Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. You're listening and
Speaker 1: watching Bloomberg Business Week. We're getting ready to wrap up
Speaker 1: our show, but we've got a great last guest that
Speaker 1: we wanted to get to and just to kind of
Speaker 1: set it up. Earlier this year, McKenzie pegged the price
Speaker 1: tag of a livable climate at nine point two trillion
Speaker 1: dollars a year. So that's the level of investment needed
Speaker 1: to reach the international climate goals of net zero emissions
Speaker 1: by twenty fifty. And our next guest him as a
Speaker 1: guide to the risks and opportunities for investors as a
Speaker 1: worldfaces climate change. Very pleased to have with us this afternoon.
Speaker 1: Bruce Usher. He's professor of Professional Practice at Columbia Business School.
Speaker 1: He's also the author of his book Investing in the
Speaker 1: Era of Climate Change. And I should note full disclosure
Speaker 1: he was my professor when I took a course from
Speaker 1: him all the way back in what Maybe Business Right. Yeah,
Speaker 1: this was a cool class investing for social ventures. We
Speaker 1: got to like essentially serve as consultants for these startups
Speaker 1: and decide whether or not they would be awarded money
Speaker 1: pressor Usher. Great to have you with us this afternoon.
Speaker 1: How are you? Thank you for having on the show
Speaker 1: and nice chat again. Yeah, it's good. It's good to
Speaker 1: have you with us. Hey, help us understand in a
Speaker 1: time where we're seeing global upheaval, the worst energy crisis
Speaker 1: that we've actually seen in decades, uh, and investors are
Speaker 1: fighting for returns anywhere. How should they be thinking about
Speaker 1: investing when it comes to climate change. Well, there's no
Speaker 1: shortage of volatility in the markets these days, but they
Speaker 1: should think about climate change from a longer term perspective.
Speaker 1: If they're looking for stable trends, it's going to be
Speaker 1: here with us for years, if not decades, and affecting
Speaker 1: businesses for decades to come, and therefore affecting investors investor
Speaker 1: returns for years to come. Climate change is the macro
Speaker 1: trend of the next several decades. There's just no question
Speaker 1: about that. So okay, and I do feel like it's
Speaker 1: going through a reckoning. Tim and I talked about E S. G. Right.
Speaker 1: We've seen so much money, Professor Usher go into this space,
Speaker 1: but we're getting to a point where people really want
Speaker 1: to understand what they're investing in, and that that money
Speaker 1: ultimately makes a difference when it comes to E s
Speaker 1: G metrics, How do we make sure that investments that
Speaker 1: we make really are making a difference and are good
Speaker 1: for the climate. Well, there's plenty of discourse or any
Speaker 1: s G these days, no question about that. And the
Speaker 1: challenge the B s G is the concept is very simple, right.
Speaker 1: It's simply saying that when you make an investment, you
Speaker 1: would normally look at financial metrics, and manage metrics and
Speaker 1: competition all these other metrics. In addition, add to that
Speaker 1: analysis the environmental or social factors that are material to
Speaker 1: the company you're considering. If you're buying into real estate
Speaker 1: on the coast, you might want to think about floods
Speaker 1: and storms in the life, right. So that's the s
Speaker 1: G analysis. It's very important for investment perspective. It makes
Speaker 1: makes for better investment decisions. It doesn't have a tremendous
Speaker 1: impact though, on addressing climate change, because what you're really
Speaker 1: doing is investing in companies that are doing better for
Speaker 1: managing climate risk. But those decisions don't necessarily reduce emissions
Speaker 1: as gases. So that's what you're focused on. It I
Speaker 1: think it's prettymportant to be focused on it. There's really
Speaker 1: two strategies to consider. One is a thematic act investing strategy.
Speaker 1: Pick a theme or sector that contributes to addressing climate ching,
Speaker 1: say renew energy, solid wind, or electric vehicles, and put
Speaker 1: some investments into that sector in a smart way to
Speaker 1: maximize risks to adjusted returns and also contribute to reducing
Speaker 1: emissions of greenhouse gasses. The other strategy that's unique to
Speaker 1: really high net worth altra high net worth individuals is
Speaker 1: take what's called impact first strategy. So here we're really
Speaker 1: focused on climate change and invests with that lens in mind.
