Rethinking Capitalism — What Can It Mean For Cleantech?

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Generally, the impact potential from green innovations is constrained by profit-maximizing structures. Companies try to appeal to commonly-accepted business practices to attract investment as a core tenet of capitalism. However, we live at a moment in time when the very impetus that produced centuries of technological advancements since the onset of the Industrial Age are in question. The climate crisis has us poised to consider peak oil and the demise of hydrocarbons as main energy providers to economic evolution. We now look to a new post-hydrocarbon socio-technical landscape.

Appropriately, there is great urgency to deal with issues regarding both the mitigation of climate pollution and its effects such as warming temperatures and changes in precipitation and sea level which, in turn, will affect water supply and quality, habitat, and food production.

In order to limit global warming to 2 degrees Celsius and avoid the worst effects of climate change, significant investments in low-carbon energy technologies are taking place at rapid pace. Cleantech creates a pathway to these low-carbon solutions and is generally considered to cover 4 main sectors: energy, transportation, water, and materials.

Such cleantech industry segments include advanced materials, agriculture and forestry, air and environment, biofuels and biochemicals, biomass generation, conventional fuels, energy efficiency, energy storage, fuel cells and hydrogen, geothermal, hydro and marine power, nuclear, recycling and waste, smart grid, solar, transportation, water and waste water, and wind. It comprises energy efficient technologies that include recycling, renewable energy (wind power, solar power, biomass, hydropower, biofuels), information technology, green transportation, electric motors, green chemistry, composite materials, and lighting.

Cleantech has a lot of good to offer the public. Its products and services, like clean air and clean water, aren’t experienced just by individuals. If cleantech were exclusive, it would benefit only subscribers, and it wouldn’t be renewable. But does capitalism really work along these lines?

Funding for Cleantech post-IRA

The task of transforming world economies to clean energy and decarbonizing energy infrastructure is monumental. Significant challenges in bioeconomy innovation are related to the feasibility, efficiency, and social acceptability of bio-based products and eco-innovations rather than their validity.

Public and private sector funding in the US — available through the Infrastructure and Investment Jobs Act of 2021 (IIJA), the Inflation Reduction Act of 2022 (IRA), and the CHIPS and Science Act of 2022 (CHIPS) — provides opportunities for individuals, developers, energy service providers (including utilities), and manufacturers to partner with government to transform the energy economy in the US. Partnerships are vital if there is to be any chance of decarbonizing the world’s economies.

As the sector matures and grows, more capital flows toward innovative companies. The cleantech process cycle has 4 stages:

1. Technology research
2. Technology development
3. Manufacturing
4. Scale-up

Government funding is used to finance stage one. Venture capital funds and private equity are used to finance late stage one, stage two, and early stage three phases. Public equity markets and mergers and acquisitions are used to finance stages three through four. Debt markets are used to finance stage four.

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Climate technologies are at a double disadvantage relative to more polluting incumbent technologies: they attract less private capital because they are less mature, and their positive externalities on climate change are un- or under-priced. Helping to steer more capital toward young and innovative entrepreneurs requires more and better allocated government subsidies. Innovation policy must sync with growth policy.

Evidence from the American Recovery and Reinvestment Act of 2009 (ARRA) can tell us a lot about what’s to come through funding available in the Inflation Reduction Act.

• First, despite its behind-the-scenes nature, the ARRA provided cash injections that shifted utility business models and electricity markets from fossil fuels infrastructure and toward renewable technologies by funding projects rather than organizations. The funding structure enabled engineers and managers to bypass conventional industry gatekeepers.
• Second, this shift was conditioned by a traditional business case discourse, which functioned as a rhetorical lubricant, legitimating risky innovation and disguising individual and organizational values that run against established norms.

A well-respected estimation supported by the IEA attributes less than 5% of CO2 emission reduction by 2050 to behavior change against 55% to technologies already in the market and the remainder to technologies currently under development.

Massive investments are needed to support the development and commercialization of new green or energy-efficient technologies. The pressing challenge of climate change thus calls for a radical transformation involving technical change across all sectors of the economy, from transportation to manufacturing and agriculture. Could climate philanthropy morph into a full-blown and intrinsically political stakeholder in the international climate debate?

Sustainability faces numerous challenges when applied to the real-world global economic model of capitalism. Change needs to come from unusual places, and where better to start than at elite and Ivy League colleges?

Capitalism Reimagined at Elite Colleges

The global model of capitalism is nowadays unsustainable, and solutions to tackle this issue have, so far, fallen short.

The word “profit” hasn’t been erased as a the core principle of today’s business schools, but students are also learning about corporate social obligations and how to rethink capitalism. It’s definitely a sharp curriculum shift that reflects a new dimension of corporate culture. Political leaders on the left and right are appealing in greater numbers for the C-suite to include their societal responsibilities as they set the company’s strategy, make high-stakes decisions, and ensure day-to-day operations align with fulfilling the company’s strategic goals.

• Progressive leaders speak out for the larger role that business necessarily plays in global concerns, such as the climate crisis, democratic rule, or equitable systems.
• Conservative leaders argue for keener, more intense focus on profits instead of politics.

ESG investing has caused turmoil across companies and industries while also driving what has become a $40 trillion industry. US and European financial regulators have both been intensifying their focus on ESG investing, yet with this emphasis comes accusations across a spectrum from glossy marketing and greenwashing tipped to a “climate cartel” and threats to fossil fuel livelihoods.

Top-ranked business schools are stepping into the political arena, according to an exposé in the New York Times.

• Harvard started an Institute for the Study of Business in Global Society.
• Nearly half of the Yale School of Management’s core curriculum is devoted to ESG.
• The Wharton School of the University of Pennsylvania will soon start offering MBA majors in diversity, equity, and inclusion and in ESG factors for business.

“We’re at Harvard Business School — it’s a bastion of capitalism,” said Ethan Rouen, who teaches the Harvard class “Reimagining Capitalism.” “I will say, though, that if you look at the courses being offered, the institutes being created and speakers we bring on campus, there is a huge demand both from the faculty and the students for rethinking the obligation of the corporation to society.”