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chris ailman
Long-term investors often talk about urbanization, globalization, and investment trends across all asset classes. Some of these are “megatrends,” to borrow from the early 1980s social forecasting book of the same name, and represent lasting changes from past norms that represent both opportunity and risk.
At the California Teachers Retirement System, we are responsible for maintaining the trust and securing the financial future of more than 1 million educators and their beneficiaries. That’s why we’re always actively tracking megatrends on their behalf.
We are currently facing megatrends large enough to dominate the investment landscape for the next 15 to 20 years. This megatrend is the massive global energy transition currently underway. This is a major wave that poses significant risks and opportunities for institutional investors across geographies, sectors, and asset classes.
Research and demographic trends show that humanity will need even more energy in the future, especially if we want to lift more people out of poverty. The world will need all kinds of energy, including fossil fuels, and even more energy than we can currently produce. But we also know that we must reduce the amount of greenhouse gases emitted to produce that energy. This requires innovation, new energy sources, and changes in the way we distribute, store, and produce energy. Above all, it requires a huge financial commitment across a spectrum of risk and reward.
Therefore, understanding and responding to the energy transition is essential to the investment decisions we make at CalSTRS.
We are seeing venture capital opportunities in innovative, high-growth technology and infrastructure investments that help expand and scale clean energy transmission and distribution. We believe there are opportunities up and down the capital stack with different risk and return profiles that are attractive to long-term investors like CalSTRS. We recognize that this will probably not be an easy or smooth transition, as the United States and most other countries are fully invested in current energy sources and structures, but the transition is essential nonetheless.
We’ve all heard people say that we’re always using fossil fuels and that we have enough energy for our needs. But let’s look back at history. Civilizations have been using coal for over 2,000 years, but it wasn’t until the late 17th century that the steam engine was invented.th It was only during the Industrial Revolution in mid-18th century that its use expanded.th century. The internal combustion engine was born in the late 1919s.th century. No, we haven’t always used oil and gas. For the past 150 years, we have only used fossil fuels, which has had a huge impact on the environment. If we are to survive, we need to reduce greenhouse gas emissions and find more ways to generate, store and distribute energy. Unless we radically change our way of life and create all kinds of energy, especially renewable energy, our investment markets and our way of life will be destroyed.
The clock is ticking and time flies.
This extraordinary change must occur within the next 15 years if we are to protect humanity from the worst effects of climate change by 2050. Although it may seem far, it is well within his 30 year range of most pension plans and funds.
Simply put, this megatrend is the biggest wave we will experience in our careers. As surfers will tell you, timing is key when it comes to big waves. First, you have to increase your speed. If you time the wave too early, you’ll get crushed. If you’re too slow, you’ll miss it completely. At CalSTRS, we have been predicting this wave for a long time, and we intend to continue to ride it successfully for years to come.
For all investors around the world, now is the time to analyze and understand all aspects of this transition that will emerge across every industry, every region of the world, and every asset class. At CalSTRS, making money for teachers is our top priority. And part of that includes addressing the risks of climate change and ensuring we all have a bright future with a livable planet. See you in the surf!
Christopher J. Ailman is the CIO of the California Teachers Retirement System.
This feature provides general information only, does not constitute legal or tax advice, and may not be used as a substitute for or for legal or tax advice. you can’t. The opinions of the authors do not necessarily reflect the position of ISS Stoxx or its affiliates.
Tags: CalSTRS, Christopher Eilman, Energy Transition, Opinion, Sustainability
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