Speaker 1: Now that means big, very long term investments and and
Speaker 1: perhaps some additional risk, but some investors are willing to
Speaker 1: go as well. What I find a little puzzling in
Speaker 1: this day and age, in you know, October, is the
Speaker 1: market has rewarded this year companies that are the antithesis
Speaker 1: of these climate friendly companies. You could argue, right um
Speaker 1: oil and gas companies. And when you look at the
Speaker 1: best forming stock in the SMP five D this year,
Speaker 1: Occidental patrolling about on number for the first, third, fourth, fifth, six, seventh, eighth, ninth,
Speaker 1: and tenth companies that are the only that they are
Speaker 1: the best performing in the SP five hundred. They are
Speaker 1: all oil gas natural resources companies. So what's an investor
Speaker 1: to do in this environment so to days? But with
Speaker 1: the oil and gas, First of all, they were that
Speaker 1: was from very low price points a year ago, right,
Speaker 1: So the multiples on those companies are still very well. Secondly,
Speaker 1: many of those oil and gas companies are aware of
Speaker 1: climate change and aware that their business models and how
Speaker 1: they're going to change them. So Ocidental Petroleum as an example,
Speaker 1: has invested heavily and direct their capture and some other
Speaker 1: technologies to ideally reduce their emissions over time. So they're
Speaker 1: they're also thinking long term. I'm not saying where their
Speaker 1: business model is the right one. Actually, we don't have
Speaker 1: much clarity on on the oil and gas UH strategies
Speaker 1: around climate change yet, but it's not as if those
Speaker 1: companies are ignoring the issual to at least the best
Speaker 1: majority of the n take action on that. That being said,
Speaker 1: you know, I said a few minutes ago, climate change
Speaker 1: is a long term trend and lower seeing the markets
Speaker 1: right now is short term volatilly right, oil gas prices
Speaker 1: are up dramatically in the past year, and those stocks
Speaker 1: are into well in the short term. But is there
Speaker 1: going to be you know, it's interesting on a day
Speaker 1: when we heard from Cathy Wood of our convest to
Speaker 1: obviously stresses disruption innovation. You know, is there going to
Speaker 1: be this uncomfortable pivot? Forgive me for using the p
Speaker 1: word you have to drink, but is there going to
Speaker 1: be an uncomfortable pivot at least in the public markets
Speaker 1: as we do shift away from carbon based fuels, as
Speaker 1: we move to alternative energy more e vs, because we
Speaker 1: really are turning our backs on companies that have been
Speaker 1: so much a part of our public markets in some ways,
Speaker 1: and there will be new leaders in the market. So
Speaker 1: will there be some dislocations, some discomfort as that happens. Absolutely. Look,
Speaker 1: climate change is two words, right, the second words change,
Speaker 1: and there's going to be environmental change, but there's also
Speaker 1: going to be a lot of change in the in
Speaker 1: in business as decarbonation takes place through the global economy.
Speaker 1: There are going to be companies that are winners and
Speaker 1: companies that are losers. There's just no question about that.
Speaker 1: From an investment perspective, the key question, of course is
Speaker 1: who's going to win is going to lose. And here
Speaker 1: it gets a challenging because in some sectors, the disruptive
Speaker 1: companies new technologies really have an advantage. I mean, just
Speaker 1: look at the auto automotive sector and Tesla. It's completely
Speaker 1: disrupted it and we so it happened to value us
Speaker 1: both in Tesla and then competitors. Some other sectors are
Speaker 1: the incumbents have big advantages. And sectors where there's a
Speaker 1: lot of regulation or big balancies are required, for example,
Speaker 1: utility sector. You know there are companies have tried to
Speaker 1: disrupt utilies for the number of years. Now next Era
Speaker 1: took a look what's going on, starting investing heavily, and
Speaker 1: Renewables is now the largest owner of renewable energy astics
Speaker 1: in the country and more importantly, is the most valuable
Speaker 1: utility in the country today and when most valuable energy
Speaker 1: comverst utility. So, you know, picking those winners and losers.
Speaker 1: As this transition happened us the word pivot, I would
Speaker 1: use the word transition. But this this change that's coming,
Speaker 1: it's critical. How much do you watch It's funny when
Speaker 1: Tim and I were at Milkin, was it in the spring?
Speaker 1: You know, we spent so many of our conversations talking
Speaker 1: about the private markets versus the public markets. How much
Speaker 1: do you watch what's going on, especially when it comes
Speaker 1: to disruption, innovation, that pivot that's happening as we think
Speaker 1: about the climate. How much of what we really should
Speaker 1: be keeping an eye on is where those investments are
Speaker 1: going on in the private markets to give us an
Speaker 1: idea of who will be ultimately the leaders in the
Speaker 1: public markets in the years to come. Absolutely, the private
Speaker 1: markets where a lot of the innovation occurs, as where
Speaker 1: venture capital flows. That's where a lot of private capitalists
Speaker 1: flowing from from mindor worth individuals. We should look at
Speaker 1: what's going look at what Bill Gates and break your
Speaker 1: energy ventures are investing, and look at what the number
Speaker 1: of the DC fonds are putting into. Figure out called
Speaker 1: climate tech and let's see, you know which which of
Speaker 1: those become the winners in the very sectors. Sectors that
Speaker 1: would focus on green hydrogen. Whole new sector could absolutely
Speaker 1: revolutionize a lot of industries today direct or capture much risk,
Speaker 1: you're much harder, but could revolutionize the way we address
Speaker 1: climate change. And then there a whole lot of other
Speaker 1: technologies around energy storage and transportation all early stage, not
Speaker 1: competitive commercially yet with the incoment companies, but a lot
Speaker 1: of opportunity and promises. So don't make fun of I
Speaker 1: don't know riv and or like whoever is out there. Right,
Speaker 1: we love you. No, I'm just saying no, no of
Speaker 1: you at all. But I mean there's going to be
Speaker 1: stumbles right as we make this change. Absolutely. Yeah. Look
Speaker 1: the parallel here is you know, I I teach a
Speaker 1: business school, right, and we if we go back thirty
Speaker 1: years when I graduating business school, the big thing that
Speaker 1: came and we didn't see it coming really was technology.
