To solve the climate crisis, clean-tech VCs need a seat at the table

Words By
Jason Cahill
October 14, 2019

We’ve only seen the tip of the iceberg (pun intended) on private sector momentum towards transitioning to a clean energy economy.

Consider this: during Climate Week, 130 banks holding $47 trillion in assets under management committed to “strategically align their business with the goals of the Paris Agreement on Climate Change … and massively scale up their contribution to the achievement of both”.

That’s one-third of the global banking sector that just said they would step it up on climate.

Why? For one, Morningstar research from earlier this year found 72% of the U.S. population is interested in investing in environmental, social and governance funds. Perhaps even more importantly, we are living in a hyper transparent era where customers, employees and shareholders are demanding more accountability — and more transparency on where their money goes — than ever before.

The current attempts to meet these customers’ demands have primarily focused on “low carbon” financial product offerings that — when one looks at the fine print — are overwhelmingly made up of Fortune 500 companies whose nascent sustainability initiatives pale in comparison to their carbon emissions.

These offerings are not enough to satisfy the next generation of climate conscious consumers, or to deliver on emissions reduction promises. Getting there will instead require the global banking sector to keep each and every option on the table. And one of these options — early stage, clean tech venture capital — should get priority seating.

Yes, clean tech venture and all VC investments by nature carry higher risk. But the risk of inaction (losing customers who clearly want clean innovation options and failing to deliver on climate goals) is greater than the risk of venture.

Furthermore, that risk is minimized by the growing plethora of evidence that clean tech is profitable. The UN Finance Initiative, which facilitated the global banking industry commitment and the corresponding Principles for Responsible Banking, suggested that a step-change in investment could translate to $12 trillion a year in savings for the banking and finance sectors.

Take Proterra, for example: as the market leader in zero-emission electric buses valued at $1 billion, it is both scaling customers (as varied as NY’s MTA, the National Park Service, and real estate giant JLL) and performing a tremendous environmental mission to take dirty, polluting buses off of the roads.

Or Flexport, the $3.2 billion market leader in unified global logistics, which is driving down massive inefficiencies. In turn, and at scale, these efficiencies equal more loaded trucks, ships, and planes. This equals fewer trips with empty cargo on underutilized assets.

And take a look at Smarter Sorting, which just raised $17 million in series A funding. The company minimizes chemicals waste in retail operations. Whether due to damage or lack of demand, these chemicals are otherwise incinerated or end up in landfills — either way, contributing to climate change. Smarter Sorting’s platform handles compliance and operations, and enables retailers to maximize value of waste assets, find end markets for goods and avoid environmentally damaging outcomes.

In the end, there is no silver bullet for addressing the climate crisis. But if institutional investors start putting support behind venture capitalists, investing in smaller-sized funds that focus on finding “the next big thing”, in clean-tech there would be big gains for the planet and for returns.