How to Seize the Opportunities in Climate Change

Canadian Wayne Gretzky, the winningest ice hockey player of all time, was once asked the secret of his success. "Simple, he replied. "I don't skate to where the puck is, I skate to where it's going to be."

If you're a regular reader of this newsletter, you know our focus is on skating to where the opportunities will be in the future — and positioning yourself accordingly.

And right now, the mother of all hockey pucks are in the rapidly-changing climate: How to adapt to it and mitigate it. How to assist others in minimizing their carbon footprint. And how to find the green in the trend.

Forget about crypto, where you can quickly lose your hard-earned savings in supposedly “stable” coins, and FTX-styled Ponzi schemes (crypto is a longer term play to be sure, but not just yet). Instead, it's time to rethink the biggest threat humanity has ever faced (if we do nothing) from a "driving growth through innovation" lens.

Nowhere else on planet earth are there as many potential opportunities right now.

McKinsey just issued a report on the need to reduce carbon and look for ways to achieve what is called "net zero" greenhouse gases produced by human activity by mid-century. "Achieving a net-zero world by 2050 may well prove to be the largest reallocation of capital in history, leading to an increase in spending in the range of $1 trillion to $3.5 trillion more per year than today."

The bipartisan Inflation Reduction Act commits $370 billion to climate incentives.

Investor enthusiasm for climate startups is growing. Larry Fink, CEO of investment behemoth BlackRock, recently declared that 1000 more $1 billion "climate unicorns" are on the way.

These are still early days in this gold rush. But it's the right moment to think opportunistically about climate change, wherever you are and whatever organization you lead. It's the right moment to forgo the circular, get-us-nowhere arguments about climate change that divide people and sidetrack us from forward thinking.

Early Adaptors Will Inherit the Future

In California, where I live, climate change is starting to affect the state’s $50 billion agriculture industry - especially our wine industry. Irregular rain patterns (and recent flooding), soaring temps and frequent wildfires threaten to make our Central Coast and Napa Valley wine-growing regions unreliable. "People around these parts are no longer talking about climate change as an 'if' or a 'when'," says Beth Novak Milliken, CEO of Spottswoode Estate Vineyard and Winery in St. Helena, California. "It's here now."

Milliken and her team at Spottswood are leading the race to adapt to climate change. Spottswoode is experimenting to figure out the wine industry’s future: shading some vineyards, developing cover crops that can help with either drought or flooding, and planting heartier rootstocks that may be able to thrive in a warmer climate.

"My parents started this winery and I'm looking to pass it down," Milliken notes. "In order to do that, I now have to plan ahead in a way I never thought I'd have to."

Extreme Weather Equals Extreme Opportunity

Not long ago, I was the keynote speaker at backup power industry association EGSA (Electrical Generator Systems Association). I learned a ton about how changing weather patterns are sending demand for generators and standby power products and services through the roof.

The United States suffered 383 electricity disturbances in 2020, up from 141 in 2016. Hurricane Ida left over a million people in Louisiana and Mississippi without power for days in sweltering weather. The Texas Ice Storm of 2021 caused widespread blackouts that killed 246 people.

"We're not climate scientists but weather events have become a lot more severe," said Aaron Jagdfeld, chief executive of Generac, whose generators are integrated into existing fuel sources and switch on automatically once a home loses power. Generac, Cummins, Caterpillar, and a growing number of startups are busy innovating ever more energy-efficient products and struggling to meet surging demand. They know that extreme weather can equal extreme opportunity - for those who see the future and take action.

Venture Capital is Betting On Climate Change Startups

Jupiter Intelligence is a Silicon Valley climate risk startup. They help companies gauge the level of threat to their assets, whether power plants, factories, or data centers. Jupiter's big idea was to diverge from the "how-do-we-mitigate-climate-change" debate and to see that climate change would almost certainly get worse before it gets better. This small team of scientists, consultants, and quants are focused on preparedness, on helping governments and organizations get ready for 1000-year floods, on rethinking business models based on outmoded models. They are seeing a surge in business right now.

Jupiter CEO Rich Sorkin told me in a recent interview for Forbes that "the market has basically hit an inflection point. for a future with more storms and floods. Jupiter is advising South Florida and municipalities all over the world on resilience measures.

Jupiter has warned that, based on the firm’s cutting-edge research models, that climate change could cause markets to collapse if investors were to realize, for instance, that they had been over-valuing flood-prone coastal property. They've been instrumental in helping the banking and asset management sectors start really viewing what some are calling "global weirding" as a priority, and they help clients tap funding from the Inflation Reduction Act to qualify for incentives.

Why the Paradigm is Shifting

German economist Rudi Dornbusch once observed that "In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could."

That's exactly what's happening with climate. Over just the past two years, there's been a shift in thinking - a paradigm shift if you will.

"The private sector no longer sees climate action as a source of job losses," says Gina McCarthy, America's first-ever climate czar. "But rather as an opportunity for job creation and economic revitalization. This is a striking shift after four years of the Trump administration, which threw science out the window and backed out of the Paris climate agreement."

Before the change in underlying assumptions, our thinking was mired in fear. Auto dealers were predicting that shifting to cleaner cars would mean vehicle costs would skyrocket and sales would drop. Automakers and steelworkers were fearful of plant closings and layoffs. "Even very early on in the Biden administration" points out McCarthy, "when labor was fully engaged and squarely at the table, the old paradigm that cleaner standards meant job loss was hard to break. And unions worried that a big shift to electric vehicles could pose a fundamental threat to their workers." Not anymore.

What's happening to propel the paradigm shift? Weather events, for sure. But as the cost of fossil fuel skyrockets because of geopolitical shocks (war in Ukraine, disloyal suppliers in the middle east, supply chain disruptions, inflation, etc.), the cost of solar energy has been going steadily downward. It has decreased by 85 percent since 2010 while the cost of wind energy has decreased by 59 percent onshore and 71 percent offshore.