[00:02:56] William Green: Our guest today is one of the world’s leading experts on this subject. His name is Bruce Usher. Bruce is the author of a seminal book titled Investing in the Era of Climate Change. Before that he wrote another book titled Renewable Energy. He’s one of the most popular professors at Columbia Business School where he teaches massively oversubscribed courses on climate change and business.

[00:03:21] William Green: He also chairs a committee that advises Columbia on how to invest its endowment in a socially responsible way. As you’ll hear, Bruce has a rare gift for speaking rationally and objectively and unemotionally about these very complex and often controversial topics, but he’s not only a first rate thinker and writer, he’s also a successful investor and entrepreneur who’s spent many years investing in companies that provide solutions to the challenges of climate change.

[00:03:51] William Green: Among other ventures, he was the CEO of a company called EcoSecurities, which he took public and subsequently sold to JP Morgan. Bruce and I spoke several months ago, towards the end of last year, and it’s taken me a while to actually edit this episode. So I’m excited to be finally sharing this very rich conversation with you.

[00:04:12] William Green: As you’ll see, Bruce does a brilliant job here of highlighting not only the challenges of climate change, but also the lucrative opportunities presented by what he describes as the greatest reinvention of the global economy since the Industrial Revolution. I hope you enjoy our conversation. Thanks so much for joining us.

[00:04:35] Intro: You’re listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world’s greatest investors and explores how to win in markets and life.

[00:04:55] William Green: Hi, folks, I’m absolutely delighted to welcome today’s guest, Bruce Usher, who’s at the forefront of an incredibly important development in business and investing. Namely, the race to invest trillions of dollars in order to shift the global economy toward a low carbon future that mitigates the risks of climate change.

[00:05:15] William Green: Bruce is the author of an excellent book titled Investing in the Era of Climate Change, which I have here. He’s also been an entrepreneur and a successful CEO and an active investor in early stage companies. And a very renowned professor at Columbia business school. Thanks so much for joining us, Bruce. Welcome.

[00:05:34] Bruce Usher: Thank you, William. Pleasure to be here.

[00:05:37] William Green: Part of your mission as an author and as a professor is really to raise awareness among investors that we’ve entered a new investment era and that there’s an extraordinary and possibly once in a lifetime opportunity to invest in a wave of innovative climate change solutions.

[00:05:55] William Green: Including things like solar energy and wind energy and electric vehicles and the like. In your recent book, you wrote that this is the greatest reinvention of the global economy since the industrial revolution. And you also mentioned that the transition to a global low carbon future has begun, providing investors in the era of climate change with the opportunity and challenge of a lifetime.

[00:06:18] William Green: Can you talk about the scale of this economic challenge and the investment opportunity that it’s creating?

[00:06:26] Bruce Usher: Sure. So let me start beginning with the big picture, right? The big picture is since the industrial revolution and the agricultural revolution, I followed it. You know, William, we’ve spent 300 years building a global economy, mostly a market based economy.

[00:06:42] Bruce Usher: Then by many measures is extraordinarily successful. And the average human being today is 50 times as well off in real terms than they were pre industrial revolution. We have food production, we have transportation, we have housing, we have things that were unimaginable not that long ago. But there’s a catch, right?

[00:07:01] Bruce Usher: And the catch is that that global economy emits massive amounts of greenhouse gases. And we know very well at this point that that is truly unsustainable. We will keep doing that and that will be the end of the global economy and more. So after 300 years of building this, what I think is a pretty incredible thing we created as humans, we have about 30 years to entirely rebuild our global economy so that it still produces A level of prosperity, ideally for all, but does not make greenhouse gas emissions and with the climate scientists tell us, and I have a lot of trust in that science.

[00:07:40] Bruce Usher: I’ve looked at closely and I’ve followed for a long time. Is that we need to reduce emissions, not just a little less a lot. We actually need to reduce emissions essentially to 0. So this is going to require a massive, literally rebuilding of the economy. I say rebuilding. It’s not going to, it’s not just a software.

[00:07:58] Bruce Usher: It’s going to solve this problem for us or an app. That’s going to solve this problem for us. It’s literally mostly physical infrastructure. Cause most of the things that emit greenhouse gases, whether it’s production of electricity or transportation or cars and airplanes, buildings, and the greenhouse gases are agriculture and greenhouse gases.

[00:08:16] Bruce Usher: These are physical things and these physical things are going to change and that creates both enormous challenge to do this in a short period of time, but also an enormous opportunity from both the business and investment perspective, because it’s going to, it is going to take trillions of dollars to reinvest and to rebuild that economy.

[00:08:34] William Green: And I think you, you quote at one point a number from Boston Consulting Group from 2021, where they said 150 to 200 trillion dollars of investment is needed in the coming three decades to protect the planet through financing the decarbonization transition. So in a sense, this is terrible news for the planet, the scale of the the challenge, but for investors, it’s actually, there’s, there’s, there’s kind of an alluring capitalistic case that this is an enormous opportunity.

[00:09:04] Bruce Usher: Absolutely. And then like, first of all, like any great change, this is going to create opportunity. It’s also going to create. You know, companies, investors who are going to do very poorly on some cases, companies are going to go away. So this, this change is going to be very disruptive, right? And analogy to that is the change that we’ve seen with the digital revolution last couple of decades. And let’s take it from 300 years down to like the last 30 years. And I’ve started thinking about the last 30 years, roughly the time since I graduated from business school to where we are today, and I’m dating myself your way, we’ve seen the global economy change dramatically because of digital technologies, right?

[00:09:39] Bruce Usher: And there’s not a single business in the world today. That’s not affected in some way by digital technologies. And that’s created a lot of new winners and business investment and a lot of firms that have suffered and gone out of business. Yeah. And there was a wave of investment behind that, which continues to this day, including things like AI, that’s not going away.

[00:09:56] Bruce Usher: What we’re going to see now in the next 30 years or so is another massive wave of investment into decarbonization of the global economy. The number you, you quote is BCG number. I don’t know if that number is right or wrong. Nobody knows for sure. I think it’s a pretty decent guess. It’s a huge number.

[00:10:11] Bruce Usher: But it’s also important to put it in context. It’s also a doable number. In other words, if we sort of in my book, I look at how much capital is available in the capital markets, the fixed income markets, equity markets, and so on, venture capital light. And that capital exists and a lot of it, actually close to half of it that we need is already moving in this direction with a caveat and a caveat being that investments in low carbon solutions in developing country or emerging economies is, is really lacking.

[00:10:41] Bruce Usher: And there’s no clear path to how that’s going to change anytime soon. That’s a whole special challenge, but in big picture, a lot of capital needs to move. A lot of capital already is moving and the capital is available.

[00:10:53] William Green: You mentioned in the book that there are five major trends that are driving this very rapid and sustainable flow of capital into climate solutions, and we’ll, we’ll talk very specifically about some of those climate solutions, whether it’s renewables or electric cars or whatever later, but I really wanted to talk in some depth about these trends because I think it’s very clarifying.

[00:11:16] William Green: It makes, it makes it really clear for our listeners. Why this is such a profound shift. And, and so the first trend is the manifestation of physical risks. Can you talk us through that? Cause obviously we’ve, we’ve just lived through, I think the hottest summer in recorded human history. And we’ve, we’ve seen many of these extreme weather events lately, whether it’s wildfires in California or Canada or heat waves in Oregon or India or wherever, and flooding in Florida and record breaking hurricanes and the like.

[00:11:50] William Green: My impression from you is that something, something has shifted and people are starting to become really aware of it.

[00:11:57] Bruce Usher: That’s right. So one of the challenges in addressing climate change, it’s, it’s always been a problem of the future, right? Scientists telling us, you know, if we keep going this way, it’s going to be a very serious problem, a potential catastrophe, and it’s hard to take action, particularly, you know, really challenging changes and big investments for something that’s so far in the future.

[00:12:18] Bruce Usher: And frankly, something that until very recently, yeah, none of us experience, you know, you can see or taste or feel climate change. And so that kind of risk is a really hard one to deal with. We’re not good as humans dealing with that kind of risk. And what has changed very recently is, is there was a physical manifestation of this risk.

[00:12:35] Bruce Usher: In other words, we’re starting to experience climate change. Now, this is not a good thing. This is a, this is, this is a very bad thing, but there’s a silver lining. The silver lining is, is getting people’s attention. And they’re starting to realize that this thing that was talked about, that would be years or decades in the future is happening today and is almost certain to get worse. So it’s getting people’s attention and that’s that is starting to change things. That’s the first of the big trends I identify.

[00:13:05] William Green: I was very struck by a quote in one of your talks or in the book, perhaps from the World Bank report in 2022, where they warned that.

[00:13:14] William Green: India could become one of the first places in the world to experience heat waves that break the human survivability limit. But then you’re also talking about these issues much closer to home, like with flooding in places like Florida or wildfires in California. And you quoted somewhere Zillow, the, the real estate company estimating that I think 800, 000 US homes worth something like 451 billion are at risk of flood inundation by 2050.

[00:13:45] William Green: Can you talk a little bit about how, before we get to the next, the next of these five trends, how we actually, in practical terms, can protect ourselves from this very real sense that there’s a, there’s a, there’s a, there’s an actual pragmatic and urgent risk to things like our property?

[00:14:05] Bruce Usher: Yeah. So first of all, let’s put things in context here, right?

[00:14:07] Bruce Usher: I do not believe or agree with those who predict this is existential crisis. It’s the end of humanity. We’re all going to die. We’re, we’re, you know, it’s a, it’s a hopeless situation. What some people call referred to climate defeatism where we’re done for as a species. Humans are incredibly adaptable, are incredibly innovative, and we’re very good at dealing with challenges when we set our minds to it.

[00:14:32] Bruce Usher: So the World Bank report for India is very worrisome because when temperatures get above a certain level, particularly combined with humidity, what they call wet bulb temperature, the human body can no longer sweat and you will die, in fact, in those circumstances. Of course, in many economies, we have air conditioning, that’s what keeps us alive when it’s, is that hot and humid and, you know, we have places to stay cool and ability to do that.

[00:14:58] Bruce Usher: So, the question is, you know, how does 1 think about this and economy like the U. S. or much of the world, these changes that are coming, how, how are you going to adjust us? What does it mean? What it means is that these physical changes are hitting us now and they’re just going to keep getting worse until we decarbonize.

