Every year for the past seven years, Generation Investment Management, the sustainability-focused public and private equity firm co-founded by former U.S. vice president Al Gore, has published a sustainability trends report that aims to become as much a bible to the climate tech industry as Mary Meeker’s famous “internet trends” reports were to so-called dot.com entrepreneurs.
Reading the latest report, it seems conceivable that it will reach its objectives. This year’s survey moves fluidly from transportation to plastics to buildings to land and food, while presenting a clear-eyed view of the vast progress that has been made — and the roadblocks that continue to slow down advancements and sometimes stymie public policies.
The report also raises deserving questions, including about much-hyped hydrogen (and how much of it society will be willing to produce or how large the market will be(, and whether rising demand for electric vehicles can be met, given that each EV requires far more metals for its battery.
To discuss the good, the bad and the ugly, this editor talked yesterday with Gore and Lila Preston, who joined Generation in 2004 and is co-head of the firm’s growth equity strategy. Our conversation below has been edited for length; we’ll have the full interview for you in podcast form later this week.
TC: I dread looking at reports, but I thoroughly enjoyed yours. I didn’t realize the greenhouse implications of producing dark chocolate fall right behind beef consumption. I wasn’t aware of the number of places in the world that are turning to congestion charging. Who are you trying to educate here and toward what end?
AG: We’ve done this for seven years now and with each of these reports, we try our best to give the most accurate picture of where this sustainability transition is, how far we’ve come, what our momentum is, how far we still have to go, what the milestones are, what the successes are, what the remaining challenges are . . . The last year proved that we have finally mustered the political will to take significant steps forward in the global efforts to solve the climate crisis. The new ambition in the U.S., the EU, Australia and Brazil has kicked off a global race to the top for climate policy. But we are still far from the finish line. We have a lot more to do because society has still not committed itself fully to writing the laws, mobilizing the capital, revising the long-standing practices and building the clean machinery and technology needed at the pace required. That is, in our view, the state of play.
You quickly cover a lot of ground in the report, from plastics to transportation. What do you find to be the most vexing problem of our age?
AG: As tempting as it is to just pick out one factor and highlight it as the main challenge we face, I’m gonna resist answering your question that way. We still have to cross the threshold of decision making on a collective global scale. We’re getting very close; as others have written, it seems like Mother Nature is staging an intervention. And we have these powerful tailwinds with the cost-reduction curves for wind and solar and batteries and EVs and LEDs and clean buildings and sustainable forestry and regenerative agriculture.
But governments around the world are still subsidizing fossil fuels at a rate that is 42 times larger than renewables . . . [In addition], almost 80% of all of the financing for this astounding buildout of solar and wind has come from private capital, [while] developing countries have been walled off from fair access to it because there are extra layers of political risk, rule-of-law risk, corruption risk, of currency risk, offtake risk — you can go down the list. So getting more access to private capital for the developing countries is essential, [as is] reducing the absurd continuing subsidies of the destruction of humanity’s future by governments and finding ways to mitigate the unhealthy degree of control over policymaking that the fossil fuel industry has captured in too many countries.
Generation closed a $1.7 billion fund last year. What are you funding and how do you prioritize what you’re going to be backing? I’m starting to see more startups focused on feeding cows seaweed, for example, to reduce their methane emissions. There are so many opportunities to chase.
LP: We have 18 years of experience in navigating these transitions and thinking about how sustainability shapes a broad set of sectors. Agriculture and food is one where I’ve spent many years looking at the trends and sustainability disruptions. Then we have a real focus on planetary health but also people health and financial inclusion, so taking a system-positive investing approach.
In the food and agriculture sector, there have been many waves of technology disruption. It is very difficult to get channel and scale to market. So one of the places that we’ve spent a lot of time, dating back to our first fund in 2008, is the role of biology and biologicals and displacing chemistry, including synthetic nitrogen, in crops. We’ve also focused on software that drives transparency in the generation and documentation of regenerative agriculture and carbon credits, on innovations in animal husbandry and the better treatment of animals, [and] displacing the need for the animal ecosystem and driving toward alternative proteins — so decoupling food production from land intensity. Importantly for us is: How do you marry [these] sustainability trends with a scalable, sustainable and profitable business and absolutely drive impact by being large and a significant contributor?
In terms of scaling, one area that had investors very excited and that turned out to be somewhat of a dead end for them is synthetic biology to replace petrochemicals. A Bay Area outfit, Zymergen, aimed to create more environmentally friendly materials for industrial applications, but they underestimated the difficulty of developing products. Gingko Bioworks, the company that acquired Zymergen a year ago, is meanwhile trading at $2 per share.
LP: It’s really difficult to scale innovative, disruptive companies, irrespective of the sector in climate. The benefits of having been through that first wave is that you learned how to focus on unit economics on a growth model that doesn’t require massive capital intensity [and] on management teams that have done this before [and are] fit for the scale up of a new technology. All those learnings have led us toward being focused on business quality within each of these sector roadmaps.
Vice President Gore, you talked about the need for more funding, a point that’s also underscored in this new report. What are your thoughts about turning to oil-producing areas like Saudi Arabia for funding? U.S. firms have been doing business in the region forever, but there’s been an interesting transition over the last six to maybe 12 months where they’re doing it much more openly, including blue chip brands like Andreessen Horowitz.
AG: Well, first of all, we’re not a venture firm, but I just want to toss a bouquet to the VC community, because I don’t think they have gotten the credit they deserve for having seeded the development of most of these technologies that are now providing a powerful tailwind for the world’s efforts to solve the climate crisis, including solar and wind and batteries and the other EVs. Not all of them made money. Many of them made money but made less than they had hoped. But they made a tremendous contribution to the world’s effort to solve this crisis and not everything of value has a price tag on it, and I just hope that they feel good about what they have done.
As for taking money from the petro states, we don’t, and my own view is that the fossil fuel industry has portrayed itself as the source of advice the world needs to solve the climate crisis and have tried to give the impression that they’re on [everyone’s] side in the effort to solve it. They’re not, really. A few might be, but by and large, their purpose in this debate has been to slow the progress, block the progress, defeat any and every measure that might reduce the production and burning of fossil fuel by a single barrel, a single ton of coal, a single [unit] of methane. If you look at all of their so-called solutions, they all have one thing in common: They all assume the continued increase in the production and burning of fossil fuels. And some of the largest companies have used outright fraud for decades to intentionally confuse the public discussion and to slow progress. That sounds a little harsh, but that’s the reality and it’s still going on. Some of them are financing efforts to indoctrinate children in public elementary schools with completely false notions about the climate crisis! What is it all about? I mean, seriously. My own view is that you take money from the biggest polluters who are the biggest causes of the problem at your peril.
In a world in which the government is paralyzed by political infighting — Speaker McCarthy’s decision this week to pursue impeachment against Joe Biden is a case in point — how do you persuade politicians to take the environment more seriously?
AG: A study just last week showed that an overwhelming super majority of young Republicans are aghast at the positions on climate taken by the current leaders of their party. I do think it’s only a matter of time before that generational shift has a big impact.