New Horizons for Climate Action

On Our Radar

Climate technology refers to a broad array of tools, systems and innovations designed to mitigate and adapt to the impacts of climate change. These technologies encompass both "hard" technologies, such as renewable energy systems and energy-efficient appliances, and "soft" technologies, including knowledge, practices and techniques related to the management of climate impacts. The primary goal of climate technology is to reduce greenhouse gas emissions, enhance energy efficiency and promote sustainable development.

Some of the challenges facing climate tech face include capital intensity and lack of proven commercial models. However, this also presents a unique tailwind — the tremendous regulatory push for sustainability — and that can be a difference maker in accessing large amounts of capital, according to McKinsey.

To achieve real progress with climate tech, a much richer analytical understanding of a complex system comprising many variables and feedback loops is needed. As BCG explains, the three broad areas in which artificial intelligence (AI) can accelerate climate progress are the following:

1. Mitigation: Helping with both the reduction and removal of emissions — and with the underlying measurement needed to size the challenge and track progress.
2. Adaptation and Resilience: Aiding citizens, countries, regions, cities and businesses to prepare for and respond to the inevitable impacts of a warming planet.
3. Foundational Capabilities: Enabling climate action via improvements in climate modeling, climate economics and climate education, as well as accelerating breakthrough innovations that will open new horizons for climate action.

What is your long-term outlook for the energy market?  

If I could sum up our approach to thinking about the future of energy in two words, it would be energy addition. While production of alternative and renewable energy has dramatically increased and is even set to more than double by 2040, it’s not growing at the rate that is required for it to be the world’s primary energy source. This is because global energy demand is increasing year over year as a result of three main drivers: population growth, economic growth and energy intensity.

We expect to see continued improvements in efficiency, but there's going to be a lot of growth in demand from the developing world, where individuals currently consume a lot less energy per capita than the developed world. Additionally, we’re seeing some very energy intensive technological improvements including AI and data centers. We think the population will continue to grow, albeit at a slower rate, and that the economy is going to keep growing and test energy efficiency. With all of this in mind, it is a recipe for growing energy demand.

So, right now, the global energy mix is about 85% traditional and 15% alternative. We believe that by 2040, alternative energy will grow to 30% while traditional decreases to 70%. This means we will of course still need to rely on traditional quite heavily and need to be in a “more of everything” world to keep up with demand.

Amid the current energy transition, how should investors be thinking about their energy strategies?

We believe investors should consider how the future of energy picture may look going forward when considering their energy strategies. As I mentioned, we believe the global energy composition will be 70% traditional and 30% alternative in 2040. We see significant flaws with most energy strategies, which often focus solely on traditional or alternative energy and fail to provide an accurate representation of how the industry is going to address growing energy demand. Traditional energy strategies are highly concentrated, while alternative energy is highly volatile.

We believe a strategy that includes allocations to both forms of energy will provide access to opportunities across the energy value chain as well as an attractive risk-return profile, diversification and potential inflation mitigation.

What opportunities should investors look for in both traditional energy and alternative energy?  

The evolution of energy markets is creating opportunity across the entire energy value chain. We’re excited about areas in both traditional and alternative energy, including electric utilities, battery storage solutions, midstream energy companies with extensive pipeline networks, nuclear energy and carbon capture, utilization and storage (CCUS).  

We actually think traditional energy companies might be some of the best opportunities for leadership in the energy transition. They can leverage their expertise in developing, managing, financing, building, owning and operating large-scale energy infrastructure projects that are also relevant to the alternative energy market.

I think some traditional energy companies will miss the mark and become dinosaurs overtime while others will rely on their traditional asset base and do really well. Some companies will make really smart investments in the transition, and some will make pretty silly investments in the transition. So, there’s a lot of opportunity out there and different outcomes that can occur among different companies, and one of the exciting things for me as an active manager is trying to figure out who's going to get it right and who's going to get it wrong.

Who Are The Winners and Losers in Both Traditional and Alternative Energy?

We discuss navigating the physical realities of the energy transition and who are the winners and losers in both traditional and alternative energy with:

• Mekala Krishnan, Partner, McKinsey Global Institute at McKinsey & Co
• Tony Perrotta, Sustainability & Regenerative Economy Expert at PA Consulting
• Todd Zabelle, Construction Industry Expert
• Tyler Rosenlicht, Head of Natural Resource Equities at Cohen & Steers

Impact of Climate Change and Best Practices for Implementing Sustainable Technologies

We discuss the impact of climate change and best practices for implementing sustainable technologies with:

• Nick Cavanaugh, Co-Founder & CEO of Sensible Weather
• Shara Ticku, Co-Founder & CEO of C16 Biosciences
• Dr. Brendan Hermalyn, Founder & CEO of Thalo Labs

Climate Risk, Role of Technology, and Navigating the Regulatory Environment

We discuss climate risk, the role of technology and navigating the regulatory environment with:

• Kim Knickle, ESG & Sustainability Research Director at Verdantix
• Doron Merdinger, Founder & CEO of Doroni Aerospace
• William Theisen, CEO of EcoAct North America

This article was originally our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.