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It is possible for a small group of people to lead a revolution from the “feel- good,” socially responsible investment to impact investments that build solid businesses and become the lion’s share of investor portfolios. The financial returns are compelling, and the social and environmental impacts are awe-inspiring.
Jigar Shah is the author of Creating Climate Wealth: Unlocking the Impact Economy. He founded SunEdison, the world’s largest solar services company, and was the founding CEO of the Carbon War Room – a global non-profit started by Richard Branson to promote entrepreneurial solutions to climate change.
There is a false choice often being made between high impact and high returns. We can have both. In fact, we must achieve both to achieve scale and unlock the greatest wealth creation opportunity of our time.
This opportunity begins with people. I am lucky. I have been one small voice in the world that was one of the first to attract mainstream capital to solar. I used a new business model to deploy solar energy that unlocked a multibillion-dollar solar energy services industry. Through hard work, timing, good luck, and demand, it has spawned hundreds of thousands of jobs and has made many people wealthy; it produces clean electricity close to customers—and continues to grow today at exponential rates.
Impact investments can drive incredible wealth opportunities—and create a new economy Tweet This Quote
Even though people may think this is an incredible story, the point is that it is really an attainable story and one that we can repeat again and again—not only to build more than one multibillion-dollar industry but rather to build many multibillion-dollar industries. If the International Energy Agency is right, it will add up to a new $10-trillion economy – while solving our global climate and environmental issues. This is what I mean by “creating climate wealth.”
Today, after the fact, investments in solar energy have been classified as impact investing, not socially responsible investing. The reality is that solar energy was really started by mainstream investors looking for financially compelling returns in an industry that happened to be “green.” Recently, impact investments have captured people’s imaginations. Impact investors concern themselves with finding investment opportunities that deliver both a financially compelling return and a positive impact on the environment or society. Yet most of these investors limit their impact investments to a small part of their portfolio because they believe they must sacrifice financial return to achieve the highest societal impact. I wholeheartedly disagree.
Impact investments can drive incredible wealth opportunities—and create a new economy. It is what I call, and the Carbon War Room has deemed, climate wealth creation.
Most investors believe they must sacrifice financial return to achieve the highest societal impact. I disagree.
To optimize climate wealth creation, we need structure. Structure assumes discipline. It helps investors choose between projects that have passed muster as opposed to projects with buzz that fizzle because they have no sustainable growth potential. It sets guidance parameters so investors find investments that will create new industries that deliver perpetual financial growth and return.
With rising commodity costs, water shortages, and global warming, the world market potential for these investments is enormous. A key reason is that many technologies exist that have already been tested and proven. We simply need to deploy them in a way that makes business sense. It is a precise focus on the deployment of existing technologies that will drive economic growth and jobs and create climate wealth – our next economy.
For those who argue for innovation first, I would say that in this sector, only technology deployment and wealth creation from that deployment drives sustained interest in innovation funding; choosing one over the other is a false choice. If the path to creating climate wealth will create a new economy, our impact investments need to go beyond being emotionally compelling investments. They need structure and business-model discipline to prove to traditional investors that the opportunities are solid.
This is not about a short-term buck but rather a long-term fix Tweet This Quote
In just the last five years, about $1 trillion has been invested in the deployment of renewable electricity— most of it from mainstream capital sources. In 2013, the Global Impact Investing Network estimates that $9 billion will be committed to impact investments, a 12.5-percent increase from the $8 billion committed in 2012. Unfortunately, most of that money will never attract mainstream capital. As followers; we must change that.
The time has arrived when we must invest this money into opportunities that offer compelling financial returns and demonstrate the scale needed to impact climate change. We need investments that are part of the building blocks of driving a new industry. In fact, we can’t afford to waste our time or money on investments that do not drive a new industry. This is not about a short-term buck but rather a long-term fix. So we must identify and invest in the businesses that can unlock the $10 trillion necessary to solve climate change.
The key is making sure we have the discipline to never compromise financial returns for societal returns—at least not in the impact investment space. It is possible for a small group of people to lead a revolution from the “feel- good,” socially responsible investment that is attracting $9 billion in 2013 to impact investments that build solid businesses in perpetuity—ones that become the lion’s share of investor portfolios. Why? Simple: the financial returns are compelling, and the social and environmental impacts are awe-inspiring.
The social and environmental impacts are awe-inspiring Tweet This Quote
I know this from personal experience. My story and the story of the company I founded, Sun Edison, is a testament to what can be done and an attempt to make clear the path to change. The opportunities are real. We have more to do in solar and much more to do in industries like shipping, building efficiency, industrial efficiency, heavy trucks and agriculture.
The solutions, the technology, and the demand exist. What is needed is a well-oiled machine devoid of?the persistent friction that clogs the capital flow to impact investments. We can’t wait for the Wall Street establishment; they lost the willpower to solve real problems long ago. We need a bastion of motivated entrepreneurs and investors to step up and execute. There is good to be done and a huge amount of wealth to be created if it is done correctly.
We have at our disposal right now the power, knowledge, know-how, technology, resources and proven solutions to change and improve our world. There are achievable strategies with returns and benefits that are substantial—and sustainable. They create climate wealth.
We have at our disposal right now the power, knowledge, know-how, technology, resources and proven solutions to change the world
The opportunities are exciting, and the timing is right. We need to begin to really have an impact and seize what lies before us. It will benefit the people and the planet, and it will drive enormous profit. It starts with one person and then another—then another. Take it from me: just one small voice that joined with other small voices to engage a small group of committed citizens who, in turn, created (and changed) a $100-billion industry.
Excerpted from Creating Climate Wealth: Unlocking the Impact Economy by Jigar Shah, published October 8, 2013, by ICOSA L.L.C./ Amazon Services
