The Exchanges

Q What are some of the ones that have achieved that kind of success?

A A few that you've had on your show. So Vision Ridge is one, and that's a good example of part of what we've tried to create over time. So we had started to invest into a fair amount of renewable power generation, water, agriculture, sustainably managed, and the scale of that activity got so much larger than our balance sheet could manage. And frankly, the specialization as more and more high quality investment firms came into the space, Necessitated that we put more of a dedicated focus on it, and so what we did was we actually contributed our assets, and then the team at Capricorn that had been managing those assets left, and they partnered with Ruben Munger at Vision Ridge, and to their collective credit, they've built just an incredibly high quality investment organization. That's certainly been one really positive

AI assessment note: “Vision Ridge is one, and that's a good example”

Q What are the most important levers that you're thinking about to ensure that the investments you're making have as much of an impact as you'd like to?

A It's a good question. So we benefit from having the full suite of tools. We have folks that do venture capital, but we also have a balance sheet that can absorb lower risk, lower returning asset based investments, and understanding the connectivity between those two things, I think is pretty critical to doing both very well. Our entire portfolio, we look at carbon baselining. So we calculate the emissions of our entire portfolio. And then from there, because we have committed to a net zero goal, we're really looking to decarbonize our portfolio, both through changes in what our underlying companies are doing, changes in asset allocation as needed, and then also doing offsets for any residual amount over the next 10 to 20 years. So as we think about the different levers, so the biggest is the venture side. So we're not going to address climate change and carbon emissions without various forms of innovation in transportation, mobility, power generation, storage. And then importantly, I think in the last few years, an increased recognition of the importance of industrial decarbonization, as well as the built environment. And I think there's a lot of technology innovations going into those areas, but this is ultimately about scale. So you can have all the innovation that you want. If you can't figure out how to mobilize the global capital markets to get those dollars out, you won't…

AI assessment note: “So as we think about the different levers, so the biggest is the venture side.”

Q What are some of the lessons or things that you've learned from doing this over the years that someone who hasn't been as focused on the space hasn't gotten to yet?

A Well, I'll tell you in the seeding activity, because we've learned a lot about that. It's primarily the people involved. So one, I think every investment firm, whether it's impact or not, needs to have a pretty clear true north and identity. And I think where we've had less success than we would have hoped is that things don't go exceedingly well early. People tend to gravitate back towards what's traditional and comfortable. It's always better just to press whatever advantage you think. So be as differentiated as you can. And I think where we've seen firms not make it is they've come back to a traditional model. Two, I think one of the more exciting things about this space and David Blood at Generation had mentioned this to me a long time ago, and it always stuck with me. It was the human capital element. If you create a firm that has a mission and has a big aspiration, the probabilities of you being able to attract really great people is that much higher in a highly efficient market where you have really great people and they have all sorts of options. But one of the things that we learned as we've seen more and more people shift from quote unquote traditional investing to something with an impact is the context matters in the sense that it's hard to take someone that's run a big investment organization and put them into a smaller one. And that's just common sense. I've certa…

AI assessment note: “Well, I'll tell you in the seeding activity, because we've learned a lot”

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A It is obviously the core of the issue, I think, for many that look at this challenge, which is, if you look at global emissions, 40% plus is now coming from China, India, and that will only grow over time. And they are on a growth trajectory, which will necessitate further emissions, absence of massive change. Then we can talk about Indonesia and some of the other large markets, which are also contributing significant emissions. We've tried to figure out different ways, we and others and development institutions, of how do you get more capital into those markets to deal with their power sector and the industrial decarbonization that has to happen. And it's a very difficult challenge, so I can't say that I have a great answer, but one of the things that's come out of the Inflation Reduction Act is a different pathway, which is, I think the consensus prior to the last couple of years was somehow there's going to be this massive Coalition that came together. We're going to figure out some transfer of capital that would enable private sector to be crowded in. I think competition may ultimately be the solution in the sense that the Inflation Reduction Act was really about American manufacturing jobs, energy security, and making America the leader in the energy transition and enabling it, and then leveraging that technology advantage To then have that transferred into the benefit of …

AI assessment note: “It is obviously the core of the issue, I think, for many”

Q When you're bringing in those two areas where clearly there's a mission to reduce carbon, and you also have this economic return, what have you found in comparing the quote unquote good company, so low carbon emissions, to a worse company getting better?

