- Jeremy Grantham went all in on climate investing after retiring from managing money 15 years ago.
- He explains why climate change investing both benefits the environment and promises high returns.
- He also shares the one investing career path he’d choose now if he could start all over again.
Before President Biden’s infrastructure proposal gave an inkling of how green tech could massively reshape the future of energy, Jeremy Grantham had already been working on climate-change investing for over a decade.
The co-founder of Boston-based fund manager GMO redefined his job description to work on big issues including the climate crisis, resource shortages, and growth rates after retiring from portfolio management 15 years ago.
“So I started preaching the significance of climate change as the most important input into our portfolio going forward,” he said in an interview. “And I can assure you that there was a lot of eye-rolling.”
It made sense why his early listeners were bored. While oil and gas companies constitute just 2.3% of the S&P 500 index today, they made up more than 15% of the premier US large-cap index in 2008.
But the market has adjusted vastly over the past 10 years. A symbolic yet pivotal sign of the ongoing transition to greener renewable energy is the removal of oil giant Exxon Mobil from the blue-chip Dow Jones Industrial Average index in September last year.
For Grantham, who has pledged 98% of his billionaire-dollar wealth to his environmental foundation, it was clear from the get-go that businesses working on solutions to the climate crisis are going to be "the biggest thing coming down the pike."
With the rising popularity of environmental, social, and governance investing and a clean energy revolution driven by the President's infrastructure plan, the moment has arrived for many of these businesses and technologies. There are even talks of a "green bubble" as investors have piled into renewable energy stocks and driven up sky-high valuations.
"There are certainly some bubbly elements in the green part of the industry," Grantham said. "We believe at GMO that the energy efficiency and the greening are so complicated and diffused that you can dig through it and find cheaper components."
Indeed, the firm in 2015 launched the now $417.6 million GMO Climate Change fund, which is managed by Lucas White and Thomas Hancock. The fund has significantly invested in the electric vehicle value chain, biofuels, solar and wind energy, as well as clean energy materials.
The race of our lives
As investors wake up to the compelling economics of climate-friendly investing, global governments have also increasingly put talent and resources behind green technologies.
"Everyone is in a way beginning to compete," Grantham said. "They are not only beginning to compete to be green, but they are beginning to compete for the green industries."
From the US to China, major economies are fighting to be the leaders in everything from solar panels and wind storage to electric vehicles and battery materials. China, in particular, has taken the lead in many "industries of the future," dominating 80% of the global solar panel market, for example.
"They are moving, up till now, much much faster to make sure that they are central players in the greening of the global economy," he said. "And it would be really foolish if Europe and the US did not make a big effort to compete."
The race has already accelerated as global governments speed up their commitments to cutting greenhouse gas emissions. Since the Texas power outage in February raised issues of the three separate electrical grid systems in the US, there have also been more talks of investing in energy efficiency and grid improvement.
Grantham believes that the transition to green technology could also benefit and sustain the global economy in the long run.
"It may come with some extra inflationary pressure but I don't mind that," he said. "I think it's the price worth paying to have more people drawn into manufacturing, into the labor market, to have more pressure on wages from these terrible levels they sank down through, and to end up with a more efficient economy."
'Do something that turns you on'
As a legendary investor who successfully called three market bubbles, Grantham is nevertheless not recommending ambitious young people to follow in his footsteps.
In fact, he thinks American capitalism is in a bad place. "It's monopolistic, it's too powerful, and it's not really free competition," he said. "It doesn't have enough new enterprises, and the number of companies that are only one or two years old is half the percentage it used to be in the mid-1970s."
In his view, venture capital is the one last great exceptionalism in America. "If I was starting again, I would do venture capital," he said.
Grantham said starting a new firm and being associated with the US venture capital industry is "thoroughly exciting," because it is not only dominant by size and success but has also attracted the "brightest and best people."
He also recommends young people to get involved in the greening of the economy either in the non-profit world, the political world, or the venture capital world.
"I think the green VC will move the dial for our well-being as much as anything, as much as $1 of grant-making to anybody. And secondly, I think they're a candidate for the highest future return," he said. "How often do you get to do what you think is exactly the right thing to do and to make money."
More than anything, the 82-year-old investor said it is paramount to "do something that turns you on."
"I can assure you, you will get old much quicker than you think. Do not hang about, do not waste time," he said. "Do what you love and do it vigorously."