October 10, 2022 | By Romain Lenoir, Associate at BGV
Global warming and climate change are two of the most significant challenges of our time.
Every sector of the global economy will be affected by a warming planet and the consequences may be irreversible. The causes and consequences are also interconnected, which makes the issue even more complicated.
As investors, we have a responsibility to promote technological innovations that combat climate change and contribute to a healthier planet.
The issue has also motivated venture capitalists to take a closer look at how a changing climate might affect their firm’s bottom line.
More generally, the focus on Environment, Social and Governance (ESG) investing has grown rapidly over the last five years, and will constitute one-third of all global assets by 2025, according to Bloomberg Intelligence.
At BGV, we strongly weigh ESG considerations when investing in portfolio companies.
Thus, BGV is committed to supporting companies with a strong social conscience. In fact, according to the National Venture Capital Association (NVCA), our firm outperforms our venture fund peers in partnering with companies with strong commitments to diversity, equity, and inclusion.
BGV is also a leader in ensuring that companies adopt ethical practices when building products that employ artificial intelligence (AI). As part of that effort, we co-founded the Ethical AI Governance Group (EAIGG).
Environment. Social responsibility. Ethics. All are important, but in this article I’d like to focus on how BGV as a firm is defined by its commitment to the environment.
Climate Tech
To date, we have made several climate tech investments, three of which I will briefly describe here.
Everest Labs: Founded in 2018, the company’s mission is to dramatically reduce greenhouse gasses by recovering more recyclables for manufacturing. Everest accomplishes this through best-in-class AI and automation solutions that result in a 50-70% decrease of recyclables leakage to landfills. Everest also lowers operating expenses costs for its customers and supports the global economy by providing actionable data to consumer packaged-goods companies.
AiDash: Founded in 2019, AiDash is a leading satellite analytics company. AiDash uses high-resolution multispectral satellite imagery coupled with AI to transform operations and maintenance (O&M) activities like vegetation management, remote monitoring, and disaster management for global utility and energy customers.
Net Zero: In a recent article, we introduced our investment in NetZero, a climate tech incubator led by BGV Partner Barak Ben-Avinoam. The incubator will invest in energy tech and climate tech technologies.
Climate tech challenges are pervasive, as rising temperatures and carbon emissions will have major effects on environmental, social and economic systems around the globe. The process of deep decarbonization therefore requires a dramatic transformation of many of the largest industries and a total recalibration of business interests versus responsible governance.
Our investment appetite
Climate tech is a large sector that includes a number of industries (energy, transportation, heavy industries, food and agriculture, finance and more) and a number of different technologies (hardware, software, biotech, etc).
We see three main challenges for the climate:
- Measure, optimize and reduce greenhouse gas (GHG) emissions.
- Develop or protect GHG removal and transformation technologies
- Adapt to the effects of rising global temperatures on the economy.
The sub sectors that can be tackled by software are outlined in the chart below :
Challenge 1: Measure, optimize and reduce GHG emissions
For individuals, companies, and governments, the first and primary challenge is to reduce GHG emissions. There are several sectors and companies that we believe will play a key role in that process.
GHG Intelligence:
Decarbonization efforts begin by measuring “carbon equivalent” emissions throughout the supply chain. Supported by regulations that encourage monitoring, there are a number of companies that specialize in helping organizations account for their Scope One, Scope Two and Scope Three carbon emissions – in other words, greenhouse gas produced by the entity’s operations as well as the emissions indirectly produced throughout its value chain, either downstream or upstream.
These companies – like Sweep, Greenly, and Watershed – also help organizations craft a carbon reduction program.
Similarly, companies like Carbonfact and Carbonchain have developed products to accurately measure carbon data at the product and commodity levels with industry-specific verticalization.
We are always interested in connecting with entrepreneurs and businesses working on this challenge.
Resource Efficiency:
Optimizing and reducing emissions starts with efficiencies in processes, whether that’s using fewer resources, maximizing life cycles, or better managing and handling waste.
It can also mean helping brands build new circular economy models (Lizee), enhancing waste to energy cycles (Everest Labs), avoiding food loss, or unlocking precision agriculture.
For example, sustainable agriculture practices can increase yield, preserve water resources, protect soil, improve biodiversity, and benefit the environment. As well, technology can help accelerate the transition to regenerative and sustainable agriculture.