A I think markets are very efficient and reasonably forward-looking. I think in general, we're focused on the companies where maybe not the worst. I think there's a level at which we may not want to be exposed given our focus, but that are ok, but they have a really interesting pathway to being very strong, and I think there's an opportunity to be compensated well for that with a long time horizon. I think one of the challenges that with sustainability or climate It's inherently long-term oriented. I think there's a lot of urgency to take action today, but those financial returns, it's not like a trading operation where you see it so quickly. So I think those things have to be acknowledged. Ultimately, I think markets price in those good actors and they're valued at a certain level. And so they may still compound it at nice rates, but probably the more interesting opportunities are otherwise. Even in the private side where so much Of renewable infrastructure is priced. It's likely below our cost of capital. It may be more appropriate for pension funds or other large pools. And that's our whole goal. We want to take the first risk and then hopefully prove that out. But where we do take risk is in development or community solar or in some of the areas where there's a bit more hair on the situation and you can earn much higher rates of return as you transition an asset that people t…

AI assessment note: “markets price in those good actors... probably the more interesting opportunities are otherwise”

Q What areas of your portfolio are you most excited about today?

A This hasn't yet happened in the energy transition, but I think because of what occurred in the last couple of years in the current environment that we're in, I think there's going to be a very interesting opportunity around distressed investing in clean tech, where you have really good assets, but their capital structure or the way that they were financed makes it more difficult to get further financing, and so I think you're going to see people with those skill sets probably come into the market, and that could be a very good way To move from a growth and momentum oriented market to one that may be more well-capitalized for building out the infrastructure, the manufacturing, and those are skill sets that those type of investors bring to bear. Nature-based solutions, natural climate solutions , I mean, that is very likely. It has to be part of the solution, and I think it will very likely be a burgeoning area, so we're spending a lot of time on the picks and shovels of it. So looking at project finance, but also looking at all of the infrastructure associated with Nature-based solutions. What else is very interesting? I think on the venture side and growth side, I think, again, moving more into industrial decarbonization and thinking about what are the solutions and technologies in these very hard-to-abate sectors that aren't going anywhere, and they're contributing a significa…

AI assessment note: “very interesting opportunity around distressed investing in clean tech”

Q So you've been at this for 20 years. I know you may be at it for the next 20. What's your level of optimism about the challenges we're facing, given what you've seen over the last 20 years and what you can project going forward?

A I think there's broad acceptance of the science, maybe not as much in the US, but certainly on a global basis. And I think broad acceptance on the materiality of climate risk as it relates to global economies. And I think that's resulted in a real acceleration in terms of the level of focus and activity. And I do think, well, it's always controversial when you see these large asset management firms really starting to shift their focus, build large scale products around these issues. That gives me a reasonable amount of optimism. I think in the venture landscape, it's very rare that you run into any venture capital firm these days that doesn't have some sort of focus on climate, and I think that's usually a pretty strong indicator. As I said a few times, I mean, I think ultimately technology and innovation will be core to this. So those are all give me some level of optimism. I mean, in the last 10 years, I think global emissions have only increased a handful of percentage points, and we've still managed to grow global economy Reasonably well. So it can be done. Now we have to do even more, but if I think about the amount of focus on this in 20, 23, relative to 20 13, it's significantly more and the prospects for large scale deployment and also the innovation is probably great. I think the emerging markets, specifically China and India are obviously a challenge. This new framewo…

AI assessment note: “That gives me a reasonable amount of optimism.”

Q What were the different ways that you've participated in that combination of investment dollars and activating the capital over the years?

A So none of us came from an endowment. Stephen George and Yanya Degaraglu, who remains my partner today, came from different backgrounds than you would typically have if you were managing a large institutional pool of capital, and I think that was by design. As we thought about investing the capital, one, we ultimately are oriented towards growing the capital base over time. Also supporting the payout as needed for Jeff Skoll and the Skoll Foundation and the other families and foundations we manage money for, but to do that in a highly diversified manner. And so we started investing across asset classes. And I think as we evolved, we had a grounding in innovation and entrepreneurship. As we thought about impact and innovation and specifically climate, I think it was pretty clear to us early on that technology and breakthroughs around entrepreneurship would be pretty critical to addressing the climate challenge. So we started there and Jan led an investment in Tesla. And as you can imagine, that then started to open up a network connectivity to different types of companies. But importantly, it wasn't just in venture. It was then in how do you actually deploy some of these technologies at scale? So I think we've always benefited from the breadth of Of the portfolio. So everything from early stage venture to real assets and deployment of capital into the real economy, if you will, …

AI assessment note: “everything from early stage venture to real assets and deployment of capital”

Q How is the diligence in one of these newer managers different? Not just because they're an early stage manager, but because you have this particular axe for this space, and there may not be as many players.

