September 2016 gave cleantech investors a reason to be optimistic: the U.S. and China simultaneously agreed to the Paris climate change agreement (COP21), followed closely by India and the EU. Ratification by those four parties, the world’s top emitters, successfully brought the agreement to the threshold that will trigger its implementation. This pivotal breakthrough, gone almost unnoticed in the media frenzy surrounding the US election cycle, is not only a major milestone in the global fight against climate change but a significant reassurance to investors’ confidence in this key – and still evolving – sector of the economy.
In order to enter into effect globally, the agreement requires 55 nations representing 55 percent of the world’s greenhouse gas emissions to join. Currently, 74 parties have ratified the agreement, representing 58.82 percent of global greenhouse gas emissions. The agreement will thus go into effect on November 4, ahead of this year’s annual United Nations climate summit in Marrakesh later in the month.
Why does this milestone deserve greater attention and wider reporting? One of the most important results of the Paris accord has been the confidence that it has inspired in long-term, global commitment to clean energy and thus the security of investments in the sector. The fact that this agreement will now officially go into effect should only undergird that confidence, made even stronger by the fact that four of the most important parties to the agreement—the world’s largest emitters—have confirmed their dedication.
In the words of UN Secretary-General Ban Ki-moon, “markets now have the clear signal they need to unleash the full force of human ingenuity and scale up investments that will generate low emissions and resilient growth.”
Element 8 Co-chair Eric Berman published a piece earlier this year describing our take on the Paris climate agreement.
Many of the issues we highlighted still apply—the agreement could have been much more stringent in its requirements—but we also emphasized that any global step in the right direction is worth widespread note. The Paris agreement, after all, was one of the few times that 195 countries have been able to agree on anything.
Further, despite its flaws, the ripple effects of the agreement have been noteworthy. As we have seen in the clean technology industry, the commitment of countries across the globe to reducing emissions and limiting climate change provided a boost in confidence and thus investment in the sector.
That being said, as optimistic as we are about activities on the global stage, as cleantech investors ourselves, we know that there are certain more concrete factors that are essential for investors’ confidence. At its core, confidence comes from granular rules and requirements that have penalties with teeth – renewable portfolio standards, low carbon fuel standards or even publically-made corporate commitments. Ideally, the Paris Agreement will motivate governments and companies to engage in such rules and commitments.
We here at Element 8 remain committed and confident early-stage investors in the cleantech sector. We have seen and been honored to participate in many great cleantech startup stories and look forward to being a part of many more. But we encourage individual angel investors, family offices, VCs and institutional investors around us to join in as well. There is much to be confident about and much to be excited about.