In a contributor opinion for Conviction, Founding Partner of Climate VC Peet Denny outlines 7 considerations for investing in positive climate impact. As a serial founder of successful tech startups, Peet is now fully focused on the fight against climate change. Climate VC’s recently announced first fund to invest in UK-based startups will target 100-120 investments in three years.
Climate VC aims for at least ten to become full scale enterprises that each remove 10 megatonnes of CO2 emissions per year for a decade, cumulatively creating a gigatonne impact on the climate change mission by the mid-2030s.
The climate crisis is the greatest threat mankind has ever faced, but also the greatest opportunity to reshape our civilisation. And it’s no big secret that where we invest our money has hitherto ignored impact on climate change in favour of quick-win financial returns. We need to switch up a mentality where selective environmental, social and governance (ESG) investing is used as corporate window-dressing and lead with ‘impact first’ investments that deliver wider rewards in addition to financial ones.
Every inch of the global economy is going to need to change to halve global emissions by 2030 and reach Net Zero by 2050. There are technologies and solutions out there to solve the climate crisis, but they need investment to scale and they need it now. If you’re keen to follow your internal moral compass when investing your money, but don’t know where to begin, there are seven key things you should be thinking about when investing for climate impact.
“We need to switch up a mentality where selective ESG investing is used as corporate window-dressing and lead with ‘impact first’ investments that deliver wider rewards in addition to financial ones.”
#1 Start with the science
We believe that good investing has to start with the science of climate change: What are the causes and what are the known solutions? You have to focus on those verticals and invest in businesses accordingly. For example, we know agriculture is one of the largest contributors to climate change, so investing in an agroforestry business like Tierra Foods - which is scaling the production of forest-grown carbon-negative ingredients and reforesting degraded land in Mexico and Guatemala - delivers impact against a known challenge.
#2 Find the talent
The team behind the idea is one of the most important things. Furthermore, what you learn from basic portfolio theory is that diversity is king. And if you listen to a founder talk for five minutes about a problem - you will discover whether or not they have the drive and passion to solve that problem. You also need to be looking for innovators that otherwise wouldn’t get to play - ventures from founders who maybe have been overlooked previously or who don’t have the networks themselves to find the funding.
“We believe that good investing has to start with the science of climate change: What are the causes and what are the known solutions?”
#3 Choose wisely
You’re looking for game-changing solutions and ventures that accelerate deployment into the real world. By investing now, what will that funding be able to do in the future? Surround yourself with knowledgeable people - listen to experts.
#4 Tie impact to profit
Impact has to be inherently tied to profit. The startups that most excite me are those for whom generating revenue means dramatically reducing carbon from being emitted in their sector. One of our first investments, Treeconomy is a brilliant example of this. It connects rural landowners directly to the global carbon offset market, shrinking the carbon supply chain and providing them with a new source of income from trees. It packages and sells carbon offsets on behalf of landowners undertaking afforestation, providing them with a sustainable income stream and meeting larger companies’ growing demand for high-quality offsets.
“You’re looking for game-changing solutions and ventures that accelerate deployment into the real world... Surround yourself with knowledgeable people - listen to experts.”
#5 Go big
Look at markets with the greatest potential for cutting emissions. If you were to look through the book of climate change solutions, you’d see things like energy solutions - marine wind farms and solar panels. But what I didn’t expect to learn is that the steel industry is a huge emitter of carbon. The amount of CO2 emissions from steel manufacturing is almost double the amount of steel created: 1.85 tonnes of carbon per 1 tonne of steel. If steel were a nation, it would be the 5th largest producer of carbon emissions in the world.
Deep Meta, one of our first investments, has created algorithms that monitor steel mills and predict defects early on, preventing waste and reducing the carbon intensity of steel production. This optimises production efficiency and directly reduces the amount of CO2 produced by minimising rework, ultimately making the steel produced greener and freeing up energy on mills for other activities.
#6 Seek co-benefits
Look for startups that contribute to other Sustainable Development Goals. One of Climate VC’s initial investments Offgrid.Finance is accelerating the deployment of clean technology through green lending to cleantech SMEs in Kenya, South Africa, India and beyond. Not only does it connect green entrepreneurs in emerging markets with finance, but the knock-on impact of their success could also directly contribute to multiple SDGs: SDG7 Affordable and Clean Energy, SDG8 Decent Work and Economic Growth, SDG9 Industry, Innovation and Infrastructure, SDG12 Climate Action and SDG17 Building partnerships. It’s a surefire way to ensure you’re maximising impact.
“Not only does Offgrid.Finance connect green entrepreneurs in emerging markets with finance, but the knock-on impact of their success could also directly contribute to multiple Sustainable Development Goals.”
#7 Watch out for green- and impact-washing
Investigate how the ventures you are considering investing in are tracking their progress. Are they setting actionable goals? Producing verifiable reports? Looking out for green- and impact-washing is very much an open research question at the moment but encouraging and requiring ventures to be open and honest about tracking their progress is the first step. You also need to consider whether an investment could have a negative impact.
Hypothetically, you could invest in a company that switches us all to electric vehicles today, but what happens to the lithium-ion batteries when they come to the end of their lives? On the surface, it’s a good thing, but the impact may not be wholly positive - so are we better investing in a business that can help solve the problem of the batteries to make them lighter, more efficient and longer-lasting, or perhaps we would we be better investing in companies that reduce the overall number of vehicles needed on the road.
“Investigate how the ventures you are considering investing in are tracking their progress. Are they setting actionable goals? Producing verifiable reports?”
Even by reading this article you’ve taken the first step of intention. The real challenge starts when you’re putting this into action. Investing, particularly in start-ups is inherently risky - venture capital is about taking risk. Perhaps counterintuitively though, the VC sector is too risk-averse, particularly when it comes to the net-zero founders who have the ideas and technologies to save the planet. You have to look at the climate potential of a business should it succeed, not just the risk of failure that all startups face, because ultimately the greatest risk for us all is not addressing the climate emergency.
“You have to look at the climate potential of a business should it succeed, not just the risk of failure that all start-ups face, because ultimately the greatest risk for us all is not addressing the climate emergency.”
Peet Denny, Founding Partner of Climate VC
Peet Denny is the Founding Partner of Climate VC. He was previously CTO and CPO at Wealth Wizards, as well as founder of move thirty-seven and Brum.AI. He is a visiting fellow at Aston University’s School of Engineering and Applied Sciences. In 2019, he quit his successful career in tech startups to devote the rest of his life to fighting the climate emergency.
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