The Climate Equation
Our thesis, portfolio and approach to funding the shift to a sustainable economy.
The climate crisis requires a fundamental shift to a more sustainable economy. The scale and urgency with which this shift needs to happen is to us, and the founders we back, an enormous opportunity. Here, we outline the framework we use to talk about the challenge, the possible technology solutions, and the companies we’ve either backed or admired bringing these solutions to market. We’re excited to look for more founders, co-investors and partners to help solve what we’ve started to call the Climate Equation.
How it works — the framework
On the left hand side of the equation, we have:
The historical damage we’ve done
- For example, from a carbon perspective, this is the sum of all historical emissions (2,500 Gt of CO2 eq)
- Historical damage is of course a variable we can’t change
The damage we’ll still do (Solutions = Reduction or abatement)
- The global economy is growing, and quickly using up the budget of emissions we have left (another ~400 Gt total — we currently emit ~50 Gt/year) to limit warming
- We need to reduce this, fast. This involves leveraging all the opportunities associated with the decarbonisation of our economy.
The damage we will reverse (Solutions = Removal and restoration)
- This includes any carbon we manage to pull out of the atmosphere
- We need to scale this, fast. This involves removing pollutants and restoring our natural resources (our carbon sinks).
Then on the right hand side we have:
The residual damage (Solutions = Resilience and adaptation) :
- For example, the residual carbon surplus and its effect, e.g. the current 1.2C global warming.
- This is what the world will look like as a result of the equation, and what we will need to be prepared for and adapt to. Also known as resilience and adaptation
Solving the climate equation
We’re conscious that climate change is largely a problem to be addressed with hardware rather than software. We think both have a role to play.
- We think hardware most often acts as a direct lever in tackling climate change, e.g.: a less carbon intensive approach or technology that replaces an existing climate-damaging product/system, or has a direct drawdown effect.
- Software often acts as an indirect lever: enablers of the direct levers, e.g. a demand-response clean energy system.
As mentioned, we think that the urgency with which variables in the climate equation need to change (emissions need to be reduced from 51 GT per year to net zero by 2050, removal needs to scale 20,000x by 2030), makes for one of the strongest tailwinds we’ve ever seen. We think this turns opportunities that would typically not be suited to venture (such as energy or materials) into venture ones. It’s important to stress though, we believe that in order for solutions to truly scale and succeed, they need to be better on metrics that don’t just relate to climate performance (such as economics and convenience).
Reducing the damage we‘ll still do: Reduction or Abatement
The abatement challenge is: how do we keep the world’s economy not just going, but growing, whilst reducing our current 15bn metric tons per day fossil fuel consumption to zero in less than 3 decades?
Electricity
The opportunity:
2/3 of electricity comes from fossil fuels today. We need 2–3x today’s capacity over the next few decades, but from clean inputs. We’ve already made a lot of progress in decarbonising the grid (solar, wind and batteries). Still, in order to reach net-zero, we need 50% of electricity to be from zero-emission sources by 2025 and 90% by 2035.
What we want to invest in:
Direct levers we can pull to decarbonise the grid include clean energy sources (renewables), improving energy storage and improving the energy system’s efficiency. Amongst these, battery storage is still underdeveloped, which is why we’ve invested in {we haven’t announced this one yet!}
Indirect levers accelerate adoption of the above direct levers. For example, data for grid planning, demand response and project financing. Noteworthy companies in this space include Pelm, Enode and Leap.
Industry
The opportunity:
Materials represent roughly a third of emissions, mostly from iron, steel, cement and chemicals. Buildings, roads, factories, packaging, textiles — these are fundamental building blocks of our economy. They emit carbon as a byproduct and are energy-intensive. We don’t have sufficient and practical low-carbon ways to make them at scale, yet.
What we want to invest in:
Direct levers include new ways to make materials with a lower or negative emissions profile. In this case, the scale at which they are used can make for an immense removal opportunity. Interesting companies in this space include Solugen, FabricNano and Concretene. A material that drives emissions not just when it’s made, but also when it’s disposed of (if incinerated) is plastics, which is why we’ve invested in Shellworks.
Indirect levers include ways of accelerating alternative materials (or decelerating incumbent approaches). For example, smart ways to plan infrastructure projects or heat buildings to reduce waste, engage consumers to push for low-carbon products, or allow businesses and consumers to recycle and reuse more materials. In these spaces, we’ve invested in Alcemy and nPlan. Other interesting companies include Cirplus and Sourceful.
Food
The opportunity:
Growing food represents another near third of emissions. If cows were a country, they’d rank 3rd under China and the US. Beyond raising animals, there’s unsustainable soil management, fertilisers, and food waste.
In order to feed 10bn people by 2050 without increasing food-related emissions by two thirds, we need to become much more efficient with food.
