The leader of one of the world’s biggest hedge funds weighs in on green technology.
In his annual letter to CEOs, investment heavyweight BlackRock’s CEO, Larry Fink, addressed decarbonization as a major driving force in investment strategy going forward. But notably, he identified the problem of cost. Alternate energy is too expensive, and as long as it remains that way, the transition to green energy will be glacially slow. The solution, according to Fink, is investment in a new generation of alternate energy startups, similar to the manner in which Silicon Valley launched the modern software industry. The pooled investment capital available is at historic highs, and fund managers like Fink appear ready to write the check. All that’s missing are the engineering entrepreneurs to kickstart the revolution.
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Episode Transcript:
This man is not an engineer. Or a scientist. Or politician.
He’s Larry Fink, CEO of BlackRock, one of the world’s biggest investment firms, currently managing 9,4 trillion dollars in assets. Control of that kind of wealth has economic and political implications, and Fink’s annual letter to CEOs is watched carefully.
His last annual letter, entitled The Power of Capitalism, was the traditional celebration of capitalism as an engine of economic growth, but in it he also described a sea change in the economy which will have profound implications for engineering.
According to Fink, who naturally has an investment view of economic evolution, startups and high-growth innovation companies have access to capital that has never been seen before. Global financial assets now total 400 trillion dollars. Young people with a good idea who want to build something have access to investment capital in ways and amounts that would have been unimaginable even 20 years ago.
Absurdly low interest rates were a factor until recently, and frankly, massive government deficit spending in most of the world’s industrialized nations is a factor too. But regardless, there’s never been a better time for an innovator to start a company.
The other factor, he notes, is the changing nature of those startups, and the money that finances them. According to Fink, the next 1,000 “unicorns” won’t be search-engines or social media companies, they’ll be startups that will drive decarbonization. He also mentions the elephant in the room, which is refreshing: that the green premium—the extra cost of green energy—has to come down before a meaningful transition can be made.
As it stands now, that transition is going to take three or four decades at best. Maybe longer, for the simple reason that most of the world’s population cannot afford to pay more for energy. Which means substantial investment in the existing petroleum-based energy infrastructure for at least half a century, as significant demand for fossil fuels will likely be a reality for decades, barring some dramatic technological breakthrough.
Larry Fink is not an engineer, but he is addressing with some clarity the issues that most engineers understand about sustainability going forward—the issues that politicians won’t talk about and that many environmentalists intentionally obfuscate.
Going green is not about politics. It’s not about regulations. It’s about developing a set of technologies that deliver the same benefits that petroleum does, at equal or lower cost. This is an engineering problem.
But developing a workable technical solution is only the first phase. Scaling those solutions in mass production requires capital, and Larry Fink is sending a signal that the global investment community has dollars to invest, like they did with the original software startups in Silicon Valley.
If so, we’re about to see a couple of decades of radical technological innovation. But cash is king. To take my home off grid with solar would cost approximately $50,000. Which isn’t going to happened in this space-time continuum. But what if it cost $15,000? I’d do it tomorrow. So, Fink describes it simply, like Field of Dreams: build it, at lower cost, and they will come.