Opportunity cost refers to the loss of potential received value by choosing to not do something or by choosing a different route.
One opportunity cost of sleeping late, for example, is not having the opportunity to see the sun rise. Tired from nursing a baby in the middle of the night you might consider this a reasonable cost in exchange for getting more rest.
Businesses make these kinds of decisions all the time.
Attending a trade show for example is costly but has to be weighed against the potential cost of missing out on sales and partnerships opportunities. Office safety and renovations bring in no revenue but need to be weighed against the cost of losing employees to an employer that cares more. (Or missing out on future great hires.) Climate tech funds, like all VC funds, make similar trade-offs too when deciding what startups to invest in. Which team, technology, or idea is it most worth passing up on?
As collective investors in climate tech we also need to be looking at the opportunity costs of doing so.
Of course we are not all directly investing millions into climate tech VC funds. (Although many of us increasingly are directly investing money too.) But as entrepreneurs, employees, consumers, activists, and policymakers we have a choice to make in terms of where to direct our and others’ attention and where to invest our collective time and effort.
Investing in climate tech comes at the opportunity cost of not investing in education, (real) nature-based solutions, reduction in consumption and waste, behaviour change, protection of habitats and ecologically sensitive regions, and natural regeneration, to mention a few key areas. This is because most of what “climate” tech invests in is energy, energy efficiency, alternative materials, industrial decarbonisation, and direct air capture technologies.
What’s the problem with investing in these things?
Put extremely, extremely simply it is this: it’s not working¹.
All the investment into electrification, alternative materials, efficiencies, agricultural technologies, and carbon capture are simply not bringing the use of fossil fuels and the emissions if greenhouse gases down.
They might seem to bring them down when looked at from the lens of per capita emissions or from the lens of “it would be worse if we had carried on doing it the old way”.
But absolute global carbon emissions keep rising with very little sign of peaking. (Or, to be generous, of peaking in time to avoid catastrophic warming.)
This then is the cost of climate tech: The opportunity to hit our climate targets and maintain a liveable and fair world for all. (Which, ironically, is a pre-requisite for profitable climate tech companies.)
The alternative to investing in “climate tech” is to invest in known solutions that are proven to effectively tackle the problem of climate change and its effects.
Solutions like the provision of education, healthcare, and independence of people living the Global South (women and girls in particular); Indigenous land stewardship; the restoration of abandoned farmlands, degraded lands, macroalgae, tropical forests, and temperate forests; the protection of wetlands, seabeds, grasslands, and peatlands; and walkable cities, bicycle infrastructure, carpooling, and public transit.
There are more, but that’s enough to illustrate my point.
Why then does almost none of the US$638 billion invested in 2023 (which is itself an almost 50% decline over previous years) end up invested in these solutions?
Because it’s not profitable — enough — for a very small percentage of people. The investment narrative needs to change to one that is primarily focused on true regeneration before the opportunity cost becomes too high to repay.
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¹ In a later post I will delve deeper into this but for the moment, its worth noting that I have as yet not seen a single impact report from a climate tech VC that shows in real terms how much carbon has been captured or avoided in absolute terms.
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Photo by Letizia Bordoni on Unsplash
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