The Brief | May 13, 2024

The Brief: Defining a North Star for responsible tech

ImpactAlpha
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ImpactAlpha

Greetings Agents of Impact!

🔌 On this week’s Plugged In: Better, cheaper and faster climate impact. Climate volatility is here. Stonly Blue of Third Sphere looks for investments that foster climate resilience alongside the deployment of hardware-based climate solutions. Blue joins Plugged In host Sherrell Dorsey to share where he is finding deals and opportunities for climate impact, live on LinkedIn, this Wednesday, May 15, at 10am PT / 1pm ET / 6pm London. RSVP.

In today’s Brief:

  • A North Star for responsible tech
  • Reducing rice farming’s climate impact
  • Banking on climate chaos

Why VC investors need a 1.5 degree Celsius goal for responsible tech. Artificial intelligence, quantum computing, robotics and other disruptive technologies are transforming labor productivity, human-machine and human-nature relations, and the social fabric. To deliver long-term value for themselves and society, tech innovators and investors need a North Star akin to the globally agreed goal of keeping global warming to 1.5 degrees Celsius, argue Paul Fehlinger of Project Liberty Institute and Johannes Lenhard of Venture ESG. “Venture capitalists and limited partners need to align on processes, incentives and alternative investment models that go beyond the high-risk ‘move fast and break things’ mentality of the 2010s,” the authors write in a guest post in ImpactAlpha. The 1.5 degrees Celsius threshold for global warming is the result of four decades of research by the UN Intergovernmental Panel on Climate Change. This North Star metric serves as a guide that uses science-based targets, incentives for climate-positive innovation, and penalties for negative externalities.

  • Global action. To guide responsible investments in technologies like AI, quantum computing and biotech, Fehlinger and Lenhard say investors, along with policymakers and entrepreneurs, need the 1.5-degree goal to help them define “good” digital technologies. Such a metric “can align global action and stimulate a new generation of impact capitalism and entrepreneurship,” say the authors.
  • Patient capital. To grease the flywheel, the responsible tech ecosystem needs alternative exit models that encourage patient, sustainable growth and resist the pressure to grow 10x within 7 years (for context see, “With stakes in Anthropic, impact investors seek a seat at the AI table”). The responsible disruption of tech needs to happen quickly, write Fehlinger and Lenhard. “In theory, this is something VC should be good at.”
  • Keep reading, “Why VC investors need a 1.5°C goal for responsible tech,” by Paul Fehlinger and Johannes Lenhard on ImpactAlpha.

Dealflow: Agrifood Investing

Rize scores $14 million to reduce emissions and boost livelihoods for rice farmers. Rice is a staple crop for more than half of the global population. Demand is projected to double by 2050. But traditional rice cultivation practices, such as flooding fields, consume large amounts of water and release methane gasses. “Mitigating the environmental impact of rice cultivation is essential in the fight against climate change,” said Carmichael Roberts of Breakthrough Energy Ventures. Breakthrough, along with Wavemaker Impact, Temasek and Temasek’s GenZero, launched Rize last year to reduce the environmental footprint of rice cultivation. The Singapore-based startup helps small rice farmers implement sustainable farming practices, while lowering costs and increasing crop yields. “We are not just aiming to cut down 100 million tons of carbon emissions, we are also enhancing the economic stability of farmers, ensuring that improved farmer livelihoods and reduced emissions go hand-in-hand,” said Rize’s CEO Dhruv Sawhney. 

  • Water conservation. Rize aims to help farmers reduce water usage by 20%. Rize’s founding partners provided the $14 million Series A funding to improve the company’s measurement, reporting and verification, and to enable it to expand to Indonesia and Vietnam. Rize is building a team of 100 agronomists to reach over 20,000 smallholder farmers by year’s end. A bowl of rice requires 53 gallons of freshwater to produce and rice production accounts for more than one-third of global irrigation water. “The urgency to adopt sustainable methods is clear,” said Sawhney.
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Mycocycle snags $2.2 million to recycle waste into fungi-based materials. Startups are leveraging the strength and durability of mycelia, the threadlike root structure of mushrooms, to create sustainable products for the fashion, automotive, food packaging and construction industries. Chicago-based Mycocycle’s MYCOntainer is a climate-controlled environment for processing toxic construction waste, which can then be treated and blended with lab-cultivated fungi to create low-carbon materials for asphalt shingles, concrete, drywall, insulation boards and other hard-to-recycle building materials. “We’re primed to leverage mushrooms, the planet’s recyclers, across the nation’s waste and building materials sectors to reduce emissions in two of the heaviest-polluting industries and transform waste to resources,” said Mycocycle’s Joanne Rodriguez. 

