and political implications. We should “teach the controversies” and encourage their timely debate.
“Bill Gates says climate tech will produce 8 to 10 Teslas, a Google, an Amazon and a Microsoft” By Technology For You. October 20, 2021.
“Converting radical ideas into ground breaking companies” Bill Gross, Idealab. SOSV Climate Tech. October 21, 2021.
“The pandemic has widened the wealth gap. Should central banks be blamed? Many are expressing unease at the effects of their policies” Free exchange. The Economist. July 10, 2021 edition.
“A green bubble? We dissect the investment boom: Investors of all stripes are getting on board” The green meme. The Economist. May 22, 2021 edition.
“Where do Americans Stand on Climate and Energy Policy?” The Energy Policy Institute at the University of Chicago (EPIC) and The Associated Press-NORC Center for Public Affairs Research. October 26, 2021.
“Building Change: Opportunities in disruption”. By Kimberly Henderson, Shannon Peloquin, Giulia Siccardo, and Holly Skillin. Our insights, Operations. McKinsey and Co. December 1, 2019
“Breakthrough Energy Overview” BreakthroughEnergy.org. Consulted on October 24, 2021.
The Shock Doctrine: The Rise of Disaster Capitalism. By Naomi Klein. Picador. 2008.
“Yes, There Has Been Progress on Climate. No, It’s Not Nearly Enough” By Brad Plumer and Nadja Popovich. The New York Times. October 25, 2021.
“Breakthrough Energy Overview” Op. cit.