The early investors will win the business of decarbonization

Photo by Karsten Würth (➡️ @karsten.wuerth) on Unsplash

Two months past the 2021 Summer Olympics in Tokyo, the hot summer returns in the Kanto plain. The plain encompasses four densely populated areas with 13m residents in Tokyo and remaining three neighboring prefectures with 17m habitants. I have lived in the Chiba prefecture for more than thirty years. In the early afternoon today, the temperature kept rising the the uncomfortable liven and reaches 86 degrees. It is the early October in the northern hemisphere.

It is October 11th today in my calendar. Thirty-two years from a week ago, my son was born in a local hospital. My wife and I still remember how we dressed to see our doctor at night. A doctor told us to wear thick clothes on the phone because it was a bit chilly in the hospital. Shivering and freezing were the words to describe that night.

Even today, my family has not changed any clothes in the wardrobe. The seasonal change is the customary practice in Tokyo. Three pairs of thin T-short and short pants go to the plastic basket for the washing machines. It is just hard to believe that my family member wear T-shirts and pants in October.

The air conditioner runs to keep the temperature below 86 degrees but the corona virus is still out there to confine Tokyoites in the rabbit hatch. The constant ventilation is required to avoid the infection but it is too hot to open the door. A moderate breeze is on wish list.

Under these circumstances, there is no choice but reading an English weekly magazine at home. A story of climate tech came to my subtle attention. The business of decarburization has been quite popular in America.

Vinod Khosla inspired brilliant engineers and scientists at Cal Tech in 2010. Sparked by billionaire venture capitalist, a group of scientists have been determined to achieve commercial success in climate business. Impossible Foods, a low-carbon alternative protein maker, is valued at $10bn to solve both carbonated climate change and unhealthy diet problems in America. QuantumScape raised $680m through a special-purpose acquisition company (SPAC) to develop batteries to alternate fissile fuel and to proliferate electric vehicles.

Beyond Meet, a rival of Impossible Foods joined the race. Since it went public to float the shares, the initial valuation at $1.5bn has gone up to nearly $8bn. Tesla has added even more to reach $700bn in 11 years from $1.7bn at initial public offering. The S&P Global Clean Tech Index performed 40% in returns, more than double above those in the benchmark S&P 500 Index of American firms. These results are very impressive.

The Economist correspondent addresses a question to the readers, “Is this a sign of a blockbuster industry?” The answer is described in short by saying, “yes, quite possibly”, followed by a group of supporters to brave prophecies such as Vinod Khosla and Abe Yokell, a boss of another successful investment firm. A diverse group of listeners injected their capitals in innovative fixers, representing states, philanthropists, Wall Street banks and private equity firms, and big businesses. More cash is about to pile on energy transition.

But the question in my mind is, “Does the general public see the realistic solution in climate change? When does it take effect?” The answers remain in the minds of venture capitalists and supporters. Personally speaking, the general public will not see the realistic solution in climate change. Frankly speaking, it is probably too late to fix the problem.

For a start, let’s take the government. Department of Energy tied up with Breakthrough Energy Ventures for a $1.5bn partnership with Bill Gates’ network. President Joe Biden is seeking a final approval for funding in the Congress. The government supports the funding to climate tech.

But the role of the government is to control the misbehavior of the business. The legislatures pass the law to penalize the carbon emitters and levy carbon tax on excessively inefficient transport. So far, no punishing legislation is in existence to reduce the carbon emissions. They let it go. They approve more funding for clean tech to alternative energy but the reduction does not take place. Decarbonazation has been in very slow process.

The second listener includes charities and family investment firms. Elemental Excelerator in Hawaii attracted $3.8bn funding from $43m in the early-stage. Dawn Lippert, CEO, manages 20 of its 117 tech portfolio. She saw the acquisition of Ampaire, a hybrid-electric aircraft developer, for $100m. The portfolio supports initial public offering of Stem, an energy-storage firm, through SPAC and made a $1.3bn deal.

But the work of charities and philanthropic family investments lies in social causes and solutions. It is not the primary objective to raise capitals through tech companies. The center of gravity focuses on humanization.

A prudent group of backers join capital-intensive initiatives in Wall Street. Among them are a big bank and private-equity (PE) funds. JPMorgan commits $2.5trn on sustainable investment for the next ten years. Black-Rock partners with Temasek, a Singaporean sovereign-wealth fund, to create $1bn financial vehicle for climate tech. Other private equity firms raised oversized funds.

But the primary role of financial institution is to redistribute the income. It also has the secondary role to retreat capital from carbon emitters to undo the climate change in the other direction scale. The withdrawal of debt in corporate lending could be a choice. Otherwise carbon industry keeps emitting the chemicals at the current level. The control by monetary voice is required by the banks and private-equity firms. They inject, not retreat.

The fourth supporter grows the public awareness. Big companies such as Microsoft and Amazon pledged to reduce the greenhouse gases and the carbon footprint. This final group is much more promising than the previous classes for social causes and solutions. Non-financial organizations play a big role in reducing the carbon emissions which directly impact the results of business. Micrsoft set up $1bn climate-tech fund. Amazon launched $2bn fund to the same direction.

The capital raising is popular with cash-rich venture capitalists in Silicon Valley, philanthropists in Hawaii, financial arbitrators in Wall Street, and business owners in Seattle. But the general public is looking for a solution to fix the climate change. The temperature must go down to the normal level. The current 86 degrees in October is utterly abnormal.

In the current residence in Chiba, 10 miles northeast of Tokyo, my family members continue to live a modest life for the rest of our lives. My son (born in October) is adjusting to late hot summer in October with little problems. He is still young. But my wife (born in chilly December) and I (born in freezing March) need a tough adjustment.

The early investors in San Francisco, New York, and Seattle win the climate business in years to come. But the general public has to adjust the global warming on a day-to-day basis for a long time. Probably, for the next 20 years, there is no solution in Tokyo. In that sense, there is no need to change the clothes in the closet until late October.

Taught marketing @ universities in Tokyo for a decade, ex-I-banker & mgmt consultant @ Kurt Salm (Accenture Technologies now), Georgia Tech educated