Philanthropist and billionaire founder of Microsoft Bill Gates met with company executives and other high-profile businessmen, and committed himself to fund clean energy technology. Gates’s group started a $1 billion fund for research and development of low-emission energy. Clean energy technology also includes solar, wind, and nuclear energy, as well as electric grids and microgrids (small-scale power grids), and developments in energy efficient houses and buildings.
The European Geosciences Union predicted this scenario in 2016. A separate team of scientists also predicted that the Earth has a 95% chance of warming up by more than 2 °C by 2100.
A new study from Stanford’s Precourt Institute for Energy reports that the fund is not enough to prevent the effects of climate change. According to Jeffrey Brown, a Stanford lecturer and study co-author, the amount of money needed is enormous. Findings showed that the world economy has to invest at least $2.3 trillion per year in low-emissions technology from 2015 up to 2040 to prevent the planet from warming by a 2 °C ceiling. In contrast, the total private sector investment in the world is currently around $3.4 trillion.
Investing Preferences for Mutual Fund Managers
To meet the level of investment to stave off climate change, low-emissions research should constitute more than two-thirds of all private investments. Realistically, around half of the investments come from pension and mutual funds, which normally choose conservative investment instruments. There are some exceptions like the Washington state pension funds for public employees, and California teachers, which placed their retirement portfolios in low-emission energy sources. However, this is a very small minority.
Another factor is geography. Investments in low-emissions technology are lower in Europe due to their advanced state in new technology adoption. In addition, it is harder to invest in developing countries due to concerns about foreign currency exchange fluctuations. Taking foreign exchange risks into account makes the investment calculations harder. These are investments and by definition, the primary criterion is to make money.
The research took into account that investment amounts should increase year over year. It does not take into account the effect of technology on climate change, where a new technology can boost the effects of earlier efforts. The financial aspect of the research is alarming because the funds are finite. There is only so much money to go around, and not all of the private funding goes to low-emissions technology research.