Third in a three-part series. Read Part One here, Part Two here.
The COVID-19 pandemic and events of the past few months demonstrate returning to the "old" normal is not an option for humankind. Fortunately, we stand on the brink of a technological upheaval that promises resilient and robust streams of free electrons from renewable and reliable solar energy. We require only a few bold moves from investors and policymakers to democratize critical energy, clean water and protein resources and to catalyze a technology-fueled transformation that will heal the environment and accelerate access, abundance and economic growth.
The COVID-19 pandemic precipitated an economic freefall that exposed the lack of resiliency and reliability of our digital information backbone and our hydrocarbon-dependent power infrastructure. The pandemic highlighted the fragility of global supply chains, disdain for essential workers, a longstanding racial divide and the unequal distribution of health, power, essential water and information services.
Post-COVID-19, our world must be rebuilt for resilience. Supply chains must be secured. Access to education, health and social services needs to be reimagined. Electrons obtained from renewable carbon-free sources must be distributed via deeply electrified and digitized grids designed to distribute watts, bits and ubiquitous computing.
Fortunately, 50 years of technological investments in information technology and the life sciences — launched primarily by venture capitalists — put us on the verge of transforming almost every industry.
We have seen tremendous progress in companies built on converging exponential technologies: data analytics; artificial intelligence; cloud computing; internet of things (IoT); and the intersection of biotechnology with information technologies. All of these technologies are available today, and create profitable environmental-, social- and governance-related (ESG) investment opportunities.
Outperforming the market
Savvy investors understand that ESG investments — despite the infancy of the category — can improve long-term outcomes. According to a recent BlackRock report, companies managed with a focus on sustainability and employee satisfaction are better positioned than their less-sustainable peers to weather adverse conditions.
Companies that work to have a positive impact on the environment also have demonstrated resilient financial performance. In the first quarter of 2020, Morningstar reported 51 out of 57 of its sustainable indices outperformed their broad market counterparts, and MSCI reported 15 of 17 of its sustainable indices similarly outperformed broad market counterparts.
Investors attracted to the ESG category know the old sayings "Capital begets capital" and "Do well by doing good." To date, 23 of the world’s 50 largest banks have sustainability finance targets. These include Morgan Stanley’s $250 billion commitment to low-carbon financing, Bank of America’s $300 billion to sustainable business and BlackRock’s record billion-dollar renewables fund.
Unfortunately, we seem to be going in the wrong direction. To hear some of our leaders, you would think that ignoring climate change will make it go away. Rather than boosting green (or sustainable) investments, the Trump administration has chosen a contrarian path citing the economic emergency as an excuse for relaxing environmental reviews.
The Coronavirus Aid, Relief and Economic Security Act, the largest economic stimulus bill in history, has earmarked more than $2 trillion to rebuild the economy. The way the government spends those stimulus monies will define how our future economy operates. It also will determine how global warming plays out.
Markets for energy, food, security, clean water, clean air and healthcare are 20 to 50 times larger than those for IT. Those numbers alone should be motivation for rethinking how pandemic recovery monies are allocated and where entrepreneurs should focus their efforts.
After the 2008 financial crisis, 15 percent of the global stimulus funding injected went into developing and deploying green technologies, according to the World Bank. Those investments created low-carbon jobs that stimulated growth and helped bring down the price of solar nearly 90 percent. A recent Nature commentary suggested we prioritize boosting the pipeline of wind and solar power plants, where more than 250,000 Americans are employed and more jobs will be created rapidly.
Lifting global GNP
To prepare for access, abundance and accelerating economic growth, let’s examine the consequences of free electricity, free internet, low-cost pure water and inexpensive, sustainable protein.
The transformation of the energy industry already has begun with the demise of the "withering rhinoceros" of carbon fuels, replaced by providers using renewables as their energy sources.
The market already has demonstrated this sea change. Exxon’s 2014 trillion-dollar market capitalization has plunged to $186 billion today. In contrast, NextEra Energy, the world’s largest producer of wind and solar energy, has seen its market cap rise from $25 billion to $116 billion today. Solar is already the cheapest form of energy, with more than $2.1 trillion in solar plants brought online in the past 15 years. The sun is an inexhaustible and very reliable supply of photons.
Generated energy from renewables is distributed in the form of electrons in a digitized grid. Electrons are a more efficient source of energy than liquid fuel molecules from oil and gas feedstocks. Electrons represent information that can be sorted and pattern-matched as data to control the grid or as bits of information for designing algorithms that maintain and distribute energy to and from long-duration storage facilities. The digitized grid facilitates the creation of new business models for energy storage (such as energy storage as a service — EsaaS) and hydrogen from renewables.
A proliferation of startups will deploy innovative software products and services using new business models and financial technologies. Companies that apply technologies to solve the demands of digital-first energy customers will see rapid adoption of their products driving high market valuations.
We already see the emergence of a carbon trading floor, with services such as Joro (carbon footprint tracking) and Pachama (carbon offsets via reforestation). My colleagues are already working on business cases for nature-based solutions that offer very low-cost sequestration of carbon in soil — for example, regenerative agriculture.
Free electrons that represent the building blocks of DNA will catalyze numerous startups enabled by synthetic biology (synbio). Born from the expanding intersection of two exponential technologies (IT and biotechnology), synbio quickly will achieve super growth through a phenomenon called power law.
Today, synbio companies are displacing the $4 trillion specialty chemicals market at an exponential rate. And this industry is only getting started. Because synbio uses biological processes for manufacturing and does not emit carbon, society benefits in almost every dimension of sustainability.
Free electricity, free internet, low-cost pure water and inexpensive, sustainable protein will catalyze an economic renaissance unlike any previously seen.
Despite policymakers’ hope to turn back the clock and disregard for environmental restoration, ESG funds are rising to the occasion in anticipation of financing the GNP growth resulting from sustainable, equitable investments.
Goodbye carbon, hello Green Swans
Some say the pandemic is a warm-up for the challenges we will face as a result of climate change. If that's the case, we need to improve dramatically. And fast.
ESG investing can serve as the catalyst for democratizing and increasing access to energy, information, clean water and food. By emphasizing and balancing the needs of business, consumers, employees, communities, shareholders, suppliers and the environment, ESG investing can help us transition from an era defined by scarcity to one marked by shared abundance.
As we think and act on creating our ideal future, we need to realize we've been granted a gift: the chance to incubate the future. We need to engage the Black Swan of COVID19 and use its power and consciousness to fly out of our old comfort zone and create multiple positive Green Swans.
Today, we are on the precipice of a new world marked by the democratization of critical resources. Old ideas are dying. The COVID-19 pandemic is challenging us to become what we aren’t yet.
Creating a better future won’t be easy. It requires being flexible, adaptive and elastic. We have the tools to get it done.