The Exchanges

Q Can you explain to us really quickly what force majeure is, just like in a really basic sense?

A So, force majeure is a clause in contract law that lets a party pause, or in some cases, completely get out of contractual obligations in the face of extraordinary events, so-called acts of God. Um, invoking force majeure in sovereign investment agreements would be without modern precedent. So, that's why it's a really big deal, even though for some reason, not that many people are talking about it. Uh, I do want to note that over the decades, Gulf sovereign wealth funds have seen Massive oil price collapses, various regional conflicts, the 2008 financial crisis, COVID, and none of those things prompted anyone to talk about force majeure reviews on any of their investment commitments. So the fact that they're seemingly seriously exploring this and then also letting the world know that they're exploring this is extremely meaningful. And so we're not talking about Um, our, like, factory got bombed, so we can't make widgets anymore. We're talking about, uh, we committed all this capital, and we actually think that we may not be able to make any of those commitments, at least during the time that this is, uh, this conflict is happening. Um, so that is a pretty huge deal, because, um, Gulf capital is huge, right? Like, we talked about before how capital has Become increasingly global. Well, the Gulf economies have been, um, amongst the most forward thinking in that kind of global di…

AI assessment note: “force majeure is a clause in contract law that lets a party pause”

Q a lot of growth stage and equity funding. We've also talked about how Exits are not exactly a thing to be had highly lucratively within the climate sector right now. So this is all putting pressure on these same GPs, right? And they're thinking about this in that broader context. Is there anything else you can think of that we should be thinking about and tracking that's affecting this picture?

A I mean, I think the biggest thing, and everybody knows this too, everybody's felt this, down to, like, you know, individual consumers, is just interest rates. But it affects climate tech and energy transition in a unique way because of our capital intensity. Um, so it makes us a little bit even more exposed to changes in the interest rate regime than other sectors. Um, and I think it's important to keep in mind that interest rates are kind of also now a function of geopolitical risk, not just central bank policy or kind of like Uh, domestic economics. So a war in the Gulf, or some kind of escalation in Taiwan, or a European energy crisis caused by another war, um, all of those feed into the discount rate applied to a ten-year climate project. So back to your question about, um, what else is affecting things, I really do think it comes down to those rates. When the risk-free rate went from zero to five whole percent, Every long duration asset gets repriced, and climate tech is the ultimate, unfortunately, the ultimate long duration category. A company that needs 10 or even, um, you know, 20 years to reach meaningful revenue is worth a lot less in a five percent rate environment than a zero percent one. And it also just drives up capital, so I, I don't know if other folks are aware of this, And I can't tell you, like, as a fact, how many LPs and other funders are financing off of…

AI assessment note: “I think the biggest thing, and everybody knows this too... is just interest rates.”

Q how this is going to affect Europe in particular, because a lot of the, the US-based companies that I know of are really looking to Europe now as a place to deploy because they're being seen as more committed to sustainability, more committed to emissions reductions, Do you think Europe will be able to sustain its commitments if fossil fuels are meaningfully more expensive for an extended period of time?

A Yeah, I think it's really easy to say, well, we'll just go to Europe as if, you know, the world were not just like one place anymore. And I think the reality is, so, um, the emissions trading system in Europe has been probably the single most important Carbon pricing mechanism globally that's driven a lot of, um, transition investment. And I cannot talk, tell you how many companies I've heard say that exact thing would, well, you know, things may be bad for climate and energy transition in Trump's America, but, um, you know, we can just go sell across the Atlantic. And the reality is that Europe, just like we are here, um, Europe is dealing with its own political pressures. Um, Italy, Poland, and Germany have all seen, as we know, nationalists or populist parties challenge the ETS framework, in some cases directly as a response to the war in Iran. So that's like a very recent thing. Um, and, and, and to the closure of the strait. So what all that means for investors is that those carbon pricing assumptions in Europe, um, and, uh, which underpin a lot of Project finance for energy transition. Those are now suddenly also a lot less certain than they were two years ago. Um, you know, if you're building, I don't know if you're a crazy person, and you're unfortunately building a DAC company right now, or Green Steel, and your revenue model assumed a 100 euro, uh, per ton carbon pric…

AI assessment note: “Europe is dealing with its own political pressures... challenge the ETS framework”

Q to have, we're about to talk about geopolitics, and it's not super typical to talk about geopolitics when you're talking about climate technology. Um, so maybe let's just start there for a second, and maybe you could just say something, Susan, about, like, your connection to geopolitics. Why is it something that you engage with that you know a lot about? How does it affect your role as an investor?