[00:15:16] Bruce Usher: That’s the 1st thing I understand. The 2nd thing I understand is. We will, to a certain extent, adapt to those. We will use more air conditioning. We will be moving people away from coasts where there’s constant flooding and the like. We will have to fight more wildfires. I mean, what happened in Canada this summer was pretty interesting.

[00:15:34] Bruce Usher: There was ten times as much wildfires as they’ve ever experienced before. In a place like New York City here, we got, you know, inundated with smoke, which is not just annoying, but actually very bad for your health and so on and so on. So I want to see a lot more of that. We’re going to be dealing a lot more with that.

[00:15:45] Bruce Usher: And from a financial investment or business perspective, we’re going to see that we will have to invest in it and adjust this. And this is whether or not you, you know, clinical believe in the climate of science. Climate as a science of climate change, excuse me, it’s sort of irrelevant, you know, I don’t believe or I don’t believe in gravity or not believe in gravity is physics, basic physics and climate change is also basically physics should basically forcing more energy from the atmosphere to be remain remain on earth as opposed to being reflected back into space.

[00:16:19] Bruce Usher: So you can believe in physics, not believe in physics. They’re not relevant to this discussion. What’s relevant is these changes are happening and there’s going to be, as a result of that, one will have to. We will have to invest in the future.

[00:16:35] William Green: You mentioned somewhere in your book that it’s worth avoiding a Minsky moment where suddenly an asset class is totally repriced has happened with something like subprime bonds in 2008 and that there can be these sudden kind of collapses where it becomes really difficult, for example, to get insurance for certain types of property in areas that are very at risk of flooding.

[00:17:00] William Green: And I was interested that one of your practical pieces of advice was, look, it’s better to act early than late, and so it’s smart to trade out of assets facing climate risk. When you look at the immediacy of some of these extreme weather effects, does it make you think there are certain places you just want to sell your property, it’s not a smart place to be?

[00:17:22] Bruce Usher: Yeah, basically, yes, sure. At least be diversified around it. In other words, having all your assets, all your assets in a basket that is exposed to, you know, perennial flooding, chronic flooding, or potentially a disaster storms, isn’t too smart. Now, it’s not just the greatest risks are not necessarily the physical ones.

[00:17:46] Bruce Usher: And when people think about climate change, our risk of changing, you know, physical risks to their assets. But in fact, a lot of that risk is what we call transition risk as, as, as, as, as markets change as business changes. And what’s happening in insurance is a good example of that. So just because you say, well, I’ll take the risk of a storm coming and, or you know, I, I, I can deal with the rising cost of this at some point, you know, your insurance rate starts to go up now.

[00:18:13] Bruce Usher: Assurance in this country, particularly flood insurance had been to that. The market’s a bit it’s, it’s affected by government action. It’s not really a proper free market, but eventually insurance rates go up or even worse. You cannot get insurance. Now, if you can’t get insurance on your home, you can’t get a mortgage on a home.

[00:18:29] Bruce Usher: If you can’t get a mortgage on your home, good luck selling your home. And by the way, the community that you live in, if you’re not the only one, and it’s highly unlikely it’s just one home, it’s going to be whole communities that community tax base starts to collapse. And when the tax base collapses, you know, goodbye to the school system and the health care and so on.

[00:18:47] Bruce Usher: So what you see is the transition risk associated with climate change is actually the one that you really need to think about. What’s going to change to this in the next couple of decades as we deal with climate change and decarbonize? And what does that mean for me and my assets? That’s that’s really the concern.

[00:19:06] William Green: Yeah, and I, I think the underlying theme of this discussion is we’re not trying to be fear mongering. We’re just trying to give people better information because there’s so much misinformation in this area. So once you can think a little more clearly about this, you can start to say. Okay, this train is coming, whether I like it or not, and I would be smarter to be aware of the things that are going to happen so that I can, I can plan accordingly.

[00:19:31] Bruce Usher: Exactly, and I think that’s the most important thing here. I’m, by the way, at the end of the day, I know people who read my book have come back to me and said, wow, you’re an optimist about climate change. I’m not an optimist. I’m not a pessimist either. I’m a realist. And what we see is this pretty massive challenge, it’s a very serious challenge and it’s a complex challenge, but I think we’ll discuss this in a few minutes.

[00:19:51] Bruce Usher: We also have the capital and most of the technologies we need to address the challenge. And I’m pretty optimistic, but I’m much more optimistic than I was a decade or two ago. When I was, began working in this area because we’ve made a lot of really tremendous advancements. So it’s not a question of fear mongering for sure.

[00:20:08] Bruce Usher: I don’t think that’s helpful by the way, or being optimistic specimens. I think it’s just. About understanding where are we and where we’re headed. And to your point, there’s unbelievable misunderstanding out there. I think, I think the media tends to report extreme situations. That’s what gets people’s attention.

[00:20:24] Bruce Usher: I think politicians don’t help because they tend to make misleading statements. And so, you know, I really want to get people understand what’s going on.

[00:20:32] William Green: Yeah, I appreciate it. Your goal here is to clarify not to terrify.

[00:20:37] Bruce Usher: Exactly.

[00:20:39] William Green: So getting to getting to trend number two, the second of our big five trends that are driving this tremendous wave of capital into climate change solutions.

[00:20:48] William Green: This is technological innovation. You’ve been in this field as a executive, a CEO, an investor. Yeah. And the like really since I think about 2002, can you give us a sense of what’s changed from those early days in terms of technology when this stuff didn’t really seem to be that competitive or viable or scalable?

[00:21:13] Bruce Usher: Yeah, the chain, honestly, it’s, it’s unbelievable what has happened that a little more than two decades I’ve been involved from this long. Let me give you some, some data to bring that to light. So the first is when I got on this field, you know, we had solar power, it existed, some wind power, but if you added up all the solar panels in the world, he collected them all together and he said how much electricity they generate, it was equivalent to about one coal fired plant.

[00:21:36] Bruce Usher: Nothing. And the reason why it was very expensive and there was no scale. Yeah. Fast forward to today, we’ll construct in this year globally. When I say we globally, some are retain, 200 to 300 coal plants worth of solar will be built. I mean, that’s, we know it’s gonna replace hundreds of coal-fired facilities this year in solar alone without even getting to other renewable technologies.

[00:22:00] Bruce Usher: Why? Because today it is the cheapest form of new power generation in much of the world. It’s not just good for the environment. It’s just a great product. It’s the cheapest product to produce electricity. It has challenges around intermittency and other issues, but that’s an incredible change as a product that’s come down since it was first used a couple of decades ago, it’s declined more than 99 percent in cost.

[00:22:23] Bruce Usher: Then there’s electric vehicles. And I got into this field because there were no electric vehicles, golf carts, nothing that was practical. Today, the entire automobile industry is going electric. And why is that? Well, it’s good for the environment, it’s good for climate, but the main people, the main reason people drive EVs is because it’s a better vehicle.

[00:22:44] Bruce Usher: It, it’s more fun to drive, it accelerates faster, it handles better. And over the lifetime, the running costs are much, much lower. So we’re coming out with these better products that literally 20 years ago, didn’t exist or, or, or we’re just completely uncompetitive. That’s the innovation that’s happened in the last 20 years.

[00:23:03] Bruce Usher: And that’s the big stuff. And we actually take just those two categories, renewable energy, wind, solar, electric vehicles, and energy storage, which essentially, mostly lithium ion batteries. If we just take that, and we scaled all that globally, by the way, it is going a little bit at this point, but if we go 100 percent on our land, which we will, that will reduce global greenhouse gas emissions, but about 50 percent that alone takes us about halfway to addressing this problem, which is amazing.

[00:23:33] Bruce Usher: And then we tell an innovation, the other half, we don’t have scalable solutions yet, but we’ve got thousands of technologies. And thousands of business models under development and company innovation to get to the other half. And I can’t tell you with certainty, which of those technologies will succeed.

[00:23:50] Bruce Usher: I think there’s some pretty interesting ones out there that I’ve been looking at. But I have, I have some confidence that those technologies will also be developed just as we saw solar and others in the last couple of decades. So, to me, the biggest trends, the most important one, I should say, is this trend in innovation.

[00:24:07] Bruce Usher: Well, you know, we now have the ability to decarbonize global economy, which when I got this 20 years ago, sure, we had more time to address climate change back then, and time is our big challenge here, but we actually didn’t have the solutions we have today. And that’s, that’s a fundamental difference.

[00:24:22] William Green: And my sense is that the, the kind of hierarchy of technologies in terms of their impact and importance is is probably renewables like solar and wind power, electric vehicles led by companies like Tesla and BYD energy storage, maybe a little further down the road, green hydrogen and carbon removal.

[00:24:42] Bruce Usher: That’s right.

[00:24:43] William Green: So that’s sort of the heart of it, isn’t it.

[00:24:45] Bruce Usher: Yeah, because I guess that gets the most of your most of your decarbonization.

[00:24:48] Bruce Usher: I guess you the majority of the way that we need to get to, but I wouldn’t sort of break those into 2 groups. And the 1st, their 1st group being renewables, electric vehicles and storage. Those industries are already competitive with incoming products the fossil fuels or other polluting products are out there and they’re already a scale, right?

[00:25:08] Bruce Usher: These are multi hundred billion dollar industries already. So it’s not a question of is this stuff going to work? It’s just a question of how fast can we get to 100 percent with those technologies and based on the current technology. You know, how fast those sectors are growing, I think, in the next, you know, well, within the 20 or 30 years, we have those sectors will be 100 percent renewable.

[00:25:29] Bruce Usher: Pretty much you’re very close to it. 100 percent electric vehicle on automobiles, not necessarily on heavy trucks. Then the other group of technologies, you mentioned green hydrogen, carbon capture, and there’s some other technologies there. I put them in a different bucket because they’re not yet competitive.

[00:25:43] Bruce Usher: You produce those technologies and it’s going to cost you more than the current technologies you’re trying to, you know, the polluting technologies you’ve got right now. Now, with government subsidies and the like, you can compete, but that’s not, you can’t rely on government subsidies forever. And so, those technologies got to drive down the cost curve in the next couple of decades.

[00:26:03] Bruce Usher: Otherwise, they’re not going to, they’re not going to be there for the long term.

[00:26:06] William Green: I was chatting to a friend of mine, Brian Lawrence, who you may know, who’s a hedge fund manager at Oak Cliff Capital and a member of Yorktown Partners. And we were talking this morning about the fact that I was about to interview you.

