“We have got a big appetite for wind or solar. If someone walks in with a solar project tomorrow and it takes a billion dollars or three billion dollars, we’re ready to do it. The more there is the better,” said Warren Buffet, one of the greatest investors in history. What prompted Buffet’s appetite for wind and solar?
In his book Investing in the Era of Climate Change, Bruce Usher, a Columbia business school professor, offers answers. He explores the implications of climate change for investment groups and how investments will save us “from ourselves.”
Usher breaks down the implications of the climate crisis for investors in this urgent call for action. Scientists are pushing for the reduction of emissions from greenhouse gases to zero “ideally by 2050 and no later than 2070.” Drawing on analysis of past and current data, Usher projects the cost of doing so will be $125 trillion. Investing in climate change will thus be key.
What is stopping the investments? One explanation Usher gives is the “tragedy of the horizon.” This term, coined by an English banker in 2015, refers to the perception that climate change is a distant threat, incapable of affecting the value of investments today. Usher outlines this shortsighted thinking, which views climate change as operating beyond the business cycle (quarterly to a few years), beyond the political cycle (a few years until the next election), and even beyond the scope of regulators such as central banks (two years for monetary policy, potentially a decade for the full credit cycle). In other words, this tragedy of the horizon is imposing a cost on future generations that the current generation has no direct incentive to fix.
What that approach misses, however, is that climate change is not just an environmental concern; it is a pressing financial one. In Usher’s view, “climate risk is investment risk” which directly influences investment decisions and returns. Specifically, Usher walks through the financial principle as divesting from high-risk assets, moving capital to risk-mitigating practices, and investing in businesses with solutions for the future, which can all find resonance in the context of climate change.
One common misunderstanding, which was the mindset I had before reading this book, was that due to the problems pointed out above, sustainable investing is still at a very early and immature stage where they are extra risky and have low returns. Although sustainable investing is still new in comparison to traditional investing, there is already a lot of financing going into renewable wind and solar power and electric vehicles that make them competitive with traditional fossil fuel-powered technologies. Technologies like green hydrogen and direct air capture are also under development and receiving significant venture capital financing. The situation has changed drastically from how it looked a decade ago.
Usher has been investing in sustainable sectors for 20 years, making him an industry pioneer. He started out on Wall Street and joined his first entrepreneurial venture, Williams Capital Group. He then was brought on to an environmental consultancy firm as its CEO. Through his experience there, Usher witnessed how business could be used as a force for good.
When speaking of what was different 20 years ago, Usher points out that there was very little sustainable finance could do about making significant impacts in the green transition. There were very few opportunities because most of the climate solutions that were needed to reduce emissions were uncompetitive with existing products due to high costs. Today, the situation has changed. There are technologies and business models that can be used to reduce global emissions that are scalable. And investing in these technologies is able to make a real impact.
Investing in the Era of Climate Change by no means asks for individual investors to be pioneers or to bear the burden of this global climate change battle. Instead, it offers a guide to the risks and opportunities for investors as the world faces climate change. To my surprise, Usher went beyond merely identifying the different methods of climate investing by also analyzing the mechanisms behind climate solutions and diagnosing the core issues affecting climate change. He argues that careful examination of climate solutions will offer investors a new and necessary lens on the future for their own financial benefit and for the greater good, which aligns well with how I felt after reading the book.
Finally, Usher concludes the book by saying that every investor, whether they’re individual or institutional, will understand that these changes are coming and will act for their benefit, which is ultimately for the benefit of all.
Investing in the Era of Climate Change is a compelling read for people interested in climate investment, regardless of how much knowledge they already have. One can walk away from this book with an understanding of why Thomas Edison said almost a hundred years ago: “I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.”