Jagdeep Singh Bachher
Chief Investment Officer, University of California
At the University of California (UC), we respect the beliefs of students and others who argue that only divestment from fossil fuels will prove that one of the world's best public university systems is 'on the right side' of the environmental divide.
We also respectfully disagree.
While symbolic gestures have a noble history of driving social change for the public good, reversing the effects of climate change demands much more than symbolism. At UC, we believe it demands strong and sustainable investments in the solutions, for the sake of our environment - and for the financial future of our stakeholders.
While we agree with the imperative to take a stand on sustainability - which UC has done, including through its groundbreaking steps toward achieving carbon neutrality by 2025 - respected studies have shown that exclusionary policies are ineffective in denying capital to 'sin' industries. Proactive investment in climate change solutions will have a bigger impact than simply avoiding certain industries, markets or asset classes.
Access to long-term capital will be critical to the success of low-carbon fuels and emerging energy efficiency technologies; today's markets still suffer from a shortage of patient, early stage capital essential to transforming clean technology start-ups into enduring, profitable companies. Governments such as the United States, China and Germany have made significant financial commitments to promote innovation and opportunity, but public spending can only go so far. As world leaders have acknowledged in the planning for the UNFCCC Conference in Paris later this year, the private sector must also play a larger role in underwriting solutions.
To date, the venture capital industry and many pioneer investors have taken great risks to show us the kind of progress that can be made. While their successes have inspired us, the challenges they have encountered have demonstrated the magnitude of the task. And, as the experience of Tesla and First Solar demonstrate, even growth stage companies in this promising space sometimes lack access to project capital to execute first-of-a-kind Proactive investment in climate change solutions will have a bigger impact than simply avoiding certain industries, markets or asset classes. 76 demonstrations and deployments. The capital required to achieve price competitiveness at commercial scale is monumental.
In our view, the solution to the long-term capital problem is for major long-term institutional investors - pension funds, endowments, sovereign funds, family offices and foundations - to play a catalytic role. The success of large public pension funds in the infrastructure asset class is instructive: it was their entry that enabled this asset class to mature.
Catalyzing the resource innovation capital markets could be approached in the same way. There will be a set of new ventures in energy, agriculture, waste, and water that can scale to become the most profitable companies for generations to come. Long-term institutional capital has a unique opportunity to invest in such resource innovation companies and potentially reap large profits as these new green ventures and technologies reach millions (and billions) of consumers. The problem? Many long-term investors lack the in-house expertise to do this without assistance, especially in the United States.
We believe that the creation of a new, aligned intermediary to help long-term institutional investors identify, screen, assess and invest in high-potential companies is the best way to promote meaningful - and profitable - solutions to climate change. Fortunately this has happened: the Obama administration, the US Department of Energy and longterm investors from around the world have launched such an initiative. Its role will be to serve as the not-for-profit platform that brings investors together as part of promising long-term partnerships in resource innovation.
At UC, we believe that our participation in programs such as this represents a better option than making a symbolic, but likely financially meaningless, gesture to divest from fossil fuels. It will offer a real solution and a deep pocketbook for generating solutions to climate change.