[00:26:18] William Green: And I was saying, because he’s an expert on renewable energy and coal and the like, I was like, well, what should I ask Bruce? And he said, look, you’ve got to raise the fact that all of this media coverage about the falling cost of wind and solar and how they’re cheaper than coal and natural gas is fundamentally flawed.

[00:26:37] William Green: And he said, actually, on average, solar may be cheaper than a coal plant, but only between the hours of 9 a. m. and 3 p. m. And then there’s this big difficulty of asking, well, who provides the power when solar isn’t running? Who’s going to pay for the batteries? And he also sent me a report from a guy called Michael Cembalest at JPMorgan, I’m sure you’ve read.

[00:27:00] William Green: It was way above my head that talked about the levelized cost of energy. It was basically saying, look, the actual cost of wind and solar power is greater than, It’s presented as in public because people aren’t really taking account of things like the need for backup power or storage or reserve margins to maintain the system.

[00:27:21] William Green: So it’s reliable or just the need to overbuild wind and solar capacity to meet demand in these very decarbonized systems. This is way above my head, but I feel like I need to ask you about this because again, there’s, there is a look rational. So, yeah. Guide, guide us through this in a way that you know, people like me who struggle with the technology can understand.

[00:27:46] Bruce Usher: So, so that, that concern regarding renewable energy is a valid concern, but oversimplifies. The situation is, and it is complex. So again, let’s start with the big picture. The big picture is we’re going from a world of what we call centralized power generation, where big power plants, coal, natural gas, nuclear, produce electricity and push it out to the grid, to our homes, our businesses, right?

[00:28:14] Bruce Usher: We’re moving to a decentralized or distributed model where power is being produced. In millions of sites, home solar panels and wind projects and so on and so forth all over the place and stored in many different sites, whether it’s through batteries or other ways, which I’ll get to in a minute. And so centralized to decentralized model, that’s a lot of complexity to how we manage electricity going forward.

[00:28:43] Bruce Usher: The 2nd point I would make. Is there sort of this, you know, and those points that are made, this idea that we’re going from power sources that are perfectly stable and very easy to manage to power sources as intermittent, which is true and therefore, you know, super complex and very expensive. The reality is the grid today before there was renewable energy was already a very difficult thing to manage.

[00:29:06] Bruce Usher: Because even constant source of power like coal and the like, they’re not 100 percent reliable. Coal plants run something like two thirds of the time on average. And more importantly, the main size is never constant. It’s called the load profile. You know, think about it during, you know, our conversation here in the afternoon, we’re using a lot of electricity.

[00:29:26] Bruce Usher: It’s some parts of the country, it’s very warm, so air conditions are on, or in the winter, it gets very cold, so heating goes on, and so on. We draw a lot of electricity in the afternoons. When we go to bed at night, our electricity needs to drop, right? And depending on any moment, any time, our demands and our supply have to be kept in balance.

[00:29:43] Bruce Usher: This is a really tough thing to do. And so, for example, there are hundreds of what we call peaker plants all over the country. These are natural gas fired facilities produce electricity that’s been almost the entire year turned off. We don’t use them. You think, what kind of crazy asset is that? If you only get used on those rare days when demand is so high, we call the peaks, you turn on the peaker plants.

[00:30:05] Bruce Usher: So, let’s start from the fact that the model we got right now is not a perfect imbalance Oh, it’s so simple and so cheap to run. It’s actually already a really difficult thing we’re doing. And now we’re adding these intermittent sources of power, wind and solar. Well, up to about 20 percent of power generation, this doesn’t really change the storage issue at all.

[00:30:26] Bruce Usher: In other words, you can add more intermittent power to the grid and you balance it just as we do today. So up until now, it’s been kind of a non issue. It’s becoming an issue because solar and wind are so cheap and attractive. In other words, it’s a good problem to have, but it’s a problem. So that’s where I say that, you know, this criticism is both correct.

[00:30:47] Bruce Usher: It’s a problem, but it’s becoming a problem because we have such a good, a good power generation source. So now we’ve got this super cheap source that we can scale. And yes, the more you start to add to the grid. You start to run into some intermittency problems, sometimes called the dot curve problem, which is a longer conversation.

[00:31:05] Bruce Usher: But here’s the interesting point. There’s a lot of ways to solve that problem. It doesn’t necessarily mean we got to spend trillions of dollars. Building a lot of batteries and let me give you one simple. No, we’re not not simple, but one example. So, the same time we’re growing renewable energy, we’re also rapidly growing the number of electric vehicles that are on the road.

[00:31:25] Bruce Usher: So, what’s an electric vehicle? Electric vehicle is an energy storage device on wheels. That’s essentially a large battery on wheels. Well, it turns out that energy storage device on average in America is used 48 minutes a day, 23 hours a day. Plus it sits idle. And of course, while sitting idle, you could charge it if it needs more power, but you can also discharge it.

[00:31:46] Bruce Usher: That’s called vehicle to grid. So we’ve got these. We’ve got these energy storage devices that will soon be all over the country, all over the roads that can be part of this solution to balance the grid. Now, it’s not a simple thing to do, and there’s certain drawbacks and complexities you need to account for in vehicle to grid, but it’s just one example of how this intermix issue, which is a real issue, is likely to get resolved. And there are a lot of other technologies coming along that will help balance it. So I think it’s a valid concern. I, I’m not that concerned about whether or not we’ll be able to to take care of it going forward. Let me tell you what I am concerned about much more than those articles. I’m really concerned about it.

[00:32:31] Bruce Usher: We got to rebuild the economy. Well, turns out that building stuff, that’s a technical word, stuff. I really mean this. You know, building anything in America. It’s really hard to do, and it’s really hard to do because we do not have a building friendly environment. The rules and regulations, whether those are federal regulations, but much more often sometimes the state level.

[00:32:56] Bruce Usher: Any of that local community, a county level, a city level, make it incredibly difficult to build. So a big problem with solar and wind and everything is transmission lines connecting to the grid. It’s not, you know, okay, keeping the grid in balance intermittency, that’s a challenge. But you can’t even connect to the grid.

[00:33:13] Bruce Usher: That’s a much bigger challenge. Because try to build a transmission line in the country, it’ll get blocked and sued every which way. And that’s my much bigger concern here, is that we know what we need to do. We have the money and the products. We can’t physically, I mean, when I say can’t, we can’t do it in a reasonable period of time.

[00:33:30] Bruce Usher: You can build a solar project in six months. I’m talking about a big solar project, hundreds of megawatts. You can physically do it in a matter of months. It’ll take you many years to get that project permitted and connected to the grid.

[00:33:42] William Green: I’m very curious what you make of, say, a company like Berkshire Hathaway, which has these enormous investments in renewables through Berkshire Hathaway Energy, where they’re obviously doing a great deal to invest in clean power through wind and solar and the like.

[00:33:59] William Green: And then at the same time, these, this massive commitment to legacy energy sources like oil and gas through things like, it’s huge they can occidental petroleum or, or Chevron, which I know is also doing a lot of very innovative stuff to do with direct air capture technology. There’s a part of me that thinks, okay, so it’s clear that we have to make a really dramatic shift towards renewables.

[00:34:20] William Green: And there’s a part of me that thinks, well, there’s clearly a pragmatic argument that people like Buffett or Munger are tapping into that we are still tremendously dependent on fossil fuels. And then at the same time, I see the news a few days ago that ExxonMobil announced that it’s acquiring a shale giant for something like 60 billion.

[00:34:39] William Green: Which again is deepening its reliance on fossil fuel production at the same time as we’re all talking about shifting to cleaner energy. And I’m, I’m just, I don’t really know how to place this in, in context, how to think about the, the pragmatic tension between becoming cleaner and at the same time recognizing the fact that the economy is hugely dependent on these dirtier forms of energy.

[00:35:06] Bruce Usher: So first of all, I, I agree, we are hugely dependent and not dependent as in, you know, if we just, you know, did the right thing that we wouldn’t use this anymore. No, I mean, there’s very few alternatives to, to flying today in terms of fuel. So a little bit sustainable aviation fuel is tiny. Most automobiles still are powered by gasoline and so on.

[00:35:27] Bruce Usher: You know, if we suddenly just stopped using fossil fuels, we’d be back in you know, living in caves and, and, and just putting aside the ethical considerations, it’s totally impractical. So what does that mean? It first of all means, yes, we use a lot of fossil fuels and we will continue in some years ahead.

[00:35:44] Bruce Usher: If anything is more importantly, well, what should we be doing about it? And my belief in the analysis that I’ve done is that pressuring companies either through a moral argument is the wrong thing to do. Or even through a financial, you know, divestment arguments, you know, we, we, we shouldn’t finance these companies.

[00:36:03] Bruce Usher: Both of those are pretty ineffective. First of all, I’m more like, you know, companies are designed to make profit. That’s the way the market works. And so trying to convince them to do the right thing, the margin helps, but it’s not going to completely cost someone to abandon the industry. And the second reason is, you know, trying to sort of turn off the capital tabs to fossil fuels. It’s the only way to work because first of all, 90 percent of fossil fuels in the world, that’s the supply is controlled by nation states. So, you know, that’s not going to work.

[00:36:33] Bruce Usher: And secondly, we, we, we tried it just recently with a big experiment, a horrible experiment, which was to turn off the taps in Russia because of war in Ukraine.

[00:36:41] Bruce Usher: So we have a real life example where after the invasion of Ukraine, the US government and the European governments have tried to essentially stop Russia from, from selling. Oil and gas fires to work and, you know, by and large doesn’t work because this stuff’s fungible and someone else buys it and they may buy a discount, but they still buy it.

[00:37:00] Bruce Usher: So what does all that mean? It means that if you want to, if you want to speed up the transition from fossil fuels to non polluting, we need to create substitutes. That’s what people react to when I say substitute, it means you need to give the ultimate end user of the product, another product, and ideally a better product.

[00:37:20] Bruce Usher: That’s the only thing that gets oil and gas companies to stop drilling for oil is when they see their customer base going away. And frankly, the IEA, which represents the international energy companies, really the fossil fuel companies, they do see that coming. They’re predicting declining supply because they’re seeing these substitutes.

[00:37:37] Bruce Usher: So, for example, electricity generation, we will start to use less natural gas and power electricity because, because of renewables. In transportation, we’re going to start using less gasoline. petrochemicals and other, other issues. And so, the real, the real impact here is not the moral impact, and it’s not the capital impact, it’s the product impact, I mean.

