Friday, July 24, 2015

Competing Visions of Capitalism Viewed through the Lens of Renewable Energy Investment Strategies

In the wake of the Greek financial crisis, and the Pope's Encyclical there is a lot of hyperbole about economic dysfunction. Fueled by popular resistance to austerity, wild allegations about the imminent demise of capitalism abound.  Contrary to the musings of some idealistic pundits, capitalism is alive and well. In fact, led by the sustainability movement, there is an economic renewal underway.  By marrying self interest and altruism a new brand of capitalism is emerging that has seen advances on both the social and environmental fronts.  However, this vision of capitalism is at odds with some basic tenants of conservative economics .  What follows is a review of these two competing interpretations represented by the renewable energy investment strategies of Bill Gates and Warren Buffet.
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Bill Gates and Warren Buffet are philanthropists who are both invested in renewable energy. While their actions may appear similar, their diverging investment philosophies reflect two different visions of capitalism.

Renewable energy is a critically important part of sustainability oriented business practices and responsible investment strategies that are driving environmental and social change. Renewables are a low carbon energy source that can reduce our reliance on climate change causing fossil fuels. While renewables are an important part of solving the climate crisis, they are of interest to many investors largely because they offer impressive rates of return. A 2012 Forbes piece titled "Investors are Making Money with Renewable Energy," states that for "investors looking for financially sound, environmentally responsible, climate-friendly investments, renewable energy finance is worth a very close look."

It would appear that the market agrees with the Forbes assessment. As reviewed in a 2015 report, renewable energy investment increased by more than 17 percent to $270 billion in 2014.

Social obligations

While earning returns from investments is important, Gates and Buffet are two high profile examples of men who use their wealth for social betterment. Forbes, reports that Gates, who is worth $79 billion, is the richest man in the world and Buffet, who is worth a paltry $72 billion, is the third richest man in the world.

Both Gates and Buffet refute the stereotype of the wealthy one percent. They both see that their wealth comes with certain social obligations. Even the capitalist icon David Rockefeller understood this more than half a century ago when he said, "The old concept that the owner of a business had a right to use his property as a he pleased to maximize profits has evolved into the belief that ownership carries certain binding social obligations."

Gates has committed his life to his perceived social obligations. He first embraced philanthropy while at the helm of Microsoft, and now, through his full time involvement in the Bill and Melinda Gates Foundation, he has made social betterment the "primary purpose" of his life. His foundation is focused on improving people's health and education. "My full-time work for the rest of my life will be at the foundation," Gates was quoted as saying in a 2013 Telegraph article. So far, Gates has given away $28 billion to philanthropic causes.

Creative capitalism

Contrary to the writings of people like Naomi Klein and Paul Mason who believe that capitalism is profoundly flawed and destined to die, Gates argues that capitalism offers our best hope for social and environmental renewal. Gates is an advocate of system innovation, an approach that he calls creative capitalism.

Gates offers a form of ecological economics. His practical approach is grounded in the fundamentals of human psychology, while the ambiguous utopias insinuated by Klein and Mason are an offshoot of socialism, which has proven to be at odds with human nature.

According to Gates, capitalism can be made to serve those in need and the environment upon which we all depend. In his view, capitalism can harness innovation on the massive scale required to confront the challenges we face. Gates' approach seeks to leverage the fact that human nature is composed of two fundamental elements, self interest and the desire to help others.

In a January 24, 2008 speech at the World Economic Forum, Gates said, "The genius of capitalism lies in its ability to make self-interest serve the wider interest. The potential of a big financial return for innovation unleashes a broad set of talented people in pursuit of many different discoveries." Gates says. "This system driven by self-interest is responsible for the great innovations that have improved the lives of billions."

Gates believes we need to measure and publicize social responsibility to give consumers the tools they need to make good buying decisions. He also suggests that to make markets work, we need to see more collaboration between governments, businesses, and nonprofits.

"Creative capitalism takes this interest in the fortunes of others and ties it to our interest in our own fortunes—in ways that help advance both." Gates says. "There is a growing understanding around the world that when change is driven by market-based incentives, you have a sustainable plan for change—because profits and recognition are renewable resources."

Renewable energy

As reviewed in an Entrepreneur article, Gates has invested over $1 billion in renewable energy and now he is looking to double that amount. In an interview with the Financial Times, Gates said that investing in technology companies is the best way to find cost effective solutions to climate change.

"The only way you can get to the very positive scenario is by great innovation," he said. "Innovation really does bend the curve." He sites the case of current battery technology saying that if we are to fulfill the promise of renewables we will need more reliable energy storage than is currently available. However, Gates' approach to capitalism is anything but laissez faire. He explains that advancing technology requires the kind of massive investments that only governments can provide. Gates says that efforts to improve renewable technologies require Manhattan or the Apollo style government projects.

Another powerful man who has invested massively in renewable energy is Warren Buffet. Through his investment firm, Berkshire Hathaway, Buffet has invested $30 billion in renewable energy. Buffet has also given away more than $17 billion to philanthropic causes.

Buffet's stellar record of wealth creation has earned him a reputation as the world's foremost investment genius. In 2009, Buffet's investments in lithium show that he was already ahead of the sustainability investment curve. In addition to his other renewable energy investments, Buffet has invested more than a billion dollars in solar energy alone, this includes the massive Agua Caliente solar array in Arizona.

Climate ambivalence

Despite his philanthropy and investments in renewable energy, Buffet has garnered some well warranted criticism. Although Berkshire has invested in renewables, they also own Burlington North Railroad which ferries huge amounts of coal.

One of those who dare to criticize the Oracle of Omaha is Rob Berridge, the director of shareholder engagement at Ceres, one of the most important sustainability focused organizations in the world.

Buffet's supporters may point to the fact that in the fourth quarter of 2014, Berkshire sold its $4 billion stake in Exxon Mobil. However, withdrawing these funds was due to market conditions, not environmental or social concerns. His move was prompted by the falling price of oil and the realization that oil's glory days are gone.

Buffet has also been criticized for his suggestion that extreme weather is not on the increase due to climate change.

Despite what Buffet has said publicly, Berkshire is vulnerable due to its investments in the reinsurance business. Extreme weather is expected to substantially increase insurance pay outs.

Buffet is sending mixed messages said Berridge. "He'll undoubtedly go down as one of the world's greatest investors and most ethical businesspeople." Berridge said, however, "with climate change having such an important impact on the largest parts of his business, we'd love to see him be clearer."

Buffet's statements indicate that he acknowledges the science of climate change. However, his position suggest something far worse than denial. His investment decisions indicate that he is indifferent to climate change.

Buffet may be a titan in the field of renewable energy, but his motivations are suspect and his ambivalent stance on climate change is unlikely to be judged kindly by future generations.

Investment philosophies

Buffet and Gates have two different investment philosophies that are premised on two dissimilar visions of capitalism. Buffet seeks out investments that are exclusively about the returns that they generate. His investment philosophy is focused on value hunting, his gaze myopically seeks out companies that will generate returns. Conversely, Gates' investment philosophy considers issues beyond corporate profits.

On the surface, Gates and Buffet may appear to be very similar, but when it comes to their investment philosophies, the two men are profoundly different. While Buffet is interested in earnings, Gates wants to solve complex global problems. Gates invests in renewables to work towards global betterment, while Buffet invests to generate attractive rates of return.

Buffet makes vast sums of money with his investments and he is generous with his billions, but when it comes to climate change, he seems to be devoid of a higher purpose.

Source: Global Warming is Real

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