Tackling Climate Change Through Profits

A picture taken on December 3, 2015 shows 'wind trees', a renewable energy innovation constructed in the shape of a tree, whe
A picture taken on December 3, 2015 shows 'wind trees', a renewable energy innovation constructed in the shape of a tree, where each 'leaf' acts as a mini wind-turbine to generate electricity, displayed at the COP21, the United Nations conference on climate at Le Bourget, on the outskirts of Paris. More than 150 world leaders are meeting under heightened security, for the 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21/CMP11), also known as Paris 2015 from November 30 to December 11. / AFP / LOIC VENANCE (Photo credit should read LOIC VENANCE/AFP/Getty Images)

Last month in Davos, the World Economic Forum released the results of a survey of 750 experts on the "most significant long-term risks worldwide." This year the survey was unequivocal: failing to act on climate change is the number one global risk.

Coming on the heels of global climate talks in Paris late last year, this warning underscores the importance of the ambitious agreement world leaders achieved at COP21 to keep global warming to 2 degrees Celsius or less. The 2015 Paris Climate Conference was an historic event, and delivering on the goals in the agreement will require sustained political will, effort, and, perhaps most importantly, money.

The International Energy Agency (IEA) examined the emissions goals from over 150 countries in the lead up to Paris and came up with an estimated price tag: $13.5 trillion in investments needed in energy efficiency and low-carbon technologies between now and 2030 to meet those targets. That's $13.5 trillion with a "T." By anyone's standards, that is a whole lot of money.

The conventional wisdom is that investing in climate change is good for the planet but not good for your wallet. Many believe that the only way the $13.5 trillion in investments will happen is if investors are willing to take little to no return.

That conventional wisdom is wrong. The world doesn't need investors comfortable with taking a loss to solve climate change. In our view there are real opportunities to make money in the sustainable energy, land, and water sectors today, and the opportunities are only going to grow in the short and long term.

This belief is at the heart of our firm's newest venture -- a $430 million Sustainable Asset Fund (SAF) we announced in January with the fund's co-creator, Capricorn Investment Group. SAF has the potential to deliver at or above market returns from investing in projects and companies that deliver environmental benefits. Our core thesis: sustainable ventures and assets are misunderstood and undervalued, and companies and projects that use scarce natural resources wisely have a competitive edge over their wasteful counterparts.

Do our investors want to save the planet? Yes. But more importantly, they recognize that the world is changing. The cost of sustainable technologies have come down dramatically- solar energy is now 60 percent cheaper than it was in 2008, and LEDs 90 percent. And with water and other natural resources becoming increasingly scarce, there is an expanding need for new technologies and ideas that modernize our outdated systems and increase efficiency. With lower technology costs, growing market opportunities, and efficient use of resources, the companies and projects that will save the planet can also deliver healthy returns to their investors.

We are already investing and will continue to invest in opportunities that can make money while reducing pollution and using sustainable practices in our resource-constrained world. These include specific approaches to reducing waste, harnessing renewable technologies like solar and wind, and pushing the envelope on sustainable practices in agriculture, land management, and more.

These financial opportunities are here now. Despite disagreements in Washington, investors don't need to wait to start making money by investing in environmentally beneficial projects. Over the coming years we expect to keep investing in sustainable assets, keeping an eye on technology, policy, and other trends that are a major part of our changing world.

In conjunction with the Paris climate accord last year, a group of prominent investors from around the world announced the Breakthrough Energy Coalition to catalyze early stage research in disruptive technologies. Research and development investments--both public and private--are critical to accelerating the innovation needed to solve climate change, and we salute the Breakthrough Energy Coalition for the scale and ambition of their effort.

But we're taking a different -- and equally needed -- approach. Our Sustainable Asset Fund is investing in later stage projects and companies that we believe are ready to make a difference today, both in environmental impact and in profits. Clearly we need both early and late stage investments in these sectors. We are committed to investing in solutions that are ready today and will help bridge the gap between our current systems and newer technologies. What's more, there's a growing recognition that funds like ours can attract interest from investors not currently engaged in sustainable projects and get more momentum behind climate change solutions.

As the IEA report highlighted, tackling climate change necessitates big investments by more people than currently deploy capital in this sector. Our goal is to lead by example, and not altruistically. We plan to make money while making a difference for the planet. Our $430 million fund may only be a fraction of a percent of the $13.5 trillion needed to meet international climate targets. But by demonstrating that environmentally beneficial projects can deliver attractive returns, we are confident that other investors will see the reward of putting their money towards solving our generation's greatest challenge.