[00:38:00] Bruce Usher: Tesla, I don’t mean to say, but whether Tesla is today a good investment or not a good investment, or how Elon Musk is spending his money, but I will tell you that what Tesla has done to change the arc of emissions is really incredible, and now BYD and other companies, they’re certainly not alone anymore.

[00:38:18] Bruce Usher: Because now people are buying electric vehicles instead of instead of internal combustion engine, and that’s how you reduce fossil fuel reliance.

[00:38:25] William Green: Yeah, and I think you pointed out in the book that transportation accounts are something like 28 percent of U. S. carbon dioxide emissions. So actually having a great product there like the Tesla that you actually want to buy, not necessarily because it’s a righteous thing to do, but because it’s actually a cool car is a huge help.

[00:38:44] Bruce Usher: Yeah, now I don’t want to say William, that doesn’t mean that I totally disagree with the idea of divestment. Okay, in other words, if an investor feels that they do not want to invest in fossil fuel companies because their values are not aligned with that, then I say, why would you make that investment?

[00:39:04] Bruce Usher: Don’t hold those stocks, don’t hold those companies. You know, William, I don’t smoke. I’m not a huge fan of smoking. I, you know, it’s really nice to go to bars and restaurants in New York City, but since they no longer allow smoking, I prefer that. And you know, I don’t really want to put my money into a company.

[00:39:19] Bruce Usher: It’s not me. And so I’m perfectly fine with not investing in tobacco. And there’s plenty of people who feel sort of the same way about fossil fuels. Now fossil fuels are a little bit different because even after the divesting, they’re almost certainly still using the product because they don’t have a subsidy yet.

[00:39:32] Bruce Usher: And again, my example is flying. If you fly on a plane today, you’re certainly burning jet fuel, but that doesn’t mean you have to invest in the product and if it aligns with your values, not to invest, you should go ahead and divest, but don’t think By divesting, you’re solving climate change because you’re not, but there’s nothing wrong with doing it.

[00:39:49] Bruce Usher: I think there’s good reasons for it.

[00:39:51] William Green: Yeah, I was struck by a couple of arguments that you’ve made over the years. One of one of which when you quoted Yale’s famous investment manager, David Swenson, who said direct dialogue with corporate management is the most effective means of addressing climate change risk in the portfolio.

[00:40:09] William Green: And you pointed out that, yeah, if you if you sell a stock, you kind of lose your ability to influence management. So it may actually be that divestment is in some ways counterproductive. But then on the other hand, you have this beautiful quote from the academic and activist Bill McKibben, who played a very key role in starting this divestment movement, who said, if it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage.

[00:40:34] William Green: And that’s a really interesting line. What do you think of that as an, as an insight from McKibben?

[00:40:40] Bruce Usher: Well, first of all, it’s a very powerful line, right? And it’s pretty hard to disagree with that line. I agree with it. And so to me, it comes back to the values point. In other words, if you feel that your values are, I don’t want to be part of making the situation worse.

[00:40:54] Bruce Usher: In other words, I don’t feel like money should be going in this direction. Then don’t do that. You know, that’s, that’s absolutely, I totally agree. And I can see why people would feel, you know, profiting off of, additional greenhouse gases can seem for many people is morally wrong. I support that, but the investment I go through much, much more detail.

[00:41:14] Bruce Usher: I got time for you today. Doesn’t really make any difference in terms of reducing emissions. You’re not going to reduce emissions by not investing in oil and gas company. It can be counterproductive as Swanson pointed out. You don’t have a vote. It can no longer talk to managing economists, no longer sway management.

[00:41:32] Bruce Usher: There’s some, some reasons to think that that tactic could kind of work against you a little bit. I’m not offensive about that. I don’t think it’s a big, big, either way. But again, it’s not a climate solution. It’s, it’s, it’s a, it’s, it’s a, it’s a values based decision. And as far as I’m concerned, that’s it.

[00:41:47] William Green: Speaking of values, the third trend out of your five trends that are driving this massive shift of capital into climate change solutions is evolving social norms. And you’ve taught thousands of students since you started teaching in, I think, 2004. I think you also have two children in their twenties.

[00:42:07] William Green: And I’m wondering what you see in terms of evolving attitudes and norms and how this is actually Having a very practical impact on corporations and their behavior.

[00:42:20] Bruce Usher: So there’s been a big evolution in norms, particularly among younger people. And I think a lot of that is recognition or that climate change is real back to the physical manifestation and recognize that their generation is really gonna have to deal with this for better or worse.

[00:42:33] Bruce Usher: And, you know, I’ve had an anecdotal experience through teaching, you know, from teaching smaller class in this area to, to this year, we’re here at Columbia Business School, which by the way is a pretty traditional business school, right? Or, you know, one of our many claims to fame is value investing. And, you know, this is, this is far from a radical liberal business school.

[00:42:52] Bruce Usher: We’re very, very mainstream, a very large business school. We introduced a new business and climate change course this year. We’ll probably have half the class take the course this year, and we would have even more if I could just find more professors to teach it. I mean, it’s massively oversubscribed and that’s not because students say, oh, I have to take this because it’s, you know, it’s a morally right thing to do.

[00:43:17] Bruce Usher: It’s because they see the world as it is and where it’s headed, and they realize this can be a really important thing for them personally and for their careers and businesses. So that’s anecdotal. There’s a lot of research showing. A couple of things. One is that employees Looking to work for companies show them our preference to work for companies they believe are sustainable.

[00:43:39] Bruce Usher: And there’s a lot of reasons for that, but at the end of the day, you know, getting the best employees is a big competitive advantage for companies. All companies compete for really good employees, and that’s a big trend. It suggests that, you know, that’s not going to change anytime soon, right? It could be employees wanting to work for sustainable companies makes companies take more action to be more sustainable because they want to get the best people.

[00:44:01] Bruce Usher: Similarly, we see that among consumers. You know, among consumers, you know, you walk into a coffee shop and there’s, you know, there’s these big things on the wall about how sustainable their coffee is and how much it’s helping to address climate change and so on. And you ask yourself, you know, why did they put that on a wall?

[00:44:14] Bruce Usher: Like, what does that have to do with the taste of my coffee? And the answer is because consumers like it. They prefer it. Now, the evidence is consumers are generally not willing to pay much more for it. Only a small number of consumers are really, really willing to pay up for sustainability or climate change.

[00:44:29] Bruce Usher: But most businesses sell a product that’s kind of, you know, it’s kind of fungible, kind of, kind of commoditized, you know, coffee. There’s a lot of good coffee out there. And so you’ll see, you see companies more and more competing on sustainability attributes because it’s what the consumers want. So the customer wants.

[00:44:45] Bruce Usher: And so again, that’s driving more investment and more change the business level. And then you’ve got investors themselves, right? And then we’ve had this, this increasing, almost a wall of capital. Looking to invest in companies that do well, nice issues. And part of that’s the whole ESG movement, which another whole issue I’d be happy to dive into with you.

[00:45:05] William Green: Yeah, we’ll, we’ll definitely get to that. It’s an important issue. And again, with a lot of misinformation, let’s come back to that. But I think this question of how the, this shift in social norms is changing the behavior of companies is really interesting. We’ve seen a lot of these businesses, very prominent businesses make Really ambitious pledges that they’re going to reach net zero in terms of their emissions.

[00:45:30] William Green: I think Apple said it would get to net zero by 2030, Verizon by 2040, American Airlines by 2050. Then you’ve seen companies like Ford and Starbucks and the like. And then you mentioned that Microsoft, I think, committed to removing all of the carbon it’s emitted since it was founded back in 1975. And so I’m curious how, how these pledges actually help their competitive position and to what extent it’s greenwashing and to what extent it’s really sincere and to what extent it’s, it’s even at all measurable, given that everybody defines these things very differently, and it’s all voluntary, like, it sounds like a really great way to to, to kind of claim that you’re righteous while not actually doing that much.

[00:46:18] Bruce Usher: That’s right. That’s right. I taught a whole course on this, a whole class on this yesterday. It was pretty, pretty interesting. 3 hour discussion with my business school students. And, all the issues you raise are correctly. So in other words, you’ve got a lot of companies making these pledges. Why are they making these pledges?

[00:46:30] Bruce Usher: Because they’re feeling pressured to do so in various ways from their various, you know, what we call stakeholders or employees or consumers or anything else. It seems to be, you know, it’s just kind of smart strategic business decision. Some of them in doing so have a pretty clear plan on how they’re going to decarbonize, generally speaking, because they’re in an industry where it’s not so difficult to do it.

[00:46:48] Bruce Usher: So, you know, you look at a, you know, a Meta or an Apple or companies like this, most of their emissions are from electricity use. And the way to solve that is to invest in renewables. In fact, they’re even investing in 24 7 renewables, so they’re figuring out how to get power 24 hours a day. And, first of all, they know how to decarbonize.

[00:47:09] Bruce Usher: There’s a clear path to doing so, and these are very, very profitable, wealthy companies, so they have the capital to do this, right? For them, it’s pretty straightforward. Then you’ve got other companies, airlines, American Airlines, and so on, which are making these pledges. I’m gonna go on the assumption that they want to make the pledge, but There is no clear path for them to do so at this point in a way that’s clearly going to reduce emissions.

[00:47:34] Bruce Usher: I mean, there’s sort of workarounds using things like carbon credits, but those are a whole raft of issues as to whether or not those are actually effective and so on. And then there’s companies, all the companies in between that are doing various amounts of greenwashing, you know, to use that term. And it’s rampant because, you know, there’s no regulation around this, that share of pledges, you know, if you, if you make a promise and it’s prolonged in the future and you don’t read it, there’s really no penalty.

[00:47:57] Bruce Usher: And it’s, you know, it’s just such a incentive to at the very least exaggerate what you plan to do and in the worst lie. So there’s a lot of that going on. And I also think there’s a certain amount of accidental renaushing. What I mean by that is companies. They, they have a plan, but there’s a lot of uncertainty about how to decarbonize certain industries, things like steel and cement.

[00:48:19] Bruce Usher: These are very complex. Actually, I say, have a plan and they get it. Then I start working on that plan and they realize they made assumptions that weren’t correct. And that’s not because they’re foolish. It’s because. There’s a lot of complexity to these, these technologies and this innovation. And then they get there and they realize the plan isn’t going to work the way they thought it was going to work.