What we want to invest in:
We can think about direct impacts to decarbonising our food systems: alternative ways of growing, creating or preserving food. This covers the likes of alternative proteins or foods (plant-based, cell-based), regenerative agriculture (e.g. no-till farming, bio-fertilisers, soil carbon management), vertical farming and ways of cutting down food waste. Our investments in this space include Infarm, whilst other interesting companies include Higher Steaks, Perfect Day, and Loam Bio.
Indirect levers include enabling technologies and tools, such as our investments Breedr, Biome Makers and {we haven’t announced this one yet!}, or companies like Cradle Bio, enabling bioengineers to programme enzymes.
Transport
The opportunity:
Passenger vehicles are responsible for around half the problem. EVs have come down the cost curve quite substantially thanks to advances in batteries (87% decrease since 2010). But they can’t yet fully compete on convenience and cost.
Bigger vehicles — buses, trucks, planes and ships — are fewer but much more emissions intensive on a per vehicle basis, and difficult to decarbonise (the best lithium ion battery packs 35x less energy than gasoline). Electrofuels and biofuels are the more attractive option but carry large premiums (often 2–3x).
What we want to invest in:
Direct levers cover alternative or lower-carbon transport approaches: EVs, alternative fuels and carbon capture. A notable direct lever is carbon capture for hard-to-abate vehicle transport (enter Remora and Seabound). Other game-changers for this category we like are Heart Aerospace and Prometheus Fuels. There has been some debate about the impact of “e-mobility” companies: we think our investments in Voi, Cycle and Laka are going at least some way in encouraging the transition towards more sustainable transport.
A great example of an indirect lever is charging infrastructure, including both the physical charging points (enter Volta), and the software making it easy to find them (enter Bonnet).
Reversing the damage already done: Removal + Restoration
The reality is, even if we meet our ambitious reduction targets, we are still likely to overshoot our carbon budget. And beyond carbon, we’ve already damaged the natural world, for example with plastics. Thus, we must get to work on restoring nature, by scaling carbon removal and regenerative solutions.
Removing pollutants and restoring sinks
The opportunity:
Carbon removal is still far from being permanent, cheap and scalable. Nature-based solutions (protecting and growing our existing natural carbon sinks) are cheaper and easier to scale, but often lack the data to be more credible and structurally scalable. Tech-based solutions (such as direct air capture) are nascent and expensive. Carbon markets at large lack liquidity and transparency around project quality, performance and price, even as they have started to rapidly scale.
What we want to invest in:
Direct levers are nature-based and tech-based. Example companies include The Future Forest Company, Climeworks, Heirloom and Charm Industrial. We also need to support the clean-up of our planet beyond carbon (enter CleanHub).
Indirect levers include data that allows nature-based solutions to be trusted, funded and scaled, accessible exchanges for carbon market participants, marketplaces that match supply and demand for removal projects, and more. In this category, we’ve invested in companies including Sylvera, Supercritical and Wren. We’re also following companies like Evergrow, Kita and Toucan.
A note on damage measurement:
For businesses, accounting for damage done (starting with emissions) is the 1st step. We are now observing the emergence of two distinct types of solutions: tools that target SMEs/tech companies, with relatively simple footprinting and often focused on offsetting (e.g. Watershed, Normative, Plan A), and tools that target enterprises with complex supply chains, with more complex footprinting and often focused on abatement / insetting (e.g. Altruistiq, Sweep, Emitwise, Sinai).
Adjusting to our residual damage: Resilience + Adaptation
The opportunity:
There are many tools — from finance to biology — we’ll need to use to become a more resilient society in the face of more or less extreme climate change.
What we want to invest in:
Direct levers for adaptation are still underexplored, but we’ll need technologies that make our built environment more resilient to extreme weather events, our food more efficient at tolerating increased heat or more unpredictable precipitation, or our coastline less exposed to rising sea levels.
Indirect levers include data analytics for climate risk assessment and insurance policies to protect against that risk. In this space, we’ve invested in FloodFlash, and are following companies such as Cervest, Climate X and Descartes Underwriting.
Our ecosystem approach
At LocalGlobe, we’ve always been supporters of ecosystem collaboration, and this rings particularly true in climate. We can only solve the climate equation if shots on goal are maximised, and massive pools of funding and expertise join together. As such, we’re building and will continue to build a network of founders, co-investors and network partners (please reach out!) We should also stress that — as a generalist, not a thematic investor — we back surfers not waves: we welcome founders that are building solutions that we haven’t thought of as part of this framework.
This work is the result of a few months spent with Jack Bartlett, learning about and mapping the climate challenge and the climate tech space. I am grateful for the input and feedback received from so many more: Alex @ Lowercarbon, Cara @ The Climate Map, Chris & Mona @ Valo Ventures, Clara @ Transition, David @ Voyagers, Kobi @ CTVC, Ophelia @ Tiny, Tom @ ReGen Ventures, Sam @ Sylvera, and last but not least my LocalGlobe team.
Our framework borrows ideas from: How to Avoid a Climate Disaster, by Bill Gates; Speed & Scale, by John Doerr; Third Derivative; CTVC.
