Originally published on Radical on 2024-09-08.
Opportunity cost refers to the loss of potential received value by choosing to not do something or by choosing a different route.
One opportunity cost of sleeping late, for example, is not having the opportunity to see the sun rise. Tired from nursing a baby in the middle of the night you might consider this a reasonable cost in exchange for getting more rest.
Businesses make these kinds of decisions all the time.
Attending a trade show for example is costly but has to be weighed against the potential cost of missing out on sales and partnerships opportunities. Office safety and renovations bring in no revenue but need to be weighed against the cost of losing employees to an employer that cares more. (Or missing out on future great hires.) Climate tech funds, like all VC funds, make similar trade-offs too when deciding what startups to invest in. Which team, technology, or idea is it most worth passing up on?
As collective investors in climate tech we also need to be looking at the opportunity costs of doing so.
Of course we are not all directly investing millions into climate tech VC funds. (Although many of us increasingly are directly investing money too.) But as entrepreneurs, employees, consumers, activists, and policymakers we have a choice to make in terms of where to direct our and others’ attention and where to invest our collective time and effort.
Investing in climate tech comes at the opportunity cost of not investing in education, (real) nature-based solutions, reduction in consumption and waste, behaviour change, protection of habitats and ecologically sensitive regions, and natural regeneration, to mention a few key areas. This is because most of what “climate” tech invests in is energy, energy efficiency, alternative materials, industrial decarbonisation, and direct air capture technologies.
What’s the problem with investing in these things?
Put extremely, extremely simply it is this: it’s not working.