Jeremy Grantham, the legendary investor who called the past 2 bubbles, hails venture capital as the best market for the highest returns - and pinpoints where he's buying now

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• Jeremy Grantham, the billionaire cofounder and chief investment strategist of Grantham, Mayo & van Otterloo, has pledged nearly all of his fortune to funding climate-change solutions.
• At a recent conference, he discussed why he considers venture capital as the ideal investment vehicle to profit from sustainable investing.
• Grantham famously predicted the tech and housing bubbles.
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"We expect to be kicking ass."

That's the future that Jeremy Grantham, the cofounder and chief investment strategist at Grantham, Mayo & van Otterloo, sees for his venture-capital investing.

The legendary investor who famously predicted the tech and housing bubbles is now laser-focused on one issue: climate change.

Upon close examination of ESG, it is clear to him that the environmental, social, and governance issues often lumped together are actually quite distinct from each other.

"If you're looking at the data, it should be obvious that this is an existential threat," Grantham recently said of climate change at The Economist's Investing for Impact conference in New York.

He added, "I always hope that not too much of the energies and money will be diverted away from 'e.' It is a matter of life and death. Every ounce of energy, every dollar should go to 'e' and let 's' and 'g' look after itself, I'm afraid."

The billionaire investor has done just that by pledging 98% of his wealth to an environmental foundation that he started with his wife in 1997.

Amid the sustainability gold rush, Grantham sees no investing vehicle better equipped to rise to the occasion than venture capital. The British investor described VC as the "exceptional feature of American capitalism," which is thriving even as the monopolistic and shareholder-focused traits of the broader economic system come under scrutiny.

"I think green VC is a very good candidate for 'best part of the capitalist system with the highest returns,'" Grantham said.

Grantham's foundation is about 60% invested in early-stage venture capital. His plan is to raise that share to 70% "in a few years" and then place half of that pie in green undertakings. The foundation has averaged a 19% compounded return over the last 20 years, he added.

Besides what he describes as the superiority of venture capital, Grantham sees an opportunity for investors to get in on the ground floor of a huge growth industry.

"Don't we all know that the top line of the greening of the economy is going to be much faster-growing than the balance of the economy? Of course we do," Grantham said.

He expects the best electric-car makers to generate more revenues than their combustion engine peers. Wind and solar generators should outpace coal producers. The list of old and new technologies goes on.

In the end, an investor who marries venture capital with sustainable investing combines the best of capitalism with the best of sustainability, in Grantham's view.

That's exactly what he's attempting to do with his foundation. Grantham said his favorite investment is into solid-state lithium ion batteries, and his biggest holding is Quantumscape.

The San Jose-based company, dubbed a Tesla killer, makes batteries that are billed as longer-lasting and faster-charging. Grantham remarked that its product will remove the anxiety of long-distance driving in electric vehicles - and it will not burst into flames.

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