  • Circular economy. Mycocycle’s focus is the construction industry, which produces hundreds of millions tons of waste each year. Since 2018, Mycocycle has detoxified 12,000 pounds of hard-to-recycle waste from construction partners, turning them into new raw materials. Mycocycle says its MYCOntainer treats harmful toxins in these materials by up to 98% on average. Anthropocene Ventures led the seed financing round, with participation from TELUS’s Pollinator Fund for Good, Alumni Ventures and Telescopic Ventures.
  • Check it out.

Dealflow overflow. Investment news crossing our desks:

  • Hysata, an Australian company developing high-efficiency electrolyzers to produce low-cost green hydrogen, raked in $111.3 million in a Series B round backed by bp Ventures and Hong Kong-based Templewater. (Hysata)
  • Sweden’s Electricity Maps scored €5 million ($5.4 million) to help companies, such as Google and Samsung, draw electricity from the grid when it is cleaner and cheaper. (Tech.eu)
  • Chennai-based Relux Electric raised 250 million rupees ($3 million) in revenue-based financing to install 20 “hyper-charging” EV stations on highways in south India. (YourStory)

Signals: Climate Finance

With more than $700 billion for fossil fuels, global banks retreat on climate pledges. “Energy pragmatism” is the new euphemism for continued investment in fossil fuels. Emboldened by high oil prices, producers are orchestrating megamergers and doubling down on oil and gas. Their enablers: global bankers. The world’s largest banks provided some $706 billion in financing for oil, gas and coal last year, even as the planet experienced its warmest 12 months since record-keeping began in 1850. JPMorgan Chase boosted its fossil fuel financing by $2 billion, to just under $41 billion for the year, making it once again the largest fossil fuel funder, according to a new report, “Banking on Climate Chaos.” “Major banks have squandered yet another year to take decisive and ambitious action on climate,” says Sierra Club’s Adele Shraiman, an author of the report released today. 

  • Fossil fuel expansion. US banks and asset management firms have retreated from climate pledges amid a conservative backlash against environmental, social and governance principles (and surging oil and gas profits). JPMorgan exited Climate Action 100+, a shareholder group focused on engaging top emitters. Bank of America has backtracked on its policy to curtail funding for coal and Arctic drilling projects. JPMorgan, Bank of America and Citigroup together have enabled nearly $1.2 trillion in fossil fuel financing since the 2015 Paris Agreement.
  • Cashing in. US liquid natural gas exports are booming. Such “midstream” processors and pipeline companies were the biggest borrowers last year, taking in $121 billion, up from $116 billion in 2022. Pipeline developer Enbridge grabbed $35 billion. JPMorgan, Wells Fargo, Bank of America, Goldman Sachs and other US banks underwrote some $59 billion in fracking operations. Chinese banks were largely behind the $42.5 billion in financing for more than 200 thermal coal mining companies, including some new operations.
  • Long-term losers. Overall fossil fuel financing by the world’s 60 largest banks has trended down in recent years, from $891 billion in 2016 to last year’s $706 billion. But that decline is not fast enough to keep global warming in check. As electric vehicles and cheap renewables reach critical mass, the long-term outlook for fossil fuels is dim. Renewables hit 30% of global supply last year, signaling “a new era of falling fossil generation,” according to the research firm Ember.
  • More. 

Agents of Impact: Follow the Talent

Don’t miss these upcoming ImpactAlpha partner events:

Builders Vision’s Noelle Laing, DBL Partners’ Nancy Pfund, and Breakthrough Energy’s Mike Boots are among more than a dozen leaders named to the board of the Foundation for Energy Security and Innovation, the US Department of Energy’s new agency-related foundation… Brandon Boros, previously with Align Impact, joins Kapor Capital as venture partner… Autodesk is recruiting an investment principal of climate ventures in New York.

Opportunity Finance Network is hiring a vice president of its Greenhouse Gas Reduction Fund program and other roles… IDB Invest is looking for an agribusiness investment analyst consultant… Novata is hiring a sales development representative… The Nature Conservancy seeks an investment analyst in Washington, DC… Impact Genome is hiring a social impact associate.

Convergence is hosting a webinar on “Blended finance for small island developing states: Caribbean,” tomorrow, May 14… Also tomorrow, Tim O’Reilly and Cory Doctorow are hosting “‘Enshittification’ and the future of AI”… Innovation Works is hosting its Baltimore Neighborhood Economics Lab at Coppin State University in Baltimore, Thursday, May 30.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– May 13, 2024