A Impact and climate investing has evolved over time. You know, Ruben Munger, for example, had a long career at Baupost. He was not a new investor by any means, but we were trying to create something new, and he was applying a skill set that he had developed at Baupost, and then subsequently with his own capital to this emerging area. So you're not starting from scratch in terms of the mental models that they use to underwrite Very rarely are we dealing with a true emerging manager, if you will. More often than not, I think what's really exciting about what's happening in the world today is you have people with really strong technical skills and investment experience, and they're making a decision to apply those skills to climate investing, and so there's a lot to work with, I would say, in terms of the diligence. Of course, with any emerging Firm, whether that's impact oriented or not, you're not going to have the same level of data or information in terms of how they operate with sequential and linear information. But you do have a mosaic around all of the different things that they've done over time. You have the ability to develop relationships with them in a way that's, I think, fundamentally different and superior to that which you could develop with an established firm. And so we leverage all of that. And we also try to Make our involvement to the extent we can about more …

AI assessment note: “you don't have the same level of data... But you do have a mosaic”

Q And how did you go about tackling that investment challenge?

A When we started the firm, the general consensus was endowment capital should be entirely distinct from the mission of an institution. Over time, firms like Generation proved out or illustrated that you could introduce and integrate sustainability and these broader frameworks into an investment process, and it could be additive to risk adjusted returns. At the same time, you had a number of foundations that were looking at carve outs Or using a specific sleeve of their foundation capital to look at opportunities in and around impact or climate. And I think what's exciting about where we are today is there's broad recognition that an issue like climate is both a systemic risk and opportunity in terms of long-term financial returns. There's also a broad recognition that has applicability across a diversified portfolio for an asset owner. So it's not just one sleeve or one part of a portfolio. It has applicability across all asset classes, the entire risk spectrum. So private, public, equity, credit. And therefore, it's just much more relevant to think about it holistically in a portfolio. And I think from an asset owner's standpoint, what we're seeing is that more and more, they're also realizing That they have this endowment capital, and it can be a very powerful mechanism to amplify and support whatever their mission is. So they're much more open to using that balance sheet in a…

AI assessment note: “We ultimately gravitated to a model that had very similar characteristics to the endowment model”

Q take the example of Indonesia, one of many countries that will look to grow, and historically, there's been a tremendous amount of dirty energy emitted in that process. How do you think about a country that had less stable regimes than others needing to have infrastructure in place so that down the road, whatever it is that's fueling their growth can contribute to what we're trying to get to globally?

A The climate problem is not just an environmental problem. It's a social challenge, too, and the impact of climate change will be felt disproportionately by the most vulnerable and poorest countries, so I don't think it's fair to entirely relieve those countries of some obligation, because they are ultimately going to absorb a significant amount of the cost, and development institutions are working on these issues around how do you create different pools and concessionary, first loss, insurance vehicles, and There's a lot going on, but the scale of the challenge is so great that as of now, we haven't made nearly as much progress as one would have hoped. Just come back to there is no path around addressing climate change without the innovation and technology and breakthroughs flywheel working hand in hand with deployment. So it is ultimately about a lot of what I think is happening in Palo Alto and Silicon Valley. And then finding different avenues to get that actually implemented in some of these emerging markets.

AI assessment note: “finding different avenues to get that actually implemented in some of these emerging markets.”

Q What were some of the early mistakes you made?

A I think every investment organization needs to have a reasonably clear identity. And I think it's okay for an investment organization to acknowledge whatever mental models they have. Everyone has biases and areas where they've made money and areas maybe where they haven't. And I think early on, we probably weren't as aggressive in going more strongly towards climate and impact and maybe keeping a leg in some of the more traditional segments of the economy. We developed, I think, competitive advantages and networks that made us stronger and more able to compete and likely earn higher rates of return in these areas where, frankly, fewer people were active. But like all investment organizations, you don't want to deviate too far from everyone else. And so I think what we learned over time is that you continue to focus and devote resources into areas where you can develop competitive advantages and And that more than compensates you for maybe not covering the full market.

AI assessment note: “we probably weren't as aggressive in going more strongly towards climate and impact”