Written by Katharine Hawthorne, CRB Student Advisory Board member and MBA ’20 candidate
In September, the UN PRI in Person Conference took place in San Francisco, CA at the peak of the Global Climate Action Summit. One of the concluding events, the PRI Finance Roundup, attracted a unique blend of investors, policymakers, and cleantech entrepreneurs, illustrating the necessary overlap between these approaches as well as the gaps between them.
Rachel Kyte, CEO of Sustainable Energy for All and Special Representative of the UN Secretary-General kicked off the event as the first keynote. Kyte challenged those present to consider whether the finance sector is conservative or if it might lead through the clean energy transition. Introducing a theme that echoed throughout the afternoon, Kyte argued that renewable technologies exist but policy and investment have yet to connect with existing innovations to truly bring adoption to scale. She advocated for a “business as unusual” response to create energy systems that serve everybody and leave no one behind.
The first panel focused on institutional investors but also included government and policy perspectives from Hawaii and New York. Governor David Ige of Hawaii shared that his state was the first to embrace the Paris Agreement and create a policy framework to move towards 100% renewable electric energy. The state has struggled with increasingly extreme weather and in particular erosion of its signature beaches, which has lead to complicated policy considerations about the state’s role in protecting public and private property against climate related damages.
Richard Kauffman, Chairman of Energy and Finance from the Office of the Governor of New York, emphasized the state’s entrance into the climate finance market by pursuing opportunities in areas that have attractive financial opportunities today. The state has funded a Green Bank (technically a specialized finance company) that fills gaps in the market by funding small projects with long time frames, that might be considered “sub-investment grade” by conventional markets.
Sylvain Vanston of AXA Group offered a contrasting perspective to others on the panel, relating the challenges of implementing a climate finance strategy from the perspective of an institutional investor and insurance provider. Although a leader in this space, AXA’s climate change strategy has resulted in financial losses and conceding opportunities to competitors. At the time of divestment, AXA’s fossil fuel investments were not yet considered stranded assets, and pulling out of commercial insurance coverage for companies has cost AXA approximately €10 million.
In the questions following the first panel, Praveen Sahay, Founder and Managing Director of Wave Equity Partners, asked the panelists where they see the role of innovation beyond solar and wind. Mark Fulton, the Chair of Quinbrook Infrastructure Partners Advisory Board argued that economies need big levers pulled, such as policy, before capital will flow to support innovation. He predicted the announcement of forceful new policies in 2025 and implementation to follow in 2030, working towards what he described as a “just transition” in which the the social and economic dimensions affecting workers and communities are considered while moving towards a green economy.
Sahay’s prompt presaged the second panel which included early-stage investors as well as three entrepreneurs pioneering climate change solutions: Shara Ticku, the CEO of C16, a lab-grown palm oil producer; Joe Zhou, the CEO of Quidnet, an energy storage firm creating long duration grid capacity; and Ugwem Eneyo, the CEO of Solstice Energy Solutions, a distributed energy solution for emerging markets.
The entrepreneurs emphasized the importance of non-dilutive capital such as grants and prize money early in their life cycle to de-risk and develop an understanding of the market opportunity. Investors want key risks off the table, but without start-up capital it is impossible to demonstrate a product to a potential investor. Later on, they focused on diversifying their investors and looked to join forces with unlikely partners, for example with traditional utility companies.
The investors offered advice to the entrepreneurs. Christine Harada from (i)x Investments emphasized the value of “superior unsubsidized economics.” She admitted that scaling the economics in alignment with a company’s values and ESG principles can be a challenge. Matthew Nordan of the PRIME Coalition described the two essential qualities of entrepreneurs as “breakthroughs” and “badassery.” He noted that the last two big energy breakthroughs occurred under vastly different conditions than those prevailing today: nuclear power grew out of the government funded Manhattan project, and solar power emerged from corporate R&D at Bell Labs. Today we lack both the government and monopolistic corporate research funding that made these innovations possible. Instead, we look to entrepreneurs and start-up innovators, and thus early-stage investment has a big part to play in identifying and scaling the energy solutions of tomorrow.
The PRI Finance Roundup brought together an ecosystem of perspectives, showing clear synergies, for instance between innovation and early-stage capital, while also elucidating gaps, such as where policy is needed to further incentivize and de-risk investment. The takeaway: the complex impacts of climate change require a “business as unusual” approach to drive change toward a socially just and environmentally sustainable economy.
About the Author
Katharine Hawthorne is a Berkeley Haas MBA ‘20 candidate focusing on sustainable finance and impact investing. Previously she developed a racial equity investing strategy for Tiedemann Advisors and worked as a financial manager for global health programs at UCSF. Katharine holds a B.S. in physics from Stanford University and is passionate about the intersection of science, finance, and sustainable development.