Confidence Counts...

why climate software companies should have confidence in an uncertain market

The second half of 2022 and the first few weeks of 2023 have been dominated by talks of a recession and its severity. If I never hear or read the term “soft-landing” again, I’d be okay with it.

Most of the conversation centers around metrics that measure inflation like CPI, wage growth, unemployment, and interest rates.

These metrics are much more than quantitative measures. When taken together, they measure the confidence (or vibes as

kyla scanlon

would put it) of the economy.

In The Psychology of Human Misjudgment, Charlie Munger addresses the importance of recognizing patterns to determine how humans behave, both rationally and irrationally. 3 of them play outsized roles in today’s market:

1. Doubt-Avoidance Tendency - we all hate doubt and will do everything we can to avoid it including coming to conclusions too quickly.

2. Inconsistency-Avoidance Tendency - we all hate inconsistency and this market is full of volatility.

3. Deprival-Superreaction Tendency - we value and are afraid of losing things that are held closely more than those we don’t. There’s been a lot of value lost in the last 13 months.

All three of these add up to a fourth human truth - we’re much more afraid of being wrong than we value being right. We hate looking like fools.

Consequently, we’re now in a market that lacks confidence. There’s doubt in future earnings, inconsistency in market prices and across industries, and a lot of investors have lost value across their portfolios.

But, there’s good news if you’re a climate software company in this market.

1. There’s a lot of confidence in the long-term viability of sustainability as a key driver of the new economy. No more doubt.

2. There’s at least a decade of consistency in US energy policy ahead thanks to the IRA. We’ve now kicked off a global game of one-upmanship in progressive energy policy. No more inconsistency.

3. There’s a real chance that businesses not investing in ESG or digitization look like fools by 2030.

A lot of industries and companies would love this type of momentum and conviction right now.

Of course, uncertainty remains, but if you’re building a company that’s tied to sustainability or helping our world’s most important companies move into an era where ESG and digitization matter more than ever, there’s reason to be confident.