Oil majors vow to transform, but can companies really change? #6

Happy Monday!

A lot of the content and conversations from this week had us reflecting on the age old question of values vs. value. Are you an investor that cares more about mission, or more about economic return and impact? We also hope it’s not a binary, as it’s getting increasingly harder to silo.

Tl;dr - there’s a lot of interesting work to save the planet emerging from those historically most responsible for breaking it, so do you join them or do you try to beat them?

This week, we dissect the implications of oil & gas majors’ carbon neutrality commitments and share some thoughts on different tribes of sustainable investing to guide reflections on where we individually fit within this big camp of climate tech enthusiasts. Also, more new deals!

Thanks for reading!

Oil majors vow to transform, but can companies really change?

Total adopted new climate ambitions to reach net-zero emissions by 2050, following in the footsteps of Shell and BP’s announcements this past quarter. The French oil major announced 60% decarbonization of their worldwide energy products by 2050 (scopes 1, 2, 3). But we were struck by Total’s promise to meet governments’ decarbonization policies and regulations across all of the regions it operates in (essentially committing its European operations to 100% net zero by 2050).

What does this mean?

• Leave it to a good old 2x2 to show a split from the pack. European oil & gas majors are diversifying their energy portfolio and making public carbon neutrality pledges, while their American counterparts lag.
• Investors, scientists, and the public have repeatedly voiced their concern that oil & gas companies can no longer operate under “business as usual.” As their social license to operate wanes, these companies are in the spotlight to demonstrate how they are rethinking their business model in light of climate change.
• The “evolved” oil majors specifically target Scope 3 emissions in their commitments, encompassing all indirect emissions from consumption of their products - a tall order for fossil fuels, hence the energy diversification for those who have committed to carbon neutrality. Carbon neutrality and energy diversification go hand in hand.

Why does this matter?

• Although the oil majors only account for 15% of oil and gas production (massive state-owned producers like Saudi Aramco are 50%), the majors have on outsized influence on industry practices and direction. All eyes will be watching how majors such as Total, Shell, and BP outline the specific measures and technologies to meet their net zero ambitions. They’re harbingers of the remainder of the market.
• Speaking of the market, the COVID-related volatility has oil prices in a tailspin. Meanwhile (as mentioned in last week’s issue), renewables shine as the only light in the darkness. As energy and transportation markets shift towards electricity, these carbon neutrality commitments may have payoff beyond public favor, and will sustain a more diverse and resilient energy portfolio.

What is likely to happen?

• We still have a lot of big, unanswered questions. While net zero pledges seem to be the growing fad in the energy business, the major question remains: how exactly will an oil and gas company based on carbon-intensive fossil fuels pivot to carbon neutrality? So far, investments in low-carbon businesses only represent <1% of oil and gas companies capital expenditure. Total pledged this week to devote 25% of capex to low carbon energy by 2030, though figures for other majors are lower.
• Today, 15% of global energy-related GHG emissions come from simply moving oil and gas from the ground to consumers. Renewable energy and carbon offsets will not get oil & gas cos to their targets; there’s clearly an innovation gap. Oil majors will have to invest heavily in technologies such as hydrogen, biofuels, and carbon capture which today do not exist at the scale to achieve their targets. A step in the right direction, OGCI (Oil and Gas Climate Initiative) is a CEO-led consortium including BP, Saudi Aramco, and others which have invested in low carbon solutions such as Kairos Aerospace (aerial monitoring of methane emissions).

For investors, the questions will likely emerge as:

• Do you expect existing players in oil & gas to radically transform into carbon neutral energy companies, with the likes of Total, Shell, BP emerging as the new renewable players?
• Do you bet on existing 100% renewable energy companies, the likes of NextEra, Brookfield, TerraForm, who will displace the need for legacy energy producers?

Deals of the week (5/3-5/10)

🏗️ Sidewalk Infrastructure Partners, a spinoff of Alphabet’s cities-of-the-future arm Sidewalk Labs (see below for more on Sidewalk Labs closing its Toronto project), raised $400m in Series A funding from Google and Ontario Teachers Pension Plan. SIP aims to scale technology-enabled infrastructure development across five key verticals: mobility, energy, water & waste, digital infrastructure, and social infrastructure. Fortune has more here.

🛵 Lime, a San Francisco-based electric scooter rental startup, raised $170m in funding from Uber, Alphabet, Bain Capital Ventures, and GV. The potential cash infusion, which would help Lime stay afloat as demand for scooters shrivels due to Covid-19, would value the micromobility company at $510 million, or 79% less than its previous valuation. In exchange for $85 million in emergency funding, Uber would significantly increase its minority stake, get the option to buy Lime between 2022 and 2024, and transfer its own electric bike and scooter division called Jump to Lime. TechCrunch has more here.

♻️ RWDC Industries, an Athens, Ga.-based bioplastics manufacturing startup hoping to replace plastic packaging, raised $133m in Series B funding from Vickers Venture Partners (Ikea’s investment company), a Swiss pension fund, a Northeastern energy provider, and an industrial chemical company owned by Koch Industries. The funding will be used to build a new factory which scales bioplastics production. TechCrunch has more here.

🔋 ZAF Energy Systems, a Montana-based developer of battery tech, raised $22m in Series A funding from Élevage Capital Management, Catalus Capital, Holt Ventures, and Coventry Asset Management. The company develops next-generation battery technologies for applications including electric vehicles, commercial trucking, renewables integration, back-up power, and consumer electronics.

