In Business

The climate investment opportunity beckons

February, 2022

By: Rohan MacMahon

Climate change is a big risk to New Zealand, but a massive opportunity for New Zealand businesses and investors” 

You can barely read a newspaper without finding a story about climate change these days. As the Intergovernmental Panel on Climate Change keeps telling us, the risks posed by rampant growth in greenhouse gas emissions grow more evident every month.

The impact on New Zealand is becoming more apparent. MetService and Victoria University said the Canterbury floods which took out the Ashburton bridge and cut State Highway 1 in May 2021 were made 10 to 15 per cent worse by climate change. The effect is caused by abnormally warm air, which holds excess moisture which then falls as rain. In July, a similar effect brought heavy flooding to the West Coast, Tasman and Marlborough, and the West Coast has been flooded again this year.

River engineer Matthew Gardner has been modelling the Buller River for the West Coast Regional Council, and says climate change will make these floods bigger and/or more frequent. “[For] every degree of warming, [the atmosphere] can hold 8 per cent more water, so you’ll in theory get 8 per cent more rainfall.”

For the many New Zealand low-lying, coastal communities, the effect of bigger and more frequent flood events will be exacerbated by sea level rise. Projections are that this will affect low-lying areas including parts of Auckland, Napier, Lower Hutt, east Christchurch and south Dunedin. 

The Government has brought in legislation for an independent Climate Change Commission, set a “Net Zero by 2050 target”, reformed the Emissions Trading Scheme and indicated that in future its revenues will go towards climate response. Yet it’s not clear if New Zealand’s carbon emissions are decreasing. The impacts of COVID lockdowns have distorted the quarterly data. But in annualised terms, emissions in the year to June 2021 showed a 0.5% increase on the previous year.

So, climate change is impacting us now, it’s set to get worse, and Government policies have yet to make much difference. What should we do about it? Is the private sector responding fast enough?

In his 2021 book “How to Avoid a Climate Disaster”, Bill Gates provides a comprehensive overview of what the world needs to do, collectively, to avoid the worst impacts of climate change. To achieve net zero emissions by 2050, he prescribes major investment programmes for Governments and businesses – in green energy, electric vehicles, carbon pricing and so forth. He describes how we need to increase the supply of clean technology innovations, as well as demand for them.

At an individual level, Gates talks about each of us playing a role through making greener decisions as consumers, to build demand for clean alternatives to fossil fuel-based products and services.

Many of us are well into a process of reducing our own carbon footprints. With petrol prices approaching $3 per litre in major towns and cities, the case for all of us to invest in decarbonising seems ever clearer. Instead of driving a petrol or diesel vehicle, choose an active mode of transport like walking or cycling – or take public transport. Or change out for an EV.

The Government’s Clean Car Discount has seen electric and hybrid vehicles grow to around 20% of new vehicle sales. The appreciating carbon price also increasing tilts the scales towards investment in lowering emissions.

However, Bill Gates mostly skips over another means for us to help build a greener future – by investing to bring our own capital to the task of building these clean alternatives.

This is ironic as Gates has been one of the world’s leading investors in clean technology for many years and has clearly put his money where his mouth is.

Rather than simply purchasing cleaner technologies, we can invest to bring them to market. Why just be a “taker” of new technology when we can help the “makers”?

This is perhaps the biggest opportunity of all.

We expect the change-out towards a zero-emissions economy to lead to record capital investment across all economies, all products, and all services. The scale is truly enormous, with total climate finance in the period to 2050 expected to exceed US$100 trillion – that is US$100,000 billion. Yet it’s predictable. We know a clean transformation is happening because it’s already well underway.

As an investment proposition, you can take part in this revolution in multiple ways. Investing in listed stocks allows you to benefit from the increasing demand for clean technology, for example, renewable energy. You can push your KiwiSaver to avoid fossil fuel investments, or to positively prioritise cleaner ones. Green bonds or directly purchasing carbon credits are other alternatives.

Another opportunity is to look at private asset classes like private equity and venture capital. These forms of investment make a direct impact as they fund firms to grow.

At the Climate Venture Capital Fund, we are investing in early stage companies which are commercialising technologies which can materially reduce greenhouse gas emissions. These potential reductions are needed urgently, both so we can address the ever clearer climate risks, and so we can support new technologies and new Kiwi businesses building them. If you’d like more information, please feel free to get in touch.

Rohan MacMahon is a partner in the Climate Venture Capital Fund:

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