5 Big Bags of Money that Could Fight Climate Change

I think about climate finance in terms of “big bags of money”. These are sources of capital where a relatively small number of decision-makers control relatively large sums of cash. (Please forgive the public policy student in me for applying the 80:20 rule to everything.)

The biggest misnomer in climate finance is that we don’t have enough money to pay for all the wind farms and seawalls and microgrids and crop insurance and jobs training and political campaigns and electric cars and lithium mines and transmission lines and Netflix documentaries that we’ll need to fight climate change. Don’t get discouraged. We actually have plenty of money.

From Monday to Friday I try to steer the $100+ trillion that the world’s largest financial institutions have committed to “net-zero emissions”, to net-zero emissions. Getting that money out of a bank in Singapore and into a solar project in Senegal is really hard because we don’t seem to have climate-focused projects & companies “ready” to receive it. If you want to do something about it, I suggest you start or join a renewable energy project developer like Enel Green Power, EDP Renewables, etc.

Today though, let’s forget those big global financial institutions and their armies of lawyers, accountants, and consultants. Let’s just daydream about how much money is twiddling its thumbs on the sidelines.

Bag 1: The New York City Police Department (NYPD)

I live in New York—and you probably live in a big city too—so let’s start local. The NYPD has an annual budget of $11 billion. New York City (population 19 million) spends about the same amount on its police as Poland (twice the population) spends on its entire military. There are many nuances to consider, but you can see the point I’m making. New Yorkers do not need the equivalent of the Polish army to protect us.

There is clearly excess in the system and the Mayor of New York should invest that excess in protecting us against climate change. They figured out how to cut $300 million from education and social services, while growing police funding. So, let’s imagine we took even $1 billion off the NYPD budget every year (leaving them with $10 billion) and put that towards climate investments. Experts estimate, for example, that New York needs at least $1 billion/year to help low- to moderate-income households decarbonize their homes.

Think about your city’s budget and all the funds that could be better used. We have the money. Let’s put it to work.

Bag 2: The S&P 500

The 500 largest companies on the stock market are sitting on $1.9 trillion in cash. This is not money invested in new factories or given back to those few lucky enough to be their shareholders. From what I can tell—and I’m no stock market expert—almost $2 trillion just seems to be loitering on their balance sheets, earning a pretty meager return.

$2 trillion is an unfathomably large amount of money. Our brains are not designed to think about numbers that big. Let’s put it in context: it would cost us $5.2 trillion – $6.1 trillion to decarbonize the world’s entire iron & steel sectors. Just think about those enormous mines and furnaces and steels mills and then the galaxies of wind & solar farm’s we’ll need to power them; half of that could be paid for with the cash sitting in 500 corporations’ checking accounts right now. I’m sure there are nuances I’m missing; I’m sure there are reasons why CFOs are reticent to invest their cash in climate solutions. But let’s not pretend like we don’t have the money. That’s not an excuse.

Bag 3: University endowments

The top 10 American university endowments total around $280 billion. Auditors forecast that the collective endowments of the prestigious Ivy League universities could surpass $1 trillion by 2048. They are set up as “charitable non-profits”, meaning they get federal, state, and local tax benefits that you and I probably don’t. Despite their incredible bank accounts, cozy tax status, and generous financial aid policies, they still charge many students tens of thousands of dollars a year: Ivy League students in 2019-2020 paid an average of $22,500 after financial aid.

I am a grateful graduate of one of those institutions, Yale University. Yale provided me a generous partial scholarship to attend graduate school from 2015 to 2017. Five years later, Yale’s endowment has grown to a staggering $42.3 billion—and they never miss an opportunity to ask us alumni for donations. What is all that money for? When will it be enough?

Some simple, silly math to make a point: a 7% annual return on $40 billion is $2.8 billion. Yale has 6,494 undergrads, 8,031 grad students, 5,118 faculty, and 10,534 staff. That’s 30,000 people. Yale could afford to give each of those 30,000 people $93,000 a year just using the $2.8 billion interest accrued, and still keep its $40 billion. America’s biggest offshore wind farm—pretty close to Yale on the North Atlantic coast—will cost $3 billion. Yale could fund one of those magnificent projects entirely on its own every single year and still keep its $40 billion safely tucked away for a rainy day. That is the scale of the money sitting across endowment portfolio managers’ fingertips, while students sit in elegant classrooms drowning in climate anxiety.

Bag 4: Billionaires

There are 2,668 billionaires on earth and their collective wealth is $12.7 trillion. We need $125 trillion of climate investment by 2050; one tenth of that could come from billionaires alone. 2,668 decision-makers. 2,668 decisions to do something extraordinary, the way Patagonia founder Yvon Chouinard just decided to give away his $3 billion fortune to fight climate change, or the way MacKenzie Scott has given away a sensational $12 billion to many worthy causes in just a couple years.

They don’t all need to give away all their wealth. Maybe they all just agree to cap their wealth at $1 billion and give anything on top of that? A billion dollars is more money than someone could spend in five lifetimes, let alone one. If you gave me $1 million I would be pretty chuffed, and my already comfortable life would be even easier. I honestly cannot think what I could spend 1000 x $1 million on or why I’d just hold onto it. The thought of Elon Musk, the world’s richest person, having $250 billion makes my head spin.

The 20^th poorest member of the Forbes rich list, Charles Koch, has $53.4 billion. So, everyone above him could give away $50 billion and each have over $3.4 billion remaining. $50 billion multiplied by 20 is $1 trillion. That’s enough to fund all of Africa’s $190 billion/year climate & energy investments between 2026 and 2030.

Many of these billionaires would tell us not to equate net worth with annual spending, that their businesses already do lots of climate action, and that governments should be solving climate change. Respectfully, I disagree with all of that.

Bag 5: The US military budget

I am so excited about the US passing the Inflation Reduction Act (IRA), which should put $369 billion towards climate investments over 10 years. For context though, the US has spent more than that on its military each year, for the past 20 years. Again, perspective here is crucial: the US government will direct on average $37 billion for climate annually while spending close to $800 billion on its military next year alone. We must examine our priorities.

I have two degrees in international relations; I understand the role of the US military in the world. The US military budget may be the biggest, most controversial money bag of all, because unlike the last three bags we dreamt about, this one gets emptied and refilled every year. Since I moved to America, I’ve come to realize that the US military is a domestic jobs program, providing steady employment to millions of people from all over the country. The US military’s appetite for taxpayers’ money has been insatiable: the defense budget increased 1.08% in 2016, 5.53% in 2017, 7.6% in 2018, and 5.98% in 2019.

The 2023 budget request of $773 billion is a $30.7 billion (4.1%) increase from 2022. Think about what that $30 billion could do instead of building fighter jets. $30 billion could alleviate flood damage in Pakistan, where 32 million people are now displaced, for example. The US has provided $50 million in disaster assistance to Pakistan; that’s million, with an “m”. I wish I lived in a world where that “m” was a “b”.

 

The time has come to redirect these big bags of money by directly engaging with the few people who hold the purse strings. It will need to be done pragmatically, by placating those who must be placated and starting with the lowest hanging fruit. But it must be done. I am tired of being told we don’t have enough money to make the world better. Let us be honest: we don’t have enough will.