With the expansion of the voluntary carbon market, farmers may have additional incentives to implement these practices, and we can only encourage that process.
Energy Efficiency and Clean-Energy-Enabling Tech:
Most greenhouse gas emissions are produced in the energy sector: heating and cooling our homes, driving to work, and powering our EVs and iPhones with electricity.
However, the energy sector faces significant challenges in decarbonizing its value chain – from production, storage, distribution, and consumption of energy. As the decentralized sustainable energy value chain becomes important, we see grid resiliency, long duration electricity storage, and hydrogen transportation as big challenges going forward.
One specific area of interest in this sector is software that enables efficiency in production, storage, and distribution of energy. Another is software that assists industries to transition to a cleaner energy solution.
Challenge 2: Develop GHG removal and transformation technologies
Removing GHG from the atmosphere is the second big challenge to achieving Net Zero carbon emissions.
That process can include several different steps: capturing and storing the GHG, changing its state, and transforming it into other elements.
There are a range of technological or natural solutions (or a combination of both) addressing this challenge, each of which comes with different prices, processes, volumes, and risks.
Companies in this sector include Charm Industrial, which transforms farm and forest biomass residues into bio-oil and then injects it deep underground for permanent storage; Climeworks, which has invented a process to remove legacy CO2 from the air and place it back in the ground; and Dioxycle, a company that employs electrochemical carbon dioxide conversion to transform CO2 into chemical assets.
At BGV, we are closely following companies that are enabling these markets to emerge. Nature-based solutions include Sylvera, Wildsense, and Pachama.
Carbon Finance and Impact investing
In addition, we are looking at platforms that monitor upcoming ESG regulations and advise investors and companies on sustainable decisions.
Companies in this category include Atlas Metrics, Sustainsoft, Metric-ESG,
Challenge 3: Adapt to the impact of a 2-degrees-celsius rise in global temperatures
There is a widespread fear that if nations do not commit to environmental safeguards, the temperature of the planet will rise by 2 degrees celsius in the next 30 to 70 years.
Scientists don’t know for sure, but scenarios do exist in which the global temperature might rise by as much as 5-degrees celsius, a circumstance that would cause more heatwaves, shrink freshwater supplies, and lead to a decline in crop yields.
Temperature increases of this magnitude would also pose indirect risks, like disruptions to the world economy and political instability.
The transition to a greener economy also poses its own dangers, as nations shift away from traditional industries toward a more sustainable future.
For this challenge, like the previous two, there are a number of enterprises already gaming out the risks to our planet.
Earth intelligence
Despite progress in measuring and mitigating GHG emissions, the climate science community still lacks precise observational tools and models to accurately forecast Earth’s climate systems.
We are looking at companies that combine new data sets – produced from new satellites and drones, IoT devices, and imagery – with AI and physics models to measure Earth’s behavior and predict how it is changing with a rise in temperature. Companies in this sector include Precursor, Jupiter, and Planet.
Climate risk modeling and analytics
There are also solutions that model physical and indirect risks due to these Earth and climate-induced behaviors, predict their impact, and provide recommendations. AiDash, Climate X, Cervest, and One Concern all operate in this area.
Climate insurtech
If the expected changes in temperature manifest, companies and individuals will seek solutions to protect their assets, and insure themselves against these measured risks. We believe that insurance companies and Insurtechs like Descartes Underwriting, Kettle and Archipelago will have a role in incentivizing good climate behavior.
Monitoring supply chains
Reforming our global supply chain is vital to reaching the Net Zero goal. Climate change will have a direct effect on the ability of industries to ship raw materials and commodities – for instance batteries, microprocessors, cereals, fuel, and steel. In turn, supply chain problems will lead to inflation, as we see today.
Currently, global supply chains are complex and vulnerable. They are not resilient, transparent or sustainable. As climate-induced risks emerge, supply chains will need to operate in a new environment, one that is not only designed for efficiency and cost optimization, but one that is good for the planet.
We will need more companies like Circulor or Transparency-One that are already providing insights, visibility, and transparency within these complex supply chain systems.
CONCLUSION
We see investing in responsible companies as part of our mission and are glad that many of our peers share the same goal.
We are also heartened by the energy and enthusiasm coming from a new generation of entrepreneurs who want to address these challenges. As a fund, we are committed to facilitating their success.
If you are a founder with a climate tech startup in any of the areas outlined above, we want to hear from you!
Let’s connect: [email protected]
