Technology Holds the Key to the Low-Carbon Transition—and Investors Can Turn It

Authors

• Charlotte Bancilhon

  Former Director, Sustainability Management, BSR

• Emilie Prattico

  Former Manager, BSR

This month, the Goldman Sachs Low-Carbon Economy Global Forum brought together companies and investors to discuss regulatory, technological, and market trends shaping the low-carbon economy. Discussions at the event underlined that while technology will enable us to transition to a climate-compatible future, investors must play a crucial role in driving the innovation that will scale and develop the technological breakthroughs required.

Throughout the day, investors, innovators, and businesses all shared insights on the role of technology in the low-carbon transition—and how investors can get involved. Here are four highlights from the forum:

• Low-carbon technologies are increasingly cost-competitive. Per a 2015 New Climate Economy report, the cost of solar power systems has fallen by 75 percent globally since 2000, and the cost of energy storage has decreased 60 percent. According to a Goldman Sachs report shared at the event, “The Low-Carbon Economy: Technology in the Driver’s Seat,” in parts of the United States, the cost of wind power before subsidies is now comparable to that of natural gas. In other words, solar and wind power is now competitive with fossil fuels in more and more places. Electric vehicles’ battery ranges are getting longer, while prices are dropping rapidly. Meanwhile, automakers are significantly investing their R&D budgets in green technologies. For example, Ford has committed to invest US$4.5 billion in electric vehicles by 2020.
• To invest in new technologies, asset owners will have to change traditional investment approaches. Innovation is taking place in small companies and outside the energy sector, rather than among established players, which means that investors may have to amend their policies. Hans Fahlin, chief investment officer of the Swedish pension fund AP2, said it is challenging for his fund to invest in emerging technologies because of the risk profile of such investments. Like other pension funds, AP2 traditionally invests in large capitalizations. It is now considering broadening its investment universe into smaller players, such as small and mid-caps, to increase opportunities to invest in clean technologies.
• Low-carbon innovations must find ways around current limitations. Innovations will not necessarily follow a straight line but may surface brand new products, services, and modes of consumption. For instance, current technological development trends indicate that when it comes to batteries for electric vehicles, costs will go down and range will go up eventually, but faster innovation is needed to make electric vehicles a major market segment in the immediate future. Johannes Reifenrath, director of car product strategy and planning at Mercedes-Benz, offered a different solution considering these limits: developing technology that allows an electric car to make smarter energy decisions on its own by using connected devices to plan its route and battery use.
• New business models accompany disruptive technologies. Innovation is not only about improving goods and services that currently exist, but also about replacing them with new models of production and consumption. In particular, the service economy—where companies sell the use of goods, rather than the goods themselves—is well suited to low-carbon technologies, as it tends to reduce energy and raw material consumption. Proterra, an all-electric bus maker based in South Carolina, offers a new business model: It has designed a 40-foot bus made of light materials and developed a fast-charging docking station that would let buses fuel mid-route in 10 minutes or less. The company, backed by venture capital in Silicon Valley, does not merely sell buses—it sells service throughout the lifecycle of a city bus, including training, repairs, and, crucially, an energy infrastructure that allows for the best service possible. Proterra has sold more than 2.5 million miles of service in communities across North America.

Throughout the event, one area of consensus emerged: The transition to a climate-compatible future is well underway, it is irrevocable, and it opens up many opportunities for investors. The one question that remained—and to which investors will partly hold the answer—is the pace at which we are headed toward a new, low-carbon economy.