A New Book Charts a Path for Investors in the Era of Climate Change
Professor Bruce Usher offers a guide to investing in companies that reduce greenhouse gas emissions.
A climate catastrophe can be avoided, but only with rapid and sustained investment in companies and projects that reduce greenhouse gas emissions. This sort of investment has already begun, as Bruce Usher, a professor at Columbia Business School, demonstrates in his new book, Investing in the Era of Climate Change.
Investors are abandoning fossil-fuel companies and other polluting industries, and financing businesses offering climate solutions. Rising risks, evolving social norms, government policies, and technological innovation are all accelerating this movement of capital.
Usher offers a guide to the risks and opportunities for investors as the world faces climate change. He explores the role that investment plays in reducing emissions to net zero by 2050, detailing how to finance the winners and avoid the losers in a transforming global economy. Additionally, he maintains that careful examination of climate solutions will offer investors a new and necessary lens on the future for their own financial benefit—and for the greater good.
Usher discusses the book with Columbia News, along with what he’s read lately, what’s next on his reading list, and who he would most like to invite to his dream dinner party.
What inspired you to write this book?
Climate scientists have been consistent about the threat of catastrophic climate change for a long time, but when I began investing in the sector, in 2002, there were very few investment opportunities available to mitigate climate change. Twenty years later, much has changed.
Today, climate solutions, and the business models to scale them, are increasingly available and competitive with traditional, polluting products. Commercial solutions already exist to reduce greenhouse gas emissions by two-thirds, and technologies are under development to tackle the remaining third. Avoiding a climate catastrophe will require implementation of climate solutions at an unprecedented pace and at a global scale—and that will require an extraordinary amount of investment capital, an estimated $125 trillion by 2050, to decarbonize the global economy and limit warming to 1.5 to 2 degrees Celsius.
Since I began work in the sector, climate change has become significantly worse, and less time remains to address it. But the technologies and business models for reducing emissions have dramatically improved, offering a path for avoiding catastrophic climate change. Investing in the Era of Climate Change describes that path and the critical role that investors play in navigating it. My hope in writing this book is that every investor—individual and institutional—will recognize the changes that are coming and act, for their benefit and the benefit of all.
What are some of the risks and opportunities discussed in the book for investors when it comes to climate change?
The risk to investors is in two categories: physical risk of climate change and transition risks as the global economy decarbonizes. Physical risks are more obvious, as people become aware of the increase in heat, wildfires, flooding, and violent storms. These risks are extremely serious, and will increase until emissions are brought to near zero, but the impact of physical changes is often far in the future.
Transition risks are more likely to affect businesses and investments in the near term. Transition risks include new technologies (for example, electric vehicles replacing gasoline-powered vehicles), policies (example: Local Law 97 mandating changes to New York City buildings), markets (example: consumer preferences for sustainable products), and reputational risks (example: greenwashing).
Opportunities for investors exist in nearly every sector, everywhere, as the entire global economy must be rebuilt after 300 years of using fossil fuels for industry, and nitrogen fertilizers and deforestation for agriculture. More specifically, investment opportunities can be divided into two categories—commercial products and businesses already in existence, and those that are still in development. Commercial opportunities include renewable wind and solar power, the lowest cost source of new power in most countries; energy efficiency and energy storage in the real estate sector; and electric vehicles that provide better performance and lower operating costs than gasoline and diesel. These business sectors are already large and well understood, offering investors stable, but modest returns. The more speculative investment opportunities include green hydrogen and carbon capture, sectors with enormous growth potential and outsized financial returns, but with a great deal of risk, as the products and business models are nascent.
Can investment really help reduce emissions to net zero by 2050?
It’s our only viable option. Scientists inform us that we must get to net zero emissions to avoid catastrophic climate change. We cannot shrink our way to zero by using less energy, eating less food, or having fewer children (we can get partway there with those strategies, but getting to zero is impossible). And shrinking the global economy would be wildly unfair to the 89% of the world’s population living in developing countries that have yet to benefit from economic growth.
So the only viable solution to climate change is to rebuild the entire global economy—the energy system, agriculture, transportation, and much more—which will require vast amounts of investment, an estimated $100-150 trillion. The issue isn’t whether investment can reduce emissions; the issue is whether investors have the will to make the investments needed to reduce emissions.
What have you read lately that you would recommend, and why?
The Sixth Extinction by Elizabeth Kolbert is beautifully written, providing insights on how we as humans are changing our planet to the detriment of nearly every other species. Kolbert places our actions in the context of five prior mass extinctions, demonstrating just how fragile life is on our planet.
On climate change, Bill Gates’ book, How to Avoid a Climate Disaster, is very informative, providing readers with a good overview of the solutions to address climate change.
In fiction, beyond the topic of climate change, I recently read Small Things Like These by Claire Keegan. A little book with a big morality tale. I thought about the novel long after I had finished it, which is the signal to me of a good book.
What's next on your reading list?
On the Beach by Nevil Shute. It was written in the 1950s, and it’s about the end of humanity after a nuclear war. There are some disturbing parallels between the book and the topic of climate change, even though the author could not have been aware of this when he wrote the book.
What's the most interesting thing you learned from a book recently?
How scientists accidentally discovered that most humans have Neanderthal DNA (from The Sixth Extinction).
What are you teaching this semester?
I have a busy teaching schedule this term. Climate Finance is, unsurprisingly, my primary course for Columbia Business School students. I co-teach two other courses: Investing in Social Ventures, with Professor Vikas Raj, an experiential course in which MBA students complete due diligence reports on social ventures applying for funding through the Tamer Fund for Social Ventures; and Bridging the American Divides, with Professor Todd Jick.
You're hosting a dinner party. Which three academics, dead or alive, would you invite, and why?
Albert Einstein—who wouldn’t want to meet him? A genius in physics, who also foresaw many of the opportunities and challenges we face today. I would like to ask him about his perspective on addressing climate change.
Margaret Atwood—an extraordinarily prescient thinker and writer. I would like to know her thoughts on the growing divides in the U.S. and many other countries, and how we might bridge them.
Kathy Phillips—her death in 2020 was a tragic loss for Columbia Business School and the entire university. I would like to see her again as a friend and colleague.