[00:48:38] Bruce Usher: And so they made a pledge. You know, is that greenwashing or they’re trying to do the right thing and it’s just not working out the way they’d hoped. So you got a lot of that. I think a lot of that’s going on as well. For some companies, this turns out to be harder than they realized or more complex. So I think what’s going on with companies are doing it because of all the pressure they’re seeing also in certain parts of the world like Europe, there’s a real late regulatory pressure as well.

[00:49:02] Bruce Usher: And I think, I think it’s fantastic. These companies are coming out with net zero pledges. Why? Not because I believe they’re all going to make their pledges. Not because there is a lot of problems with them, but because it’s forcing them to the very least try to understand what’s going on in their business to reduce emissions and at the best actually take action that works to reduce emissions.

[00:49:21] Bruce Usher: And there’s a lot of examples and companies that have reduced emissions, truly reduced emissions pretty quickly. And, you know, at the end of the day, climate change emissions are mostly result of business activity. Businesses emit most emissions and more importantly businesses have the solutions to change it.

[00:49:37] Bruce Usher: You know, it’s just consumers. We can change their behavior a little bit. You know, I can bike a little more. I’m a big bike here in New York City, but that’s not gonna make a difference. What’s gonna make a difference is companies coming up with products and changing their, their business methods, their supply chains, doing things that reduce emissions.

[00:49:52] Bruce Usher: And so, if a zero pledge is what gets a company to really work on that, and talk about it and report on it, I think that’s absolutely fantastic. That’s just what we need.

[00:50:02] William Green: There’s clearly much more focus on analyzing factors like environmental performance, social performance, governance issues, ESG as it’s known.

[00:50:13] William Green: And I know you’ve been very involved in this movement. I know for one thing, you chair, I think, Columbia University’s advisory committee on socially responsible investing. So you’re right there in the in the weeds advising the university trustees on these ethical and social issues that and I know that Columbia, the climate school where you work has partnered with Alliance Bernstein to try to figure out how to integrate climate risks in investment analysis.

[00:50:40] William Green: And I’m wondering in practical terms, beyond the, the noise and political bluster about ESG, what you find in terms of the benefits of actually incorporating these sort of considerations when you’re analyzing a company? I mean, when, when you’re looking at a business and you’re actually deciding how resilient are the cash flows here.

[00:51:02] William Green: It seems to be pretty smart to be considering environmental issues. Like, way beyond the political issues involved. It’s just, it just seems pragmatic.

[00:51:13] Bruce Usher: It’s pragmatic. So, what’s going on here today is both fascinating because it’s so bizarre, and also a little depressing because it’s so misunderstood now.

[00:51:22] Bruce Usher: So let’s first against it back. What is the issue? The issue is simple. It’s a very simple concept. So simple. It shouldn’t really get much attention, which is if you’re an investor and you’re considering making an investment, you’re going to presumably do a certain amount of analysis. You’re going to, you know, review the financials of whatever that asset is, a stock or a, or a building.

[00:51:43] Bruce Usher: You’re going to look at the quality of the management, you’re going to look at competition, you’re going to look at, you know, growth trends, all that stuff. All the issue is, it says, in addition to the analysis, you should also consider what environmental factors are going to affect that asset value, what social factors might affect that asset value, and what governance issues affect your asset value.

[00:52:02] Bruce Usher: That’s all, just do a little more analysis, do a little more work. And that’s smart because in the world we’re in today, the, the, the modern economy we’re in today, those factors can really affect asset values. You know, 50 years ago, most shares traded based on book value, the actual physical value of the assets.

[00:52:23] Bruce Usher: You just sort of added up, you know, all the buildings and everything. That’s what the company’s worth. You know, an amount of cash in the bank today, most companies, the value is in intangibles. You know, if you look and see the SCP 500 or something like that, and ESG factors can really affect intangibles.

[00:52:38] Bruce Usher: They can really affect brand value. They can really affect risk to businesses and the like. And so it’s kind of a smart idea or to put it in like a really simplistic terms, you know, And it’s time to buy a home, let’s say a second home, a vacation home. And let’s say it’s a place that’s perhaps exposed to potential flooding.

[00:52:57] Bruce Usher: You know, I should probably, while I’m checking out the house, go down, open the door, go down the basement. And does it ever flood down? You know, how often does it flood? How bad’s the flooding? What’s, is it going to flood more in the future? Is there a sump pump to reduce my risk? You know, just, I’d be a fool not to check out the basement.

[00:53:13] Bruce Usher: And that’s kind of what the concept of ESG is. Now, here’s where it goes. Misunderstood and a little bizarre. The idea of ESG has also been taken out by those who care about climate change and other issues to say, ESG is a way to help us solve climate change, because the whole concept is to move capital into companies that are going to address climate change, and that’s not what it is.

[00:53:37] Bruce Usher: And so there’s this idea that ESG somehow is going to put all that capital where it needs to go, but that’s not ESG. And so there’s a lot of people sort of on that side of the argument saying. The problem with ESG is it’s people aren’t doing enough of it. They need to do it better and harder. Well, that just misunderstands what ESG is all about.

[00:53:56] Bruce Usher: And then there’s another group who are saying, you know, the problem with ESG is it’s taking money away from fossil fuels and it’s, it’s, it’s hurting the economy. And that’s not true either. It’s really just the market. It’s. The investors trying to be a little bit smarter, recognizing that the world we’re in is more complex than the world as it was, because these factors really matter.

[00:54:19] Bruce Usher: They matter to business, they matter to the economy, they matter to society. And in the future, they’re going to matter even more. Politically, it’s now been politicized completely. And at this point, I think it’s, you know, I wouldn’t bother me if I never heard the, the letters ESG ever again.

[00:54:38] William Green: I thought it was very interesting.

[00:54:40] William Green: I, I watched Larry Fink on CNBC back in 2020, and I was rewatching it yesterday, and he’s become a kind of punching bag for people who are very political about this.

[00:54:50] Bruce Usher: It’s why he doesn’t want to hear the letters, ESG.

[00:54:52] William Green: No, exactly. And you know, for people who don’t know, he’s the CEO of BlackRock, which is the biggest asset manager in the world has made a huge move into this area.

[00:55:00] William Green: And he just said climate risk is investment risk. And that seems to me just so obviously true that if you want to cut through the nonsense, you want to actually be saying you, you want to include these factors and then more out more, more outrageously, but very thought provokingly. I saw a colleague of yours at Columbia, Shiva Rajgopal, who wrote this very interesting analysis for Forbes about the negative social impact of Coca Cola in terms of things like.

[00:55:30] William Green: Water used to produce sugar and carbon emissions and the generation of unproductive waste from things like unrecycled plastic bottles and the like, I guess, not to mention diabetes cases caused by sugary drinks and and she was argument was that actually the social costs are greater than what was then I think the 235 billion market cap of Coca Cola.

[00:55:54] William Green: And I just thought that was a really interesting line of argument where you’re starting to see people say this company is much more vulnerable because it’s not doing good to mankind. What do you think? What’s your reaction to that?

[00:56:07] Bruce Usher: Well, exactly, that’s exactly right. And Shiva’s analysis in his articles is a little bit, you know, he’s pushing a point pretty hard and that’s his style.

[00:56:16] Bruce Usher: And I like working with Shiva. But I think, fundamentally, I completely agree. And that’s kind of what ESG comes down to, is what are the risks to business because of these other factors that currently, historically, have not been priced in, and maybe will never be priced in. Maybe Coca Cola and companies that make these sugary drinks will, you know, will never care for the fact that, or really the health bill that’s associated with them is outrageous.

[00:56:43] Bruce Usher: But, you know, it’s a pretty good argument to say at some point, you know, the chickens are going to come home to the roost, so to speak. Yeah, we should care about that, and one day that’s going to affect that business. Now, if you think it’s going to be decades in the future, you may say that’s too soon.

[00:56:57] Bruce Usher: You’re right, but it doesn’t matter to an investment perspective because anything decades in the future does not affect really the value of an asset much today, maybe real estate. And that’s where we come back to climate change, because up until pretty recently, everything was too far in the future. You know, Mark Carney, when he was governor of the Bank of England, he made a famous speech where he talked about what he called the tragedy of the horizon.

[00:57:17] Bruce Usher: And when that is, in plain other words, tragedy of the commons, which is to describe the climate change problem, but tragedy of the horizon was climate change was. So far in the future, that point, that even if you were an investor, you can go, look, this stuff is real and serious, and we got to think about it and incorporate it into our analysis into the math.

[00:57:35] Bruce Usher: And it was so far away that doesn’t really affect asset values today. So you go not much to worry about. Well, that tragedy, the horizon, that horizon is now much closer. And we’re now starting to see it affect asset values. And we’re starting to see how well. Yeah. That risk is becoming real. And to your point, to quote from I think climate risk is investor risk.

[00:57:56] Bruce Usher: And now those numbers are starting to show up.

[00:57:59] William Green: Yeah, it was interesting to me. I, I went to London recently to speak at a BlackRock event about real estate. And one of the top people at BlackRock, their global strategist was talking about the four mega forces that drive a lot of their investments. And, and one of them was decarbonization.

[00:58:15] William Green: So it’s, it’s, it’s a huge driver of what they’re doing. But one, one of their money managers sort of mentioned in pausing, he was like, well, for the first time, you could actually see a property losing all of its value because you fail to take into account these, these factors.

[00:58:33] Bruce Usher: Just to be clear, you know, sometimes get people say to me, well, climate change, you know, it’s going to wipe out all these values and I would never touch this sector of that sector.

[00:58:42] Bruce Usher: And that’s not true. We do have to put it in the context of materiality. And so, for some businesses, these factors aren’t the bad material at the moment. You know, we talked about Apple before. Apple’s not terribly exposed to climate change, and they can afford to decarbonize. Other companies are very exposed.

[00:59:01] Bruce Usher: And so, we do need to, you know, make sure we understand the materiality of the problem. Both today and in the future for, for different businesses, it’s not all the same.

[00:59:12] William Green: And things can be great investments just because they’re so cheap. So I have a couple of friends who are well known hedge fund managers who’ve been looking at cold stocks because they’re like, yeah, I can get them a one times earnings, two times earnings or whatever it is, like incredibly.

[00:59:26] Bruce Usher: Totally get the asset value really low or it’s modest, but in the next several years, it’s not gonna make that much difference.

