Originally published at https://kevindstevens.com.

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes. — Benjamin Franklin, 1789

Yesterday, I tweeted that climate is not a sector. If it’s not a sector or an industry, what is it?

Climate is a macro-economic factor. For the next several decades, it is as certain to play a role in our economy as taxes.

I’m not writing to debate the science or the degree to which climate change is a problem. But, I am certain that climate is affecting the way capital is being allocated globally, and that’s something that should interest all of you.

Firms that allocate trillions of dollars now consider sustainability in their decisions because it impacts all of their assets classes.

Blackrock benchmarks firms on sustainability and uses its governance power to influence decision-making. The largest pension fund in the world, GPIF (the national pension fund of Japan), began scoring all investments on sustainability in 2017.

Since the climate is a macro-economic force, it stands to reason that venture capital investing in “climate tech” is analogous to being a generalist. There’s certainly nothing wrong with being a generalist, Sequoia has done quite well I’ve been told.

But in this case, it’s a trap.

On Sunday, I published my breakdown of DNV-GL’s 2020 Energy Transition Outlook. As you’d expect it concludes that the biggest sectorial levers — eg. the biggest potential for value creation — in climate are: power, transportation, buildings (real estate), manufacturing, and agriculture.

Outsiders often overlook the complexity of these industries. Much like healthcare, without knowing the rules of the game, it’s extremely hard to find success.

Each of these industries are some combination of:

  • capital intensive
  • regulated
  • entrenched
  • fragile

As a result, every technological risk is highly calculated, so distribution and relationships carry more weight than in other sectors.

Sustainability in these industries is a problem to be solved, it’s no different than cloud migration, cybersecurity or digitization of assets.

For these reasons, Intelis Capital chose to be a part of the growing trend of sector-focused firms like Energize Ventures (industrial and energy) and MetaProp (real estate) each include sustainability as a theme within their mandate.

Specialization develops the required customer relationships organically, creates institutionalized knowledge, and becomes a differentiator in diligence and portfolio support.

The result is understanding risk better than a generalist and adding real, tangible value post-investment.

It’s likely that long-term the best returns focused in-part on sustainability will come from funds that are sector focused and understand how climate is impacting decision-making within their industry.

Death, taxes, and climate change. All certainties, but the latter doesn’t have to be.