All investors, especially impact investors, should be fascinated by the new investment opportunities to tackle climate change. These opportunities feature emerging technologies with great potential for removing greenhouse gases from the atmosphere. Impact investors want their investments to be impactful and financially rewarding; And now is the time to make the biggest impact, by investing in technologies when they show promise and scale.
Climate-focused investors better handle the proceedings of the Fourth Annual Forum on Climate Recovery, organized by the Foundation for Climate Recovery (F4CR). Of particular note are two issues addressed by the panelists and speakers at the Forum. The first is that the most important technologies for removing carbon dioxide from the atmosphere involve the oceans. The second issue is that the world is facing a methane emergency, and we need new technologies to remove methane from the atmosphere. The term for this class of technologies is Greenhouse Gas Removal (commonly known as GGR).
Let me go into each issue in detail.
Investment opportunities in the surrounding Council for Development and Reconstruction
CDR stands for Carbon Dioxide Removal as carbon dioxide is removed from the atmosphere and sequestered safely and permanently. Because of the behavioral quandary known as availability bias, there is a general view that the most powerful techniques used in deforestation and removal are land-based, such as reforestation and direct air capture; But not so.
The oceans make up 71% of the Earth’s surface, which means that the ratio of water to land is actually two to one. Furthermore, oceans have a much greater potential for carbon sequestration than their terrestrial counterparts. The oceans actually contain 99% of the carbon that the planet has, and it is stored as limestone in coral reefs. The oceans have been, and will continue to be, a major carbon sink.
There are several types of ocean CDR technologies in development. A good resource for these technologies is the Ocean Visions website, which is a link to help impact investors, businesses, and research organizations connect with each other. The Oceans Visions website features a series of “road maps” that identify key priorities for advancing knowledge about the ocean-based CDR.
A good example of a fledgling ocean-based CDR technology startup is Seafields. Sea Fields grow sargassum, a type of seaweed. Sargassum grows quickly, efficiently captures carbon dioxide, serves as an input for useful products, and sequesters carbon dioxide that sinks into the depths of the ocean.
From an investment perspective, Seafields has interesting potential along three main dimensions that F4CR has emphasized. These dimensions relate to permanent CO2 sequestration, process expansion potential, and profit potential. I have already mentioned the permanence, and the fact that sargassum can be used to produce many useful products. As for scalability, sargassum can be grown in very wide areas of the ocean that currently appear to be poor in nutrients. Impact Investors, Notice!
Investment opportunities to meet the methane emergency
The methane emergency involves a series of interconnected issues. Keep in mind that over a 20-year period, methane is 80 times more potent than a greenhouse gas than carbon dioxide. However, over a period of twenty to thirty years, natural processes break down methane in the atmosphere into carbon dioxide and water. In contrast, the timeline for breaking down carbon dioxide in the atmosphere is much longer, at least a century.
Global warming caused by human activity has increased the average global temperature by about 1.1°C since the dawn of the Industrial Age. In 2021, the Intergovernmental Panel on Climate Change raised a red flag on methane, stating that methane emissions were responsible for about a third of the 1.1 degree increase. Moreover, methane emission rates continue to increase, reaching their highest values during the pandemic.
Concerns about methane are exacerbated by the fact that the natural process of breaking down methane in the atmosphere is saturated with higher atmospheric methane concentrations. Of particular concern is that this saturation will lead to even higher levels of warming.
To make matters worse, pools of methane have risen from thawing Siberian permafrost, causing great concern that large amounts of methane may be about to escape into the atmosphere, potentially exacerbating an already alarming situation.
Although none of this is good news, there is also progress now in developing technologies to remove methane from the atmosphere. This is good news for influencer investors, and of course the rest of us. These technologies work by increasing the rate at which methane naturally breaks down through oxidation, which turns methane into water and carbon dioxide. Of course, more CO2 itself is a problem, but it's better to have CO than an equal amount of methane, due to the difference in potency. I would add that once methane is oxidized, there is nothing to isolate it.
A methane removal technology known as the "solar chimney" has attracted great interest. A prototype is located in Xian, China, applying a curriculum developed at the University of Minnesota. The hope is that when expanded, this unit will be able to process 11,100 metric tons of methane annually.
Methane control is critical to increasing temperatures in the future. Methane removal technologies, if scaled up globally, have the potential to prevent a global temperature rise of at least 0.3°C.
One positive development emerging from COP26 is the Global Methane Pledge (GMP). The GMP was led by the United States and the European Union. More than 120 countries, but not China or Russia, have signed on to this agreement, pledging that by 2030 they will cut methane emissions 30% below 2020 levels. Interest in GGR will only grow. Impact Investors, Notice!
What influencer investors want
Impact investors want their investments to generate positive social impact as well as financial returns. Recent research documents identify multiple impact investors using the Sustainable Development Goals (SDGs) set by the United Nations. There are 17 such goals. Goal number 7 is “clean and affordable energy,” while goal number 13 is “climate action.”
One of the key messages from the F4CR about the SDG for Climate Action is that the stated goal of achieving net zero emissions by 2050 is insufficient, if we want our planet to be hospitable to human life. Instead, we need negative greenhouse emissions, fairly quickly, for atmospheric concentrations of greenhouse gases to fall below pre-industrial levels, in fact within the past 800,000 years for which ice core samples are available.
Impact Investors are already focusing on SDGs 7 and 13. For all 17 SDGs, the money invested in SDGs 7 and 13 falls in the upper middle range. Going forward, there is good reason to expect that advances in CDR and GGR will drive the volume of impact investing funds earmarked for these goals to move to the higher band.
An important research finding is that impact investors associate Goal 7, clean and affordable energy, with relatively high financial returns, but not the closely related Goal 13, climate action. This may be because renewable energy projects are seen as more profitable than other climate mitigation efforts.
This finding is significant for ocean-based CDR and GGR methane removal. Companies like Seafields focus on profit and produce and sell useful products. But it is not the case, methane removal which, at least for the time being, does not generate returns from useful products.
An important issue for impact investors focused on climate change is that the international agreement from COP26 addressed Article 6, a relic from the Paris Agreements negotiated at COP21. Among other clauses, Article 6 provides the structure for a global compensation market in GHG credits. If done correctly, offsets provide dealerships with a "make or buy" option when it comes to reducing emissions. They "make" when they directly reduce emissions. They "buy" when they buy market loans for compensation from other agents who "make" emissions cuts.
Companies participating in GGR, which do not remove greenhouse gases as spin-offs from other profitable operations, will need to rely on the market for compensation in order to generate revenue.
There are two parallel markets for compensation, one of which is called a compliance market, where agents operate in regulated environments with an emissions cap. The other is the voluntary market, where agents are not required by regulations to reduce emissions, but instead volunteer to buy credits. Both markets are growing, and impact investors can play a special role. I say role, but "mission" might be more appropriate.
Today, CDR and GGR feel the way Amazon.com felt in 1998 and Tesla