[00:59:32] Bruce Usher: You know, obviously also depends what kind of investor you are. If you’re a day trader, it’s irrelevant, right? If you’re, you know, a typical I would say fund manager, you know, a couple of year horizon, it’s, it starts to become relevant. And if you’re someone who’s sort of planning your retirement or a pension funds, So probably these factors are very relevant and so timing is, this is, is a big deal here.

[00:59:53] William Green: So this does get at this general topic that I want to explore with you of how to invest in this arena because there are some tremendous opportunities clearly and, and you mention in your book that there are various different types of, of funds that you can use to play this stuff. There are fossil fuel free funds, right?

[01:00:13] William Green: I think State Street launched a very popular ETF that tracks an SMP fossil fuel free index. So that’s a kind of divestment approach where people can just say, yeah, I’m not going to invest in coal and crude oil and natural gas and shale gas and like then then there are these thematic funds where you’re looking for for a few really powerful trends, whether it’s electric cars or or renewables, right?

[01:00:37] William Green: Climate solution funds, I guess you would call them. What’s an investor to do for our listeners? Regular investors. I mean, we have clearly lots of lots of our listeners are also very, very sophisticated professional investors. But lots of us are not, and we don’t have access to venture capital funds and private equity funds.

[01:00:54] William Green: What do you do to position yourself so that you’re not going to get crushed by legacy assets that suddenly become stranded, but you’re also positioning yourself to benefit over the next 10, 15, 20 years? As this major shift towards low carbon happens.

[01:01:11] Bruce Usher: Yeah. Yeah. So let me first preface by saying that, you know, when it comes to predicting climate change, impact the economy, decarbonization, things like you know, the transition from fossil fuels to renewables, honestly, it’s not too hard to do.

[01:01:25] Bruce Usher: I don’t want to downplay my job, but it’s not that hard a job. You know, picking investments, beating the market. This is hard to tell. Let me, you know, I want people to think, well, obviously I, you know, this, this is easy stuff. It’s challenging. What I would say is I would look at this sort of for 3 and 3 different ways.

[01:01:46] Bruce Usher: The 1st is for the investors is look, I’m concerned about this. I’m thinking long term, I don’t want, I’d like to minimize my risk and also in my feeling that I’m, you know, kind of avoiding stuff that’s going in the wrong direction over a long period of time. And that’s where we get into a little more of ESG strategy.

[01:02:06] Bruce Usher: And there are plenty of ETFs or funds that do that. What I would say to investors is don’t get wrapped up in some sort of marketing pitch about how this fund is clearly going to outperform the market. You know, a lot of ESG marketing is how we’re going to, you know, this is wonderfully going to out, you know, beat the market because of ESG, or get wrapped up in a, you know, you got to change the world through this. Neither of those is by and large correct. But there’s a lot of evidence, research that shows that you can very easily reduce your exposure to companies that are very high in pollution, are very exposed to climate risks. And still get a complete market exposure.

[01:02:44] Bruce Usher: So as S&P500 or broader, you know, all road index and the like, and I’m not going to pick a particular ETF to suggest, but there’s a bunch of them out there. You mentioned a state street, you know, fossil fuel free is S&P 500 and it has tracked S&P 500 broad index almost exactly, but there’s no fossil fuels in there.

[01:03:00] Bruce Usher: So over time as you start to move away from fossil fuels that that index should protect you a little bit. So that’s one group.

[01:03:08] William Green: But it may not perform well because it may be the fossil fuel investments are so incredibly cheap that actually that’s exactly what you, I mean, this just gets complicated.

[01:03:18] Bruce Usher: Yeah, but most of these the way that most of these alternative index funds are structured is.

[01:03:24] Bruce Usher: To perform the market and not underperform. So what they’re doing is they’re picking stocks that are very similar betas to the fossil fuel stocks, similar performance characteristics. Less exposure to emissions. That’s what they’re doing. And I think some of them are pretty cleverly structured. Now, there’s no guarantee that they’re going to eventually outperform, but I think there, I think there is some good cushioning there.

[01:03:45] Bruce Usher: I, I do believe there’s a risk protection.

[01:03:47] William Green: You might just feel better morally doing it. So I was looking last night at this. Blackrock ETF that you mentioned somewhere, which is the Blackrock U. S. Carbon Transition Readiness ETF, which, which I think was the biggest launch in the ETF industry is three decade history.

[01:04:03] William Green: It raised over a billion dollars instantly when it was launched in 2021. And let’s just look at, you know, that, that, that has a lot of companies that, you know, judged based on their, what they call sustainability characteristics. And I was just looking at their top holdings, their things like Apple, and Microsoft, and Amazon, and Nvidia, and Alphabet, and Tesla, and Meta.

[01:04:23] William Green: So, some pretty expensive stocks. But at the same time, you are avoiding fossil fuels, and companies that consume lots of water, and generate toxic emissions, and stuff. And so maybe that some of our listeners are like, well, yeah, I think I, I, I may be overloading my portfolio with expensive tech stocks, but on the other hand, I’m kind of happy in the long run.

[01:04:43] Bruce Usher: First of all, you might be happy anyway, given that way things have gone. But if you sort of look at the entire, first of all, if you look at just a stock market, you’re highly exposed to these, you know, these, these tech stocks, these really expensive tech stocks, right? Just, that’s just the market that we’re in today.

[01:04:56] Bruce Usher: So if you don’t want to go to that, you got to. You know, invest in a different market, frankly, or really, you know, pay carefully what they’re doing is they’re not saying, well, you know, and then the broad market index, you’re getting this. And now these ETFs are you only exposed to half the market are really different exposure.

[01:05:13] Bruce Usher: They look an awful lot like the market. They’re just very big, carefully picked out the most polluting companies, essentially, and replace them with similar beta companies. So it, it looks and acts a lot like the market. They, they, they, they really do. And yeah, I, I, I, I’m much with those. I’m much, I’m not concerned that, geez, you’re gonna have some sort of terrible under performance.

[01:05:34] Bruce Usher: Maybe a few basis points a few basis points down. I think. I think they’re pretty, pretty solid. What you’re not gonna get also is great outperformance. It’s gonna perform roughly the market. And secondly, you’re not changing the world by doing this. You just protect yourself a little bit, you know, feel a little better.

[01:05:48] Bruce Usher: I think about what you’re doing. You’re investing. The second strategy is the one you touched on a few minutes ago, dramatic strategy. So this is where you’re like, you know, I see where the world’s headed and I want to put some capital work in climate solutions, stuff that really is changing the world and by the way, If I’m good at it, I might outperform the market because of the world’s going to change that way.

[01:06:08] Bruce Usher: I got to pick some of the future winners, right? I’m going to figure out which companies are heading the right way. I’m going to put money to them and they’re going to do really well. This is what we call thematic. So you can put, you can buy an ETF that buys clean energy stocks. That’s all they do. Or you can buy, you know, specific company stocks.

[01:06:24] Bruce Usher: You know, if you invested obviously in Tesla years ago, you would have done very well. You can also invest in the company that’s much less well known, like NextEra. It’s now the most valuable utility in America. It’s also the biggest owner of renewable assets in America. And that’s what sort of finance goes on.

[01:06:37] Bruce Usher: So it was different. Let’s go now think about thematic investing is it’s greater risk, right? In this case, you’re making a more concentrated bets on specific factors, either the markets or specific companies. And with that concentration comes, you know, much greater risk and much greater potential to outperform or underperform the market.

[01:06:59] Bruce Usher: I would also say that this is where you also have impact though. So if you’re comfortable with the risk and you feel comfortable making those decisions, that capital is what’s changing the world. That capital is backing companies that are going out and actually decarbonizing the economy. And so from a alignment of both, you know, trying to make an investor and if you learn you’re impacting climate change, this is where you’re really going to have that nice alignment there.

[01:07:23] Bruce Usher: So that’s the 2nd, the 2nd strategy. The 3rd strategy, I was going to mention it though, it probably doesn’t apply to too many folks, but I think it’s, it’s just worth mentioning. We call this the impact first. This is a strategy mostly only for, for high net worth or ultra high net worth individuals. And this is putting capital work into climate solutions, companies, products, often in venture capital world.

[01:07:45] Bruce Usher: That are extremely high risk extremely long term. They may never be commercial successes, but if they are, you know, these might be next trillion dollar companies, so to speak. And the reason we call this impact 1st, is that these investments are what could really move in on climate change. Things like you mentioned green hydrogen early in our talk, right?

[01:08:05] Bruce Usher: Green hydrogen is a very complex, very risky area for capital work, but it could turn out to be. You know, this might be the next oil and gas industry to screen hydrogen industry. And by the way, a lot of oil and gas companies are pretty interested for that reason. It’s pretty hard to know where to vet.

[01:08:20] Bruce Usher: And the reality is most of those investments, the risk adjusted return is not acceptable. The timeframe’s too long. Most fiduciaries cannot put capital into the, into getting back first type investments. So I put that as a special category, but for those investors who have the luxury of, maybe being able to take on additional risk or multi decade or in terms of their returns and sister as you might want to consider as well.

[01:08:44] William Green: It’s also a fascinating area of the market because you mentioned, I think, in your book that Bill Gates back in 2016 founded a fund called Breakthrough Energy Ventures and the investors included. People like Jeff Bezos, Michael Bloomberg, Ray Dalio, and a dozen or so other billionaires. So there’s something really interesting about these ultra sophisticated people who are sort of philanthro capitalists, right, who are, they’re backing these big bets.

[01:09:15] William Green: I mean, I wasn’t, wasn’t Gates betting on, on nuclear energy and then they were doing very cutting edge solar power and energy storage technology and clean fertilizers and the like. So it gives you a sense that in a way it kind of validates your case that this is that there is a tremendous opportunity both to make money in this area and to have a profound impact on the world.

[01:09:39] Bruce Usher: That’s right. Now I do want to carry that by saying, you know, Bill Gates put a billion dollars in a breakthrough. Initially, I think he’s put more into that, probably because he can’t, right? Most, most of us cannot put a billion dollars into investments that may never return a penny, but I suspect some of those investments are going to do very, very well.

[01:09:55] Bruce Usher: And that’s, that’s the impact first investing is all about.

[01:10:00] William Green: And it also speaks to the fact that this is an area where you want to be long term.

[01:10:04] Bruce Usher: Ultra long term, ultra comfortable with risk. You have to have very sophisticated resources, whether you’re self expertise or more often, you know, access to expertise to evaluate.