A I think it should be everybody's job as an investor. Um, so, so that would be the first thing is I consider it to be kind of one of the top bullet points in the job description, and I don't know if everybody embraces that, but, um, that's certainly true for me, and, um, you know, I've always been both literally and now more figuratively a student of history. It was, uh, I was a total history geek starting from when I was a kid all the way through early adulthood, and, um, Later, when I started to work in investing, there are always some questions around, well, how does that connect? But I think if you really take the macro view, it absolutely is all about understanding the forces that shape the world that we live in today, and how those continue to play out. Um, and so, I just spend a lot of my time, unfortunately, in this current environment, um, having to observe everything that's going on, taking it in. I have a privileged position to be able to do that. And, um, have noticed that there's just a lot that other folks that I'm talking to who are, you know, um, I'll just put it bluntly, busier than I am in the trenches building companies, um, or fighting fires every day don't have the time or, uh, the, the, the really good fortune to have that kind of perspective. So, um, I'm trying to bring that out more so that more folks can share it with me. Right.

AI assessment note: “I consider it to be kind of one of the top bullet points in the job description”

Q he was prepared to wipe out an entire civilization. Today we're seeing some tweets go back and forth that seem to be the way that international diplomacy and negotiation is getting conducted, which is completely wild to me. What else are you seeing in the news, like, right now, today, this week, the past couple of weeks, that you think are really key things we should be paying attention to?

A So you mentioned politics and policy. You mentioned today, tweets, events. Um, I want to take us just a step back from that, because I think the big thing to really start thinking about and understand is that there's been a, really a structural shift that I would sum up as the volatile New world order, aka crazy is the new normal. And I want to call it out as a structural change rather than something, you know, very event-based, as important as those events are, because what it really is, is a reshuffling of the entire global financial and geopolitical order, and it's tearing down all the scaffolding that we've been taking as a given. So rather than And I do think, again, focusing on events is important, but rather than only focusing on specific events, which actually is endless, and there's something different almost every hour now, let's take a look at what's different about the world that causes and is caused by those front page news bullets and items. So the first thing is that capital is changing. It is global and mobile in ways that it's never been before, and I discussed this in my essay on the Iran war, and we can talk more about that, but, um, we're no longer inhabiting these walled gardens where the impact and directionality of one nation's wealth and investment decisions are confined to its borders. Instead, everyone's money is everywhere. So, VCs started to head to …

AI assessment note: “rather than only focusing on specific events... let's take a look at what's different”

Q for that things might change? Like, are there, are you feeling more hopeful now that there's a ceasefire, at least theoretically, in place today as we're speaking in this Iran war? Or is it really dependent on there being kind of a permanent end to this war before we really start to see our blood pressure go down? And what do you think the ramifications are, even if that happens?

A So I won't even pretend to be, um, someone you should listen to on this, but I will, I do want to go back to something you said, Laura, and I think it's really the key to everything, which is fear. You mentioned the word fear, and fear is Your house is on fire, so you're not thinking about your climate investment portfolio. Fear is, well, there was some shrapnel or a strike on the Dubai airport, and even though it's probably safe, we're just not going to go there anymore. And, um, fear is, even if force majeure doesn't ever get invoked, and it never gets mentioned anywhere ever again, Fear is that self-censorship that happens, um, because it happened once. So, I'm not sure how many founders listening here, uh, understand the full nuts and bolts of fund management. I'm sure many of them do, because people are getting more and more sophisticated all the time. Um, but, you know, GPs raise the fund. Your, your venture capitalist, your general partner, raise the fund. Then they have to call capital in tranches as investment opportunities grow. Come up, or as batches of investment opportunities come up. So, when the capital gets called is when the IRR clock starts ticking. IRR being internal rate of return. If you don't call the capital, on the one hand, you don't make your management fees, but I think that's less important than, on the other hand, you're not on the returns clock yet…

AI assessment note: “I won't even pretend to be, um, someone you should listen to on this”