INTRODUCTION
THE PROFITS OF CLIMATE INVESTING
"Climate change is the single greatest threat to a sustainable future but, at the same time, addressing the climate challenge presents a golden opportunity to promote prosperity, security, and a brighter future for all."
- Ban-Ki Moon, former Secretary General UN
It has been said that the most important boardroom table is the breakfast table. It is where children ask their parents some of the most challenging questions: Deep mind and morality-bending questions. In our house, when my boys were a little younger, my youngest son, Ethan Rain, asked me this question:
"Dad, my teacher said that coal plants are causing climate change. What are you doing to stop them and help fix the climate?"
Finally! I had been waiting for years for someone to ask me that question.to give me an excuse, a reason to share.
For nearly 25 years, I've been bobbing and weaving in the fight to reverse climate change-listening and learning from friends, colleagues, and even those opposed to climate progress. I've taken my lumps and gathered my lessons. And those efforts have been more than a little rewarding-not only in learning how to slow and reverse the climate threats already plaguing the planet and threatening to worsen, but also in learning how to drive sustainable financial outcomes.
That's why my answer to my son's question is long-and it culminated in the writing of this book.
So, let me get started. Soapbox, please.
It is January 2012, and Enphase, a six-year-old clean energy startup, is preparing for its Initial Public Offering (IPO). If analyst projections are right, it will be the sort of home run, a grand slam actually, that we investors call a 2x Fund Returner: It will return double the whole of the original fund that invested in the company. Not just the investment made in the company, but the fund itself. Even if every other investment in the fund goes to zero and returns nothing, this fund is a success by virtue of the 2x fund returner that is about to be Enphase!
It's the kind of moment that turns fund managers into legends-wealthy legends.
The office is buzzing. Investment bankers, fund analysts, and associates shuffle about the office in organized chaos. A carefully choreographed modern dance production. Associates hammer at their keyboards, making last-minute tweaks to documents and presentations while calling out to their analysts, "You double-check that data yet?!" Dutiful junior analysts bounce from one desk to the other nervously confirming the quality of the data being fed into the machine that will turn out this victory.
Two conflicting aromas mingle in the air. There's the familiar welcome fragrance of eggs, bacon, and pancakes-the usual buffet laid out before the weekly Investment Team meetings-and the less-than-pleasant smell of body odor emanating from the armpits of bankers and analysts who worked through the night to ensure they got everything right for today's IPO.
It is an event that will change the lives of everyone with a financial stake in Enphase. More than that, it will change how power is generated-cleanly-for millions of people around the world and for decades to come.
The founders, venture capitalists (VCs), employees with stock options, and independent investors are bursting. They have big hopes that today will be a very good day.
Each has gambled financially with aspirations of large financial returns stemming from the company's unique technology that can help decarbonize the power grid and reduce the risks of climate change.
When they did the circuit, pitching investors and experts, the founders shared a vision that the company's unique microinverter technology could convert solar energy at the individual panel level, to reduce waste and carbon emissions while increasing energy efficiency, energy output, and sustainability.
Today, that vision will get a big shot of adrenaline.
For retail investors who dabble in the stock market, this IPO will bring them the opportunity to participate in the promise of Enphase. For those who did, it would catapult their investment from a share price of less than $8 per share in March 2012 to over $200 per share in March 2024, a return of more than 2,400 percent, many times more than the 2x Fund Returner that would have satisfied many of them.
From its very inception as a private company in 2006, Enphase has been on a mission to revolutionize the solar industry. With its unique microinverter technology, it connects to a solar panel and converts the direct current (DC) electricity generated by the panel into alternating current (AC) for use in homes or power grids.
They achieved this in remarkable fashion. With support of VCs such as Third Point Ventures, RockPort Capital Partners, Madrone Capital Partners, and Applied Ventures, Enphase has solidified its place as a major player in the cleantech, clean energy, and climate technology, or climatech, sectors.
By the end of 2023, Enphase's products were being used in over 3 million solar installations worldwide.1 The company's share price success is based on profitability and growth in sales and profit margins, all of which is driven by market demand for solutions that decarbonize the power grid and help enterprises to access clean, renewable, low-cost electricity. Enphase's products and innovation have rapidly made solar power more affordable, removing a key obstacle to mass adoption. It is considered an important contributing reason why solar power is now the least expensive form of power generation worldwide.
Enphase demonstrated, whether by accident or design, a unique innovative investment model called climatech-a technology that enables the decarbonization of the economy, while delivering outstanding profits.
Enphase's founders and investors were among the early entrepreneurs to understand that the world needs to decarbonize and enabling that, the decarbonization of the economy, can produce significant profits. So, the founders built a business that does exactly that.
Other companies have done the same. They recognize that the mass market demand for decarbonization and the rapid transition to a net-zero economy have become huge drivers of economic activity. They see the same data we all see and understand that we have tipped over into a new paradigm where it is now more profitable to invest in companies that support a low-carbon future rather than those that drive atmospheric carbon intensity higher.
In short, it is now more profitable to invest in a sustainable future than contribute to global destruction.
Some of these companies focus on macro and system wide issues, while others focus on niche challenges. For example, Tesla dominates headlines with its solution for transportation, while companies such as Redwood Materials is expanding battery recycling and materials production to support the needs of all industries and segments such as land, sea, air travel, industrial systems, and grid-capacity storage. Still other players such as First Solar have figured out how to mass produce and deploy solar panels, while Recharge Industries is solving the intermittency challenges that come with solar and renewable power using battery storage. From Groundwork BioAg to MyLand, LineVision to Idlesmart, Mysa to Kuva, CleanFiber to Aqua Membrane, Membrion to Cyclic Materials, the list of companies pioneering solutions keeps getting longer and more viable.
As I write in the early months of 2024, there are more than one hundred such companies worth over a billion dollars each, and thousands more valued at over $100 million each. They are members of a new business category called climatech, short for climate technology. The term refers to innovative technologies and solutions designed to address climate change. It encompasses any technology, product, or service aimed at mitigating greenhouse gas emissions, either by preventing the release of these gases or facilitating the removal of it directly from the atmosphere (more on this later in Chapter 2) or reducing the unavoidable, physical impact of climate change.
More climatech companies are emerging every week. Each understands that now is the time to take a hard right turn away from fossil fuels and to reinvent the economy.
The Decarbonization of Everything
I call this new economic revolution, the Decarbonization of Everything (DoE). It is the era in which everything we depend upon to survive and thrive as a society must be reimagined and reinvented to ensure a low-carbon sustainable future, one that will be environmentally restorative, socially equitable, and economically prosperous. This decarbonization revolution will forge a path to wealth and health at an unprecedented scale and speed.
This shift is driven by five key trends:
- Climatech solutions are cost-competitive with conventional solutions.
- Demand for solutions that decarbonize corporations and their supply chains is remarkably sticky.
- Regulation that supports and demands decarbonization is becoming deeply entrenched at the local, regional, national, and international levels.
- Asset owners are experiencing losses and increased risks from the changing climate.
- Carbon Dioxide in the atmosphere, the principal climate-regulating gas, is at an all-time high and climbing.
In the following chapters, I will explain how these trends form and how they enhance the demand for climatech innovations. But suffice it to say, climatech companies that solve business challenges, help customers manage risk, and create opportunity and value present...
