It may not be palatable but big money is the solution to the climate crisis

Is market capitalism the problem or the solution? That is the huge question posed by the global project, the Glasgow Financial Alliance for Net Zero plan, launched by Mark Carney and Michael Bloomberg to marshal private sector funds to finance the shift to a carbon-neutral world economy.

There can be no easy answer. The headline number, a total investment of $130tn, is so massive that it becomes almost meaningless. To put it in perspective, that is larger than the present value of all companies on all stock exchanges around the world, of around $120tn, or annual global GDP of some $95tn. It is also, to my mind at least, rather opaque. It is hard to unpack the amounts, the time scale and the allocation of the funds.

So what should we think? As of now the hopes have been rising that some sort of global carbon deal is in the offing. But while international agreements are certainly of profound importance, what matters even more is the interplay between technology and investment. To what extent can investment in new technologies overcome political inertia?

The harsh rules of market capitalism are that if there is money to be made in green investment, somehow or other the funds will find their way there. The current value placed on Elon Musk’s Tesla, $1.2tn, shows the power of an idea whose time has come. Whether it is rational for one relatively small car manufacturer to be worth more than the whole of the rest of the car industry worldwide is another matter. What it does show is that the money to back disrupters, in this instance one that has caused the world to shift to electric cars, is there for grabs.

There will be a wall of money over the next decade seeking to invest in enterprises that can develop technologies to combat global warming. And there will be a dearth of funds backing carbon-intensive companies, such as the oil majors. That itself should be a concern. Gas is a useful bridge technology – less carbon-intensive than coal but obviously a source for carbon emissions. If Shell or BP has less money to invest in gas production, that will benefit companies in the Middle East and Russia that have no such constraints. Does Europe want to become even more dependent on Russia for its energy supplies?

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That is a geopolitical decision. From the point of view of investors, the question is less how to treat legacy industries such as petrochemicals and more how to channel funds into the next generation of disrupters, for it is they that are likely to bring the greatest returns.

Mark Carney made a key point in an interview on Bloomberg TV last week, saying that investors in green technologies would not face lower returns as a result of that choice if you factor in the risks involved. If you are not going to get lower returns, it is not much of a leap to saying that you might well get higher returns.

This is a two-pronged thing. Existing companies have to clean up their present activities. New ones (or maybe new divisions of old ones) have to develop the new technologies that will carry the world economy forward. The drive among all savvy corporations to comb their activities to try to cut (or too often disguise) carbon emissions can be dismissed as “greenwashing” and in many cases that charge is valid. At the margin, however, even small shifts do help.

But the world will be changed by new upstarts, not the present corporate elite. The challenge there will be to identify the true social and technological innovators and funnel investment in their direction.

How? There is no easy answer, of course, but the experience of the dot-com boom at the end of the last century is some guide. It tells us that there will be a tiny handful of fledgling companies such as Amazon and Google that will really drive the transformation, but also that there are existing ones, such as Apple and Microsoft, that will be very important too. It was, after all, Apple’s Steve Jobs who developed the iPhone, the device that in his words “changed everything”.

So big money is in part the problem, in that it has huge legacy investments in carbon-intensive technologies. But it is also the solution, or at least part of it, in that it will fund the development of new technologies that lead us to new zero. We do not know what those will be for sure, but we do know there is a wall of money ready to help us all to that goal.

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