[01:10:16] Bruce Usher: Can you imagine if Bill Gates, a big, big investor, was called SMR nuclear, small modular reactors, very interesting new technologies coming into the nuclear space. But there’s not just one type of SMR. There are many different types and each one has tremendous complexity around it. You know, how do you evaluate which of these makes sense?

[01:10:33] Bruce Usher: And then most of the stuff, as I mentioned, is, is venture investing. It’s private. So. First of all, you need access, but even if you have access, being able to charge these investments is very, very challenging, but I do think it’s important. I think it’s important to mention it. First of all, you have to understand what it’s all about.

[01:10:48] Bruce Usher: And secondly, because yeah, these investments can really move the needles. So they are important.

[01:10:53] William Green: I’m curious about your own investment strategy because. I know that you’ve made a lot of investments in early stage companies. You also ran a couple of businesses that were bought out one, I think by JP Morgan.

[01:11:06] William Green: And, and so you’ve done a lot of business in this field of reducing carbon emissions in many different countries. And and so I’m curious how you’ve solved this puzzle yourself of, of thinking about how to invest in a, in a vaguely intelligent manner in this area that you’re luring us all into.

[01:11:28] Bruce Usher: Yeah, yeah, exactly.

[01:11:29] Bruce Usher: Don’t, don’t kid me. I’m just, I’m just trying to put us some information. Look, first of all, I’ll say most of my investing in this space has been early stage investing. So it’s an adventure business started, started some companies and, and that’s always highly risky, right? No matter what, no matter what you do.

[01:11:42] Bruce Usher: And some investments worked out very well and some, some did not. Yeah, here’s what I learned in a couple of generalizations. I do think a really, and they’ve helped me and may help others. One is to be very wary of policy support. So many of these industries start with government policy or they, they accelerate with government policy.

[01:11:59] Bruce Usher: And there’s a good reason for that because without the policy, there’s never, they would ever would get started. By the way, that’s not unique to climate change. You look at many tech industries, there’s, there’s often some government initiative behind it. And that’s really important, but there has to be clarity on how that business or that technology continues to be commercially successful when the government policy goes away.

[01:12:19] Bruce Usher: You can’t rely on government policy for, for too, too long because it’ll change and often disappear on you politically. Things change rapidly. So betting on politics, especially betting on political decisions that he, yet he made like betting on government, if the government’s going to put a price on government, the government’s going to, nah, they may or may not, but don’t, don’t make an investment based on assumption about policy.

[01:12:42] Bruce Usher: The second thing is be careful, make any investment around assumptions around changing consumer behavior. Consumers just don’t change that easily. None of us do, I don’t. And so the best, the best products or businesses are those that present this consumer as something that they really like. That might be a little different than what they’ve had in the past.

[01:13:00] Bruce Usher: But it doesn’t entirely change the way they do things. I think about the Nest thermostat. You know, we’ve all had thermostats at home straight many years. And, you know, it’s these funny little devices. It’s sort of ugly little devices. The Nest is a very sophisticated device, but it’s a thermostat.

[01:13:17] Bruce Usher: And he has a package in a way that’s very, it’s very, it’s more beautiful, it looks better on your wall, right? Consumers like that, they want to put something nice looking on their wall, that’s a thermostat. But embedded in it is a technology that’s, that is more efficient in how to use electricity in your house.

[01:13:33] Bruce Usher: So those sort of products don’t try to change, radically change consumer behavior, or you’ll, you’ll, you’ll never get there. Those sort of things are important. And the third and last thing I’d say is important is, you know, climate business is a business. Cost flows really matter. You know, funding cycles matter, really strong management teams matter.

[01:13:55] Bruce Usher: That’s all the prerequisite for success. The decarbonization part of it is, is, is the icing on the cake. And if, if the business itself, the cake isn’t really, really well, you’re making a huge mistake just because it’s got a positive for the climate does not make it a good business. Start with find a good business that’s a positive for the climate, not the other way around.

[01:14:19] William Green: Yeah, so it’s not like you can drop your emphasis on rational analysis of, of businesses, management, the cash flows and the like.

[01:14:29] Bruce Usher: Yeah. And it’s always easy, right? Because some of these technologies are pretty exciting. I think most investors, you know, they’d like to have impact on climate change and know they’re doing the right thing.

[01:14:38] Bruce Usher: And then sometimes it will be easy to cut out and then manage to change themselves. We’ll stir it up. I mean, some of them are, you know, most CEOs, especially have sort of. You know, early stage companies, they’re pretty good evangelists about their business and, you know, evangelizing about the business is great.

[01:14:54] Bruce Usher: Evangelizing about climate change and the business, it gets a little, you know, these things connected that can confuse people.

[01:15:01] William Green: What about your advice for consumers because I know that a lot of us are wrestling with these questions of what actually has an impact and what doesn’t so I had been deciding recently whether to buy a new car because I’m not a particularly good driver. And I’m like, I don’t want my eight or ten year old car that doesn’t have really good safety features. And so I was thinking well, I’ll just do what Tom Gayner did.

[01:15:23] William Green: I’ll just rip off his research and buy a, you know, a, a hybrid Toyota or a Honda CRV or something like that. And then because I was doing my research before interviewing you, I was like, well, maybe I’m an idiot. Maybe I do need to buy a Tesla. That’s, you know, not the super flashy one, but you know, they have become kind of affordable.

[01:15:43] William Green: With the subsidies and the, the, the and and the like, and it is a more beautiful car. Like what, how do you wrestle with these questions over what we should do as consumers, whether it’s getting solar panels, buying a Tesla?

[01:15:56] Bruce Usher: Number one, I’d say the advice I gave is it’s just be informed.

[01:15:59] Bruce Usher: Like this conversation we’re having, there’s so much misinformation out there and it’s just important to understand what’s going on because if you understand what’s going on, you’ll make better decisions. And maybe the decision today is not to do something. But if you’re informed, yeah, a year or two years from now, you’ll be ready to make a different decision.

[01:16:14] Bruce Usher: The thing that I would say is that as consumers, the two big decisions you can make that do have impact today are around how you source your power, your electricity, and your automobile. Unfortunately, there’s not much you can do around flying today. You can buy carbon credits, but it’s probably not going to make much impact.

[01:16:29] Bruce Usher: Sourcing your power, you may not have much choice, but if you can use solar, whether that’s panels in your roof or community solar, which is pretty popular in the U. S., that’s a good thing. That’s an impactful thing to do. And again, I’m not saying you should go out there and spend more money than you would otherwise and increase your electricity bill.

[01:16:45] Bruce Usher: You should be able to do it at essentially no cost. Because the key here is not to get consumers to, I don’t think, I’m not trying to convince consumers to go out and do things that are going to hurt them financially or hurt them in the pocketbook or, you know, make their lifestyle less, less enjoyable.

[01:17:03] Bruce Usher: What I’m saying is take the time and effort, and by the way, it does take time and effort to educate yourself and ideally do things that you’re no worse off and actually might turn out to be better off. And in the worst case, you’re at least going to feel better about what you’re doing, right? So if you can get electricity from solar at the same cost, or hopefully maybe even less, you should do that.

[01:17:23] Bruce Usher: That’s going to take you a little bit of a little bit of research and looking at that. And the same with EVs, right? So if you are in the market for a new car, you know, take the time and go, go drive some EVs, check them out, do, do your research. And maybe at the end of the day, you’re like, not, I’m not ready for this car yet.

[01:17:38] Bruce Usher: Next go around. So I’ll be there. My guess is you drive a few EVs and there’s a particular right now, the price has come down a lot. You know, you walk in the showroom and you’re gonna spend just about the same dollars either way. My bet is you’re gonna like the car a lot. So, they’re fun cars to drive.

[01:17:52] William Green: Has Tesla sort of won that game?

[01:17:54] William Green: Like, you’ve written a lot about Tesla. Can they be caught by all the GMs and the Fords and the like? Or are they just so far ahead in terms of their sophistication and the elegance of the vehicle and the like?

[01:18:08] Bruce Usher: Yeah, that’s such an interesting question. It’s so hard to answer. I think it’s shocking how Tesla has managed to maintain.

[01:18:16] Bruce Usher: It’s lead, they’ve made some very smart strategic decisions over the years and the common car companies have just been so slow to, to really enter the market. That being said, Tesla faces 2 problems. 1 is the incumbent car companies that we’re familiar with, Ford, GM, BMW, Mercedes. They are rolling out dozens and dozens of pretty attractive products, right?

[01:18:39] Bruce Usher: So I can’t say if it necessarily better or not better, but there’s, there’s now a serious competition that Tesla didn’t have before. And the second thing for Tesla is the, the international car companies that have not traditionally competed quite as much. And I’m thinking about BYD, particularly Chinese companies.

[01:18:56] Bruce Usher: Now they may not compete much in the US I’m not here in the US yet. They might do one day. Conversely, Tesla is in China. And that’s going to be tougher and tougher competition going forward. And then lastly, Tesla has a couple of things. They sell some upstarts like Rivian. I think at this point, just, we’re not going to see too many more, you know, disruptors trying to answer that.

[01:19:15] Bruce Usher: The automobile market is now way too crowded. Maybe Rivian will be the last successful one. So a lot, the, the, the, the game is not the one that Tesla’s playing, you know, five, 10 years ago, they’ve been awfully fortunate as such a long run way to build and protect the build the moats around their business.

[01:19:32] Bruce Usher: But it’s going to be pretty, pretty brutal going forward. I wouldn’t, I think Tess is going to continue to do well, though. They built such a good product and such a good strategy, but it’s hard to know if they’ll remain quite so dominant. That would be really something.

[01:19:47] William Green: Towards the end of your book, you write, the era of climate change is upon us.

[01:19:52] William Green: The key question, frankly, the only question that matters is whether humanity will avoid catastrophic climate change. And I know that you’re asked this question. All the time by your students and others. And I’m wondering how you answer that question yourself.

[01:20:07] Bruce Usher: Yeah, so my response is twofold. First of all, we can avoid cash off climate change.

[01:20:13] Bruce Usher: I mentioned the beginning of our discussion that we have the technologies by and large work to bring on the ones we need. And we have the capital and we have the ability to, to do this. That doesn’t mean we will avoid catastrophic climate change because as a, as a species, we’re, we’re not very good at dealing with long term challenges.

