Bill Gates (Trades, Portfolio), the co-founder of Microsoft Corp. (MSFT, Financial), is not especially interested in space, unlike some other billionaires. Instead, he is focused very much on planet Earth. His book, "How to Avoid a Climate Disaster," which was published last year, shows he is extremely concerned about the environment, but is optimistic that technology will save the day, though he warned innovation must be sped up.
The billionaire's interest in the subject stems from his involvement in global health and economic advancement through his philanthropic foundation. He noticed that climate change was causing developing nations real problems through increasing poverty and making health care provision more challenging.
Given that for my entire adult life I have heavily depended on Microsoft, Gates is someone I admire professionally. As such, I respect his views when it comes to science and technology. Reading his book, you can tell that he is a super-nerd; he not only is extremely well-read on the subject of climate change and how to tackle it, but also, through his name and wealth, has direct access to experts all over the world. He has utilized that advantage. The book is both educational on climate opportunities and threats as well as a clear plan for the world to get to zero greenhouse gas emissions, while at the same time somewhat of a geeky mini autobiography in his quest to invest in innovation to move the needle.
The business magnate, who early on in the book says "Weather for Dummies"is one of the best books on weather that he has found, explained that previous energy transitions, for example, from coal to oil, took many decades, but now that the goal of decarbonizing the global economy is much more urgent, “we have to force an unnaturally speedy transition.” To do this, he wants governments to increase funding for climate research by 500% by the end of the decade and to introduce a meaningful carbon price because of what economists would call the externalities associated with using fossil fuels.
In the book, Gates is not coming at the climate problem from a typical environmentalist’s position, who often advocate for reduced economic activity. Rather, he is clearly still very much a capitalist and is putting his own money to work in high-risk but potentially high-return ventures. In the chapter focused on agriculture, he says that Africa’s poorer populations have not benefited from the “green revolution” in agricultural science, which, since the 1960s, has boosted crop yields and saved a billion people in Asia from starvation. Hence, Africa does need carbon-intensive fertilizers. Further, Gates believes that Africa may suffer the most from climate change via famines, droughts and rising seas. He says he has seen the effects first hand through his work at a major philanthropist there.
While Gates, who has had his fair share of regulatory headaches at Microsoft, still favors markets over government, he does want governments to encourage private-sector investment.
“It might seem ironic that I’m calling for more government intervention,” he wrote.
The book focuses on quite a few big ideas in the race to solve the climate problem. For instance, Gates says decarbonizing electricity is the “single most important thing we must do to avoid a climate disaster” as it accounts for over a quarter of the direct greenhouse gas emissions, and because clean power would enable the move to zero-carbon transport, such as electric cars. Though he said making the industrial sector green will likely be harder, Gates walked readers through interesting advances in areas like low-carbon cement and steel.
Since the energy transition gets a lot of attention, investors might think the energy and utility sectors would be the ones where clean, green growth and value destruction is going to happen (think renewable energy and stranded assets). However, the book made me realize that perhaps the sector which is going to be disrupted most from the positive side is the industrials sector. Gates does not directly disclose his climate-related investments or pitch any stocks, but armed with the technical knowledge, he shares several big themes the world will be utilizing to reduce emissions. Based on these themes, it seems to me engineering and construction companies, along with companies involved in materials science, are all going to benefit. He does not pick winners like hydrogen or carbon capture and storage, but advocates for an "all of the above" strategy along with some higher-risk explorations into crazy sounding things like geo-engineering.
Interestingly, though, he is not crazy about wind and solar technologies, emphasizing the constraints of the intermittent generation they involve. He is also very pro-nuclear power and explains his own investment in a nuclear startup TerraPower, which aims to be a more efficient nuclear power producer.
Again, unlike many environmentalists who are calling for faster emissions cuts by 2030, Gates says 2050 is the true goal for net zero as “making reductions by 2030 the wrong way might actually prevent us from ever getting to zero.” This is, in part, because switching coal power to natural gas power would save emissions in the short term, but lock in emissions from the grid in the long term. In short, he is calling for more aggressive innovation; not just in power generation, but across the economy. He has a chapter dedicated to each of the main emissions categories: Making things (cement, steel, plastic), Plugging in (electricity), Growing things (plants, animals), Getting around (planes, trucks, cargo ships) and, Keeping warm and cool (heating, cooling, refrigeration). Each chapter is full of interesting statistics and futuristic ideas.
What’s great about this book is that it is both strictly objective in looking at the situation and filled with optimism. He compares the task to the putting “a computer on every desk and in every home.” When he started Microsoft, Ken Olsen, founder of Digital Equipment Corp., a pioneering computer company, said flatly,“There is no reason anyone would want a computer in their home.” The computer revolution succeeded because of a lucky convergence of top-down forces and disruptions from below.
So Gates recognises the role governments will need to play, the intergovernmental co-operation too, but also crucially more green ambition and risk-taking from investors and corporations. In short, this book is about how to reorganize the global economy so that innovation can solve the world’s most important problems.
How can we use this book as investors?
Now that I have covered some of the main topics of the book, investors may be wondering how it applies to them.
As I mentioned, the book opened my eyes to the upside potential for innovative companies, including those investing in research and development and those outside of the energy sector that are coming up with real business solutions to reduce emissions. Essentially, Gates, for his own investment strategy, is running a venture capital operation through his company, Breakthrough Energy Ventures.
Second, the book covers dozens of ideas, from cement to sustainable aviation fuel to carbon capture to opportunities in agriculture. It seems to me, to take one plainly obvious view, that companies in the industrial engineering sector are going to have a lot of opportunities in the years ahead.
Finally, the book is a great educational and informational resource thanks to all the very well referenced source material Gates has used. If anything, it is clear that Gates did his research. As the saying goes, knowledge is power.
