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What investors can learn from Bill Gates’ climate warning

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When one of the richest people in the world writes a book on climate disaster reduction – and suggests changes we all need to make to our lifestyles – it’s easy to be cynical.

But the much-publicized intervention of Microsoft founder Bill Gates in the climate change debate is to be welcomed. He is not only a very intelligent wealth creator, but someone who arguably has unique access to information and insight. In addition, his Gates Foundation has achieved impressive results in tackling global health and education issues. He clearly has an appetite for solving what seems intractable.

His book How to Avoid a Climate Change Disaster: The Solutions We Have and the Breakthroughs We Need should be a must read, especially for those investing in the great energy transition.

It captures the challenge of the century: how to stop the addition of 51 billion tonnes of greenhouse gases to the atmosphere each year. This must be done as quickly as possible to avoid a climate catastrophe and in an economical and balanced manner.

As a fund manager who lives and breathes this trend, the solutions identified by Gates confirm the decisions made by me and my team – the technologies we support and the innovations we identify.

Gates articulates the need to rapidly reduce our dependence on fossil fuels over the next 30 years to achieve net zero. Net zero does not necessarily mean that we will no longer use fossil fuels. In power generation and in land transportation this is a strong possibility, but in other areas, such as steel and cement manufacturing, or fertilizers or even lightweight plastics, we will probably still use fossil fuels. The carbon, however, will need to be captured rather than released into the atmosphere.

The first part of the book provides some simple messages that cannot be ignored:

  • “We have to do it now; it is not optional. We need to invest time and money now to avert a climate catastrophe that will have a significantly greater economic and social impact than all previous post-war periods of recession put together. We have reached a position where we must reduce carbon emissions to zero (or near) by 2050. Slow progress always leads to disaster. For example, a 50 percent reduction in emissions from here would still lead to higher temperatures. Our current dependence on fossil fuels makes it very difficult to start this structural change. Not only do we use fossil fuels in almost everything we do, from driving your car to brushing your teeth, they are also extremely inexpensive. If we do not commit to investing in zero carbon solutions, thereby reducing their costs, progress will be slow. ‘

The rest of the book is a little more optimistic:

  • “There are many potential solutions that we can apply in combination to tackle carbon emissions in energy networks, transportation, agriculture and manufacturing. Governments have aligned much more in recent years. The 2015 Paris Agreement was a big step forward. However, from there, individual governments need to set a policy that stimulates investment in the right areas in order to keep costs down. Clear government policy reduces risk to investors in key technologies and supports investment growth. Many technologies are already profitable both for the investor who achieves a suitable return on investment and for the consumer, in terms of the ability to pay for the end product. A positive cycle is created: the cost profile of these value chains only improves as the size of the end market increases. Government policy can accelerate this trend. Carbon taxes will need to be applied thoughtfully in developed versus emerging markets. They should be applied at the industry level to encourage investment in clean areas, but also to consumers to encourage change and stimulate demand. ‘

The global energy system, when you combine electricity, transport and heating / cooling, is effectively responsible for half of the 51 billion tonnes of greenhouse gases released into the atmosphere. This shift in the energy system to a more sustainable one is what people now call the “energy transition”.

As investors in this trend, we have a responsibility to responsibly invest our clients’ money in companies directly involved in the structural change of the global energy system over the next 30 years.

The book really underscores some of the messages we have delivered to customers. Here are six of the most important:

  1. This structural change in the energy system is an investment phase over several decades: it is not cyclical, it is structural.
  2. This investment phase has just started and must accelerate from current levels to approach net zero by 2050.
  3. The amount of investment – estimated at nearly $ 100 billion between 2020 and 2050 – is significant, both compared to previous energy investment cycles and compared to other industries.
  4. Government policies are increasingly supportive and will play a key role in inducing investment, discouraging high-emission areas and reducing the costs of key emerging technologies.
  5. Costs within the energy transition value chain are already at a level in key technologies where they compete head-on with alternatives to fossil fuels. These costs will continue to decline on a relative basis.
  6. Consumers, both commercial and residential, are turning more and more to these end products, whether it is Microsoft getting its electricity only from renewables or consumers buying electric cars. This trend will only accelerate over the next few years.

Long before he turned his attention to climate change and wrote this book, Gates had already explained what can help solve seemingly intractable problems. And it resonates with investors.

In 1996 he wrote: “We always overestimate the change that will happen in the next two years and underestimate the change that will occur in the next 10. Don’t be lulled into inaction.

Schroders is a partner of the Net Zero Festival. Read more information about Schroders sustainability here.Publicity


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