Next Chapter in Tech: Sustainability as a Necessary Companion
Software will eat the world, but only if there is a world left to eat. The ever-increasing technological advancements in our lives are coming in direct contact with sustainability issues and are left with two options: (A) cooperate and thrive, or (B) ignore and perish.
While technology and software startups ruled the 2010s, the new, popular thesis in the room is climate-tech (besides Web3). It seems every day there are five new climate-tech startups, every other day there is a newly minted climate fund at an existing investor, and every third day there is a new climate-centric firm altogether. Are they doing it out of the goodness of their heart? Maybe, partially — some at least. Are they doing it for financial return and survival? Likely, definitely. See below analysis by PwC that shows just how business is booming in the private markets for climate-tech funding and how part of it can be explained by the fact climate-tech can be a real winner for your wallet (and planet)(1).
Top business schools like Stanford, Berkeley Haas, and most recently, Columbia, have recognized this shift. Dean Costis Maglaras of Columbia Business School recently stated in an interview,
“Technology has transformed the world of business in the past 30 years… If you ask yourself what will transform business in the future, it will be climate change so we are investing in that”(2).
I would argue technology will continue to change the world of business, but now just hand in hand with climate considerations. Hence, climate-tech.
There are countless examples of this across the world. Tech giants like Google (Waymo platform), Tesla, Uber, and Cruise (backed by GM, Microsoft, and Softbank), are heavily focused on autonomous vehicles. These autonomous vehicle projects, which bring their own climate benefits, incorporate the other automotive climate-tech, electric vehicles. If you ask anyone nowadays from automotive execs to random people on the street, they will say autonomous vehicles or electric vehicles are the biggest drivers in the future for automotive technology at large; not ICE vehicles. It is why everyone from GM, Volkswagen, Ford, Jaguar, and so on are investing in this space — to stay relevant.
Software giants like Microsoft are attacking the issue from a corporate sustainability standpoint. Microsoft is consistently ranked a top tier ESG company in public markets due in part to their admirable environmental goal of becoming carbon negative by 2030(3). Strong ESG performance slots them at the top of the list for capital inflows from the ever-increasing percentage of investors who are targeting ESG portfolios.
This corporate sustainability angle means you do not necessarily need to be a climate-tech company, but you do need to be climate-conscious in terms of Scope 1–3 emissions and other core environmental KPIs. Some great examples of this reside in the Web3 universe. Bitcoin miners notoriously use a lot of energy. In a recent New York Times article on the subject, it was reported that a single Bitcoin transaction requires 2000 kWh of energy — enough to power an average US household for ~73 days. Increasing scrutiny on this topic saw Elon Musk of Tesla state he would no longer accept Bitcoin as a form of payment given its poor environmental profile. The knock on effect of this announcement was the creation of the Bitcoin Mining Council, which is now seeking more renewable forms of energy for mining practices. While there are still structural issues in the sector, some improvements are being made as with TeraWulf that is 90% zero-carbon and Argo Blockchain turning to solar and wind energy for its new mining installment in Texas (4).
This phenomenon is not just US focused. Atlas Technology Management is a Singapore-based technology group focused on Web3 computing and infrastructure. They are looking to “adopt 75% green energy by 2022, 90% by 2023 and…100% by 2024” as it upholds their belief in “tech for good”(5). This includes projects like under-water data centers which behemoths like Microsoft are also exploring due to its improved energy efficiency and performance reliability(6).
Web3 is not only becoming smart on energy usage, but is also becoming a form of climate-tech itself. One key example is Nori. Founded in 2017, Nori is a Seattle-based marketplace for carbon removals built atop Ethereum and allows for the creation and trading of carbon credits (Nori Tokens). Farmers store carbon in soil through sustainable farming practices, carbon tons are verified by an independent 3rd party and listed to Nori’s marketplace, and buyers pay the farmer for ownership of their carbon removals and receive a certificate for the same. All this enables businesses and individuals to take direct action in removing excess carbon dioxide from the environment. This technology enables farmers to receive a large portion of the value of their carbon sinks, removes double counting issues on marketplaces, and offers buyers an easy to use platform that ensures strong trust in the additionality and permanence of their carbon investment(7). Sustainability is not just a necessary component of this business; it is the business. The technology enables Nori to have a competitive advantage, but the core business of carbon credits was already alive and well.
I could sit here all day and provide a million different examples, but I’ll save the energy — it is the theme after all. When it comes to the next generation of technology, sustainability will need to be an integral component. If not the primary driver (since all businesses can’t be climate-tech), it still needs to be addressed through corporate sustainability.
Those that produce climate-tech will benefit from the explosion in consumer and business demand for their products/services, investor demand in private/public markets, talent acquisition, and sit on the positive side of customer/regulatory scrutiny. Think Tesla and Nori. Incumbents across industries are recognizing this trend and either need to innovate themselves or more often acquire these startups. Either way — they need to change.
For those companies that are not under existential threat from climate-tech competitors, corporate sustainability and net-zero goals are necessary and will become table stakes. A strong corporate sustainability function will work to augment risk/supply chain management, enhance top/bottom line, improve customer relations, attract and maintain talent, address regulatory requirements (see SEC’s new proposal for mandatory climate disclosure (8)), keep up with competitors, and provide access to an increasingly large pool of ESG capital. Think Volkswagen, Microsoft, and Argo Blockchain. Corporate sustainability applies to climate-tech companies as well, and they can accrue the same benefits on top of their own. For what it is worth, there are many cases where strong corporate sustainability functions could overtime morph a traditional company into a climate-tech one, as with the wind-power giant Ørsted that was once named Danish Oil and Natural Gas (9).
Across both primary climate-tech and corporate sustainability cases, sustainability is becoming a necessity. Our world is evolving to a point where technological progress can no longer be considered progress if it perpetuates climate change. The health of our planet is an existential crisis and tech businesses that ignore this issue will increasingly damage their top and bottom line. Don’t just take it from me, as I’d again point to the surge of investments in the space and the growth of ESG money. Private or public, institutional or retail, money is flowing this direction. It is no longer enough to have the best tech. In the next stage of our economy, you can still ride the technology (mother)board, but you will need to catch the green wave.
(1) https://www.pwc.com/gx/en/sustainability/publications/assets/pwc-state-of-climate-tech-report.pdf
(2) https://www.yahoo.com/video/columbia-business-school-big-bet-193032891.html
(4) https://www.nytimes.com/2022/03/22/technology/bitcoin-miners-environment-crypto.html
(6) https://natick.research.microsoft.com/; https://www.datacenterdynamics.com/en/analysis/building-underwater/
(8) https://www.sec.gov/news/press-release/2022-46
(9) https://www.wsj.com/articles/one-oil-companys-rocky-path-to-renewable-energy-orsted-11623170953