Speaker 1: Technology changed all businesses, and we looked at telligent. Even
Speaker 1: when we saw technology coming, it was often hard to
Speaker 1: know which companies we're gonna win. You know, Netscape was
Speaker 1: the biggest internet company there for a while and doesn't
Speaker 1: exist anymore. Google paying along and it's still dominant. Those
Speaker 1: changes in the world of technology, and specifically digital technologies
Speaker 1: have revolutionized business in so many ways and results in
Speaker 1: a lot of a lot of change. We look forward
Speaker 1: thirty years, that's climate change. Climate change is going to
Speaker 1: have a similar impact on businesses, and it's it's tough
Speaker 1: to predict which specific companies are going to come out
Speaker 1: on top, Bruce, Where is the drive going to come from?
Speaker 1: When you think about investors, when you think about just
Speaker 1: business risk, where you think about the government. Is this
Speaker 1: something that so that these companies are going to do
Speaker 1: on their own or does the government need to step
Speaker 1: in and create regulations that guide them. Yes, So this
Speaker 1: is an interesting moment and the reason why I wrote
Speaker 1: the book. Now, I could have been working in second
Speaker 1: twenty years. I could have written it some years ago
Speaker 1: or waited a little longer. We're at a various moment
Speaker 1: in time here because there's multiple drivers going at once. Right,
Speaker 1: one driver is a Pisco risk. The climate change are
Speaker 1: manifesting themselves increasingly, we're seeing climate change play out physically
Speaker 1: instead that affects people. Consumers are starting to man more
Speaker 1: sustainable products. Employees they want to work for companies they
Speaker 1: believe are sustainable. These are all real trends and there's
Speaker 1: a lot of economic researchers show that these actually effective businesses.
Speaker 1: That you've got government government stepping up more than ever.
Speaker 1: It's it's it's not consistent particularly here with parties change,
Speaker 1: but the inflation reduction acts by far the largest government
Speaker 1: support ever in this area, and that's as big implications.
Speaker 1: And then the greatest change of all is around the innovation.
Speaker 1: So we have products like solar and winds and electric
Speaker 1: vehicles that are revolutionary and revolutionizing industries and also really
Speaker 1: starting to bend the curve on emissions. Uh. I mean
Speaker 1: here in the US, most people don't realize we actually
Speaker 1: peaked in our greenhouse gas emissions back in two thousand seven.
Speaker 1: We actually are in a det work not nearly quickly enough.
Speaker 1: We have to be we have to accelerate this, this
Speaker 1: this transition. But this innovation and technologies is really making
Speaker 1: a big difference. So we've had a minute or so
Speaker 1: left here, and there's a line in your story with
Speaker 1: a graphicum or a picture. Investors should climate proof their
Speaker 1: investments by mid century, in line with the recommendations of
Speaker 1: climate scientists. So I'm thinking about our investors, you know,
Speaker 1: people who are listening to this show, listening to you speak,
Speaker 1: listening to this interview. What's the takeaway at this point
Speaker 1: when they think about their investments and maybe their their strategy,
Speaker 1: their their time frame and the like. Yeah, so the
Speaker 1: the initial reactions that maybe, well, mid century is an
Speaker 1: awfully long time. Now it's almost three decades and I'm
Speaker 1: gonna be I'm gonna be pretty old. Hope, hope, I'm
Speaker 1: still here talking to me then. But investments are priced
Speaker 1: their value on future cash flows and future expectations on
Speaker 1: the value in those assets most companies, and it's becoming
Speaker 1: increasing at parent that the world is going to decarbonize
Speaker 1: by the way, whether or not governments make it happen,
Speaker 1: is going to happen these climate change is basic physics.
Speaker 1: When you do to its going to force us to
Speaker 1: do this. So you're looking at your your investments, think
Speaker 1: about how they're going to be affected not thirty years
Speaker 1: from now, and how they're going to get affected in the
Speaker 1: the last a couple of years as these changes really
Speaker 1: start to manifest themselves, and then reposition around that. Fascinating
Speaker 1: and I think it's just so relevant to so much
Speaker 1: going on, especially as we continue to see the impact
Speaker 1: of climate change and then think about how it plays
Speaker 1: certainly into investing strategy. Bruce A sure, thank you so much.
Speaker 1: Hopefully we can catch up with you soon again in
Speaker 1: the future, professor of professional Practice at Clubby Business School.
Speaker 1: Check out his new book, Investing in the Era of
Speaker 1: Climate Change. Uh, it is just at