Investing at the Intersection of Disruption and Sustainability

If you could fold a piece of paper in half 42 times, how thick would it be? The size of a textbook? Maybe as tall as your house? The answer is that it would reach the moon 240,000 miles away.

If you start with one penny and double it every day for a month, how much money would you have? Over $5 million dollars! And if you continued this for 30 more days, you would have more than $5 quadrillion dollars!

Our brains simply aren’t wired to think in exponential terms. We tend to see only a few steps ahead, which is why these puzzles are so confounding.

The reason I bring this up is two-fold. Investing and taking advantage of compound interest creates exponential returns that can lead to a profound amount of wealth over time.

Also, Impact Fiduciary focuses exclusively on sustainable investing with an emphasis on exponentially growing technology disrupting the status quo.

Exponential Growth = Deceptive

Exponential growth is deceptive. In the beginning, small investments don’t seem to do much, but over long periods of time, they can add up to large sums of money and turn into meaningful wealth.

If you double a penny every day, then by day 15, you aren’t very excited with your $163. But fast forward two weeks later, and the amount has grown to $2 million! This is why the best time to start investing was yesterday!

What is Sustainable Investing?

Sustainable investing means not only avoiding certain ethically challenged industries but also investing in disruptive companies that can solve some of humanity’s biggest challenges without sacrificing returns. 

Investing in companies that are innovative may be the key component in actually reaching the UN’s 17 Sustainable Development Goals, listed above.

Continuing with the status quo and investing in linear growth companies from the last century may be detrimental to your wealth and our collective health. The poster child for this is the fossil fuel energy sector which hasn’t really changed much over the past 50 years and is ripe for continued disruption.

Hot Showers and Cold Beer

Let’s be honest. Most people will not make personal sacrifices for the greater good and aren’t worried as long as their showers are hot and beer is cold. This is why technological progress and innovation must continue to play a central role in solving the world’s biggest challenges.

My goal in today’s post and future updates is to highlight what I believe are some of the most sustainably disruptive innovations. We’ll look at how they play a role in Impact Fiduciary’s portfolios while furthering the UN’s Sustainable Development Goals.

I’m extremely optimistic and excited about the pace of change we’re currently witnessing and we’ll see accelerate over the next decade.

Despite some fo the challenges we are facing, I truly believe that this is the best time to be alive and that we will witness some life-changing breakthroughs in the next few years.

Disrupting the Energy Sector

Let’s take a look at the market sector most vulnerable to disruption, energy. One of the biggest threats that we collectively face is climate change.

You can read the recent report from the Intergovernmental Panel on Climate Change (IPCC) or you can simply turn on the weather channel. It’s obvious that we are running out of time!

We desperately need to transition from the 20th century fossil fuel based economy to a world that is based on a cheap and abundant supply of clean renewable energy.

Divest from Fossil Fuel

One way to do this is by not investing your wealth in the oil and gas companies that are the most culpable in contributing to climate change. Read: Are Index Funds Bad for the Environment?

This is why Impact Fiduciary actively avoids exposure to the planet destroying fossil fuel energy sector instead focusing on companies that are actively combatting climate change.

Solar, wind, and battery storage (SWB) technologies are currently disrupting how energy is generated. These alternative energies have been rapidly deployed in a timeline that has consistently exceeded what pundits and policy makers have deemed possible.

Renewable energy comprised 20% of all electric generation in the US in 2020. This is a 100% increase from 2010, when it comprised only 10% of the mix. This is huge progress, and the growth is only accelerating.

Exponential Growth in Solar

According to SunShot 2030, solar energy comprised a measly 0.1% of the total mix of energy in 2011. Fast forward 10 years, and solar now occupies 2.3% of the total energy mix.

2.3% doesn’t sound like a ton of progress, but you have to think about this in terms of the velocity of growth. Again, remember what happens when you double a penny each day for a month.

This is a great example of deceptive exponential growth. If we have another 23X increase over the next 10 years, solar will comprise over half of our energy mix!

Battery Storage to the Rescue

Obviously, the wind doesn’t always blow and the sun doesn’t always shine, so energy storage is a key component of ensuring a successful outcome. Fortunately, battery storage costs have dropped 80% over the past decade and are expected to drop another 80% over the next 10 years.

Here’s a quick disclaimer: Investing in clean energy isn’t always easy. Last year, the Invesco Solar index was up over 230% for the year. This year, it’s down over 20%, while the market is positive.

However, this doesn’t mean it’s a bad investment. It just means that you’ll need to be patient in order to realize its potential. 

This is why having a diversified portfolio is so important. It will help you withstand the steep peaks and valleys of volatile asset classes such as clean energy.

An Optimistic View on the Energy Transition

Below is a great video by Tony Seba, who believes we’ll enter a period of energy abundance brought on by the efficiency of SWB (solar, wind and battery) systems.

In one of the most optimistic takes I’ve heard, we won’t need to worry about our energy consumption because it will be driven from nature and have a zero-carbon output.

I believe clean energy is not only a fantastic long-term investment but will, more importantly, help further every single one of the UN’s Sustainable Development Goals.

If you are an Impact Fiduciary client then you are playing an important role by financially supporting these companies. We are simply running out of time. Every additional penny invested can help accelerate our transition to a better, cleaner world.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Patrick Dinan, and all rights are reserved.