In June, I attended an ESG conference along with a hundred bankers. During the event, the bankers answered a digital poll with two questions that revealed what I believe is the biggest obstacle for cleantech investing and the energy transition.
The first question: What is currently your preferred investment term? Almost 75% of the bankers chose “less than 3 years.”
The second: In which of the following ESG investment classes would you currently prefer to invest? The options were solar, wind, EVs, biomass, batteries, fuel cells plus hydrogen and new energy generation methods (e.g., small modular reactors and fusion energy).
A huge conflict exists between short-term financial interests and long-term environmental … [+]
Two-thirds of the participants selected new energy generation methods. The contradiction here is hard to overstate. A bank that expects a three-year investment term (or shorter) will not find any ventures in new energy generation that fit its parameters. Revolutions in energy can take a decade or more to commercialize let alone deliver returns. Apparently, financiers would like to bank their cake and fund it too.
I pointed out this problem at the conference. The ensuing discussion on how to overcome it didn’t go far at all. “ESG is dead,” as several U.S. bankers reminded me. Indeed, they’ve had to move a fair bit of their ESG investing outside the U.S. to avoid blowback from activist investors along with culture warriors and climate-skeptical politicians.
Later that week, at a separate event, I moderated a panel titled “Accelerating Cleantech.” I asked several of the world’s most prolific cleantech VCs and ESG investors about their technological priorities for a successful energy transition. We also discussed the financial barriers they encounter and their vision for what a net-zero economy will look like in 2050.
Participants cited fusion energy, “dense energy” from saltwater, geothermal, regenerative agriculture, carbon capture and storage and hydrogen as critical to their 2050 vision. While solar, wind, batteries and heat pumps are important—and already commercialized—the panel agreed that these alone cannot get us to net zero. Intermittent renewables just can’t decarbonize hard-to-abate industries like chemicals, mining, concrete, paper, steel and aviation.
BloombergNEF estimates that to achieve net zero by 2050, the world will need to invest $215 trillion in the energy transition. In 2023, we invested a mere $1.8 trillion. BloombergNEF considers $215 trillion “…a bargain compared with the potential economic destruction of unabated climate change.”
Nevertheless, banks—the financial institutions that ultimately fund commercial-scale build outs in energy—say they want short-term investments with clear financial returns in just a few years. Are the technologies expected to become the foundations of a net-zero economy of no interest to banks? Unless bankers’ expectations change, they are unlikely to deploy their share of $215 trillion in ways that make a difference for the climate.
There is no shortage of innovation in cleantech. There is no lack of capital to deploy. There is no confusion about what we must do to build an economy that is compatible with a habitable climate. But risk aversion, short-termism and a deficit of courage may thwart the energy transition anyway.
My message to all financial institutions and their customers: It is time to change. Short-termism and clinging on to the status quo of our comfortable yesteryears lives will eventually come to haunt you. Please be brave!
If the wildfires, heatwaves and flooding this summer are any indication, our contradictory attitudes towards cleantech investing are a serious threat for our grandchildren and their posterity. Let’s not go down in the history books as the generation that knew how to solve this threat to human civilization yet didn’t do enough. Let’s reset our investing parameters to match the reality before us.