[01:20:29] Bruce Usher: Well, look at the immediate challenges like COVID. We, we certainly didn’t deal with that one too, too well until we finally did. And in some ways, the way COVID played out over a couple of years, in some ways, climate change, I think it’s going to play out over multi decades. In other words. We’re going to do a really poor job of addressing this because the human species, we don’t cooperate well has made cross nation states and within our countries, we’re slow to invest because the uncertainty makes us nervous and so on, there’s other challenges and the political challenges, they are politics, it’s just a very short term.

[01:21:00] Bruce Usher: And when I say we, by the way, I don’t just mean American politics, all politicians, everyone on the planet, we only have one objective, which is to get power and to keep power and whether they’re in a democracy or an autocracy, it’s the same strategy. And it’s always short term. That’s the world.

[01:21:13] Bruce Usher: They have it. So these are all the big challenges. But I do believe we’ll avoid catastrophic climate change because we are very smart, adaptable species. And so we will eventually decarbonize the economy. We’ll probably eventually have to do a lot of direct air capture just to pull CO2 out of the atmosphere, which will be costly and challenging to do.

[01:21:36] Bruce Usher: So in other words, we’ll do a really crappy job of adjusting this problem, but we’ll eventually, we eventually will avoid a catastrophe much as we do with COVID. We did not do very well, but we eventually got our act together and it still exists, but we, we, we’ve managed to live with it.

[01:21:52] William Green: And I should mention the trend for which I, some, some of our eagle-eared listeners will be like, you never mentioned trend for.

[01:21:58] William Green: With government action, which is the government has started to get its act together to do stuff. And I, I mean, I know it’s very controversial and this isn’t a political show, but, you know, the inflation reduction act was huge. And I, I was listening to Al Gore in an interview with David Remnick the other day, and he said that actually the Inflation Reduction Act, which he described as really a climate bill, was quote, the most extraordinary legislative achievement of any head of state in any country in history, which has always quite a claim.

[01:22:30] Bruce Usher: And it’s quite a claim. Here’s what I think of the Inflation Reduction Act.

[01:22:32] Bruce Usher: First of all, why is there more government policy? And it’s not just the U. S. globally, we see more policy because of the other trends, right? When you start to see physical climate change, we start to see changing social norms and these innovations. You know, governments doesn’t react very quickly, but we see these changes.

[01:22:46] Bruce Usher: Politicians see these changes. They see what’s happening, and they eventually start doing something about it. And that’s what we see happening in the Inflation Reduction Act, for example, that what’s really important in the Inflation Reduction Act is yes, it is Addressing climate change, but it’s also a economic industrial policy bill.

[01:23:03] Bruce Usher: And on a scale that we haven’t seen in a long time. In other words, what it is, is the government saying, this is the way the world’s going, the US can either be a leader or a follower and this. And as we follow, it’s going to hurt our economy. We’re going to be behind on things like electric vehicles and energy storage and the like.

[01:23:20] Bruce Usher: And it’s time that we invested so that we’re in front, that we’re protected, that our nascent industries are protected. So they have time to grow, to get to scale. If people do build these businesses. And they’re selling products in the U. S. that they use U. S. manufacturing and U. S. labor and the like. It’s a very protectionist policy based on the idea that this is the way the world’s going.

[01:23:42] Bruce Usher: And so either we can get ahead of it or not. And when it was first passed, of course, those here myself were obviously very, very pleased to see it from a client perspective. Also pleased to see it from an economic perspective, because I’m American. And I, we also assume that the Europeans and others would also be thrilled to see it because finally the U. S. is stepping up to take, you know, real leadership on climate. And of course, there was a moment of, of, of happiness and then they kind of freaked out because what they realized is this is. This is economic policy. This is competitive. This is how the U. S. is going to, I mean, you know, accelerate its competitive positioning versus the rest of the world.

[01:24:22] Bruce Usher: And so the Europeans are now trying to, you know, implement a similar bill of their own. There’s something in the EU Parliament that looks a little bit similar. And of course, China also is trying to understand how they continue to compete. And this is the world that we’re in the world. We’re going to be in the future.

[01:24:35] Bruce Usher: So I think it’s tremendous piece of legislation, not just because the climate piece, but because it’s basically this is, this is the way we’re headed. And does that mean, you know, government policy is tricky when it comes to economic policy, because you can make a lot of mistakes and back industries that are wrong ones and money is wasted.

[01:24:53] Bruce Usher: The other thing I like about the policy is, and they’re not picking a winner and there there’s support for virtually any thing, any technology, any industry that’s, that’s part of these changes that are coming and they’re kind of spreading it around. And I like that’s the right strategy because we don’t know exactly what’s going to dominate.

[01:25:11] Bruce Usher: Maybe it’ll be, no, small nuclear in the future, maybe we direct your caption, maybe green hydrogen, maybe it’ll be just be wind and solar is going to be continue to be our main thing. There’s support for all of that. And I think in a very clever design. So, you know, I’ll go, our statements may be a little bit hyperbolic, but I agree with the sentiment for sure.

[01:25:30] William Green: I wanted to ask you one last thing, because I’m aware that you’ve got a run and you’ve been very generous with your time. There’s so much confusion around environmental issues and the policy issues it brings up and so much prejudice, so much bias, and it’s very hard for people to think clearly about these topics, and they’re hugely important.

[01:25:50] William Green: They’ll affect all of us and and yet we really struggle to think impartially or rationally about this stuff and you’re a great educator and I’m wondering if you have any advice for us on actually how to think better about this stuff because I, I mean, you, you quote in the book. The harvard psychology professor Daniel Gilbert saying we’re we’re not very good at dealing with clear and sorry we’re very good at dealing with clear and present danger but not with future stuff and you quote danny kahneman saying yeah we’re terrible at dealing with uncertainty and there’s so much uncertainty what what have you learned about how actually despite all of the glitches in our wiring we can overcome our our biases and stupidity and actually think clearly about this hugely important issue.

[01:26:34] Bruce Usher: Yeah, so I focus on climate change at the business school here, and this is my home where I work because ultimately it’s a business issue as opposed to some other environmental issues. I think it’s important to sort of separate those a little bit. So, there’s a number of environmental issues that people care about greatly, and I understand why.

[01:26:52] Bruce Usher: Maybe things like, for example, wildlife protection. Right. And, you know, should we have protect, you know, regulations to protect certain species and how strong should those be? Are you allowed to build things like that? I get all that, but that’s a really different issue. That’s really much more sort of a, an ethical issue and environmental issue.

[01:27:08] Bruce Usher: What do we care about? And how do we, how do we deal with that? Climate change is different. Climate change at the end of the day, it’s just, it’s an economic problem. It’s about how do we produce goods and resources and services without this unfortunate by product, these greenhouse gas emissions that come with it.

[01:27:24] Bruce Usher: And so if you look at it through a economic or business or sort of financial lens and start to do the math and think about the numbers and so on, a couple of things come to light. First of all, you start to make it much more objective than emotional. I think that’s really important. Secondly, you start to understand what the problem is, you can frame the problem, you can all start there.

[01:27:43] Bruce Usher: Trying to understand the solutions, what’s going to cost us, how do we reduce those costs? How do we deal with it? And I think moving us from sort of the environmental realm and sort of the, the emotional subjectivity of it to the more objectivity of business. First of all, I just think that’s much more practical to address the problem, but I also think it gets better outcomes because this is the crazy thing about climate change.

[01:28:08] Bruce Usher: So the last point I’ll make is. It shouldn’t be a political issue. We shouldn’t be debating about this. There’s really very little to debate about. It’s very clear what’s going on. I use the example of, you know, it’s physics, like gravity. We don’t debate gravity. We do debate, you know, maybe how we prioritize how to address it.

[01:28:30] Bruce Usher: I get that. People say, look, we can only, we can’t spend so much money on X now because we need more done. Why? Because, you know, we have some short term challenges. Those are worthwhile debates to have. That makes sense. Prioritization issues, but as to whether or not we should care and not care. This is real or not real.

[01:28:48] Bruce Usher: That’s a waste of time. And the biggest problem we have here is time. You know, if we just get on it, we’re going to be in good shape. If we keep having these ridiculous Political and emotional debates and talk with the environment, I suppose, talking about the economy for another decade or two, then we’ll be, you know, really, we’ll really find ourselves on the best part.

[01:29:07] William Green: Bruce, thank you so much. This has been tremendously clarifying. I feel much better equipped, at least to start understanding these issues and hopefully align myself over the next 20, 20 years with these these inexorable forces.

[01:29:21] Bruce Usher: Terrific. Well, I look forward to more conversations in the 20 years to come and really excited to talk.

[01:29:26] Bruce Usher: It’s terrific. Thank you.

[01:29:26] William Green: Me too. It’s been great fun. Thanks so much. Take care.

[01:29:29] William Green: Alright folks, thanks a lot for listening to this conversation with Bruce Usher. I hope you found it as thought provoking and illuminating as I did. I think Bruce is a remarkably reasonable and rational and lucid thinker in a field where reason and rationality and lucidity are relatively scarce resources.

[01:29:48] William Green: If you’d like to learn more from Bruce, I’d definitely recommend reading his recent book, which is titled, Investing in the Era of Climate Change. On a related note, it’s also well worth going back and listening to a recent interview that I did with Brian Lawrence, a very smart hedge fund manager who’s deeply knowledgeable about the world of energy investing, both in renewables and also fossil fuels.

[01:30:11] William Green: I’ll include a link to that episode in the show notes to this episode. As I recall, Brian delivered a dazzling 15 minute monologue on energy in that conversation and I somehow heroically managed to resist the temptation to interrupt him. In any case, I’ll be back very soon with some more terrific guests, including a fascinating conversation with an investor named Adam Shapiro, who manages billions of dollars for about eight ultra rich families. Adam’s clients have to pony up a minimum of a hundred million dollars to open an account with him. So, this is a rare opportunity to get a glimpse inside a highly sophisticated niche of the investing world. One that’s usually only accessible if you’re a billionaire.

[01:30:56] William Green: In the meantime, please feel free to follow me on X at WilliamGreen72 and to connect with me on LinkedIn if the spirit moves you. And as always, do let me know how you’re enjoying the podcast. Of course, I’m always particularly pleased to hear positive comments and effusive praise, but it also amused me recently to read a comment from a listener on YouTube who asked, why does this host talk so much?

[01:31:20] William Green: Ah well, can’t please everyone. Until next time, take good care and stay well.

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