👕 Oxwash, a UK-based laundry startup using ozone to sterilize fabrics, raised $1.7m in Seed funding from TrueSight Ventures, Founders Factory, and other angel investors. The startup has developed a zero net carbon emission laundry process from collection to washing to delivery. TechCrunch has more here.

🔋 Renewance, a Chicago-based software platform for battery lifecycle management, raised $100k in Seed funding from Clean Energy Trust. The company provides clients with industrial batteries with the most cost-effective, environmentally friendly reuse and recycling solutions. More here.

🔲 Iris Light Technologies, a Chicago-based developer of silicon photonics technology, raised $100k in Seed funding from Clean Energy Trust. The Iris Light solution increases the bandwidth and energy-efficiency of light chips key to data center networks. More here.

Feature: From past values, to new value

Screen capture from MCJ Community Chat 5 - ESG Analysis

This past week we mowed the grass (yay, almost summer!) and then hopped on a Zoom panel to discuss the many facets of ESG analysis along with investors from G2VP and Purchase Park Capital.

The conversation spurred a good reflection on the ‘7 Tribes of sustainable investing’, which Yale Professor Cary Krosinsky nicely blogs about here (and which we introduced in our book together, here).

There are many reasons to support climate tech, some overlap, and all are welcome. Instead of re-iterating all seven, it’s worth looking at two in particular in the context of this week’s news:

• Values - investing based on virtues, strongly held beliefs, or moral mission
• Value - threshold for impact, usually demonstrated economically

As the case for climate matures, we’ll see an increasing blend of both theses. The first wave of climate tech companies (Solyndra, Range Fuels) represented a deep commitment to values and speed, without deep tech pragmatics. They proudly showcased their reason for being as a rebuttal of and reprisal to legacy structures. The second wave of investments in energy represented a hybrid approach, with worship of technology and development, largely via companies like Tesla, Proterra, Orsted. Increasingly, we’ll see more legacy players (and polluters) having to reckon with the changing world.

As evidenced in this weeks’ news, this will force investors that previously blacklisted or removed ‘bad’ companies to reevaluate their positions and find overlapping measures. Optionality is expensive, and retaining discretion based on morals alone will be increasingly difficult as more capital looks to deploy quickly in search of bigger solutions (e.g. Bain Cap’s Double Impact fund being slow out of the gates finding meaningful targets).

Ultimately, the challenge of today’s climate tech investment will be less in ‘picking your tribe’ than in figuring out where the tribes overlap, and how the conversation will evolve from energy abolition to energy reconstruction.

In the News

• Sidewalk Labs: Alphabet’s cities-of-the-future arm, Sidewalk Labs, announced in a blog post on Thursday that it will no longer pursue the Quayside smart city project on the Toronto Waterfront, citing “unprecedented economic uncertainty.” This is a sad ending for an inspirational and transparent attempt to build a sustainable future, albeit sometimes criticized for prioritizing “tech for tech’s sake.”
• Reuters: New report by Nobel laureate Joseph Stiglitz and British climate export Lord Nicholas Stern identifies how the COVID-19 crisis marks an opportunity to shift to a low-carbon future. Read the full report here.
• NYT: A comprehensive, updated list of the environmental rules the Trump administration has targeted for reversal over the past three and a half years. Sad!
• IEA: As COVID-19 hits mining operations, key minerals such as lithium and cobalt used in renewables and electric vehicles will face critical supply chain risks.
• McKinsey: The Firm nicely visualizes a marginal abatement cost curve for the top 25 on-farm emissions reducing activities. Aka management consulting for farmers.
• Barclays: 150 thematic sustainability trends likely to dominate the investment conversation over the next decade.
• CEFC: Australia’s government launches a $300 million fund to accelerate hydrogen-based energy. The Advancing Hydrogen Fund will invest in hydrogen fuel plants and help "reliably integrate extensive renewable generation into the electricity grid." This from the world’s largest exporter of coal whose PM denied climate change until his country was literally on fire. Motivations are complicated, just saying.
• TechCrunch: Form Energy, a producer of long-duration batteries, signed a contract with a large utility to enable the retirement of Great River Energy’s coal plant in favor of wind and natural gas. This grid-scale battery installation is a textbook execution of the incredibly challenging maturity leap that climate technologies must make from pilot scale to commercial deployment.

Pop-up

Energy Lollipop: Located in Northern California? Check out this Chrome extension which links to your PG&E account to track and optimize your CO2 emissions.

Yale: Looking for a summer opportunity? Check out this list of internships with Yale-affiliated impact ventures.

ReFED: One of the most acute climate impacts of COVID-19 has been massive on-farm food loss driven by supply chain disruption. Know an organization with the chops to rightset the proverbial apple cart? Tell them to apply for a part of the $1M ReFED Food Waste Solutions Fund pie to be distributed over the next 90 days.

ClimateLink: ClimateLink is a Meetup group that features monthly talks and discussions. Tune in on Wednesday, this month featuring two startups tackling food waste.

My Climate Journey: Continuing the examination of how O&G cos are responding to climate change, Jason Jacobs interviewed Alex Dewar from BCG’s Center for Energy Impact. Hot takes ensued from Jigar Shah and Julio Friedmann.

Jobs

We’ve teamed up with Climate.Careers to highlight the latest jobs in Climate Tech:

• Content Writer @Wren: If your carbon footprint is light as a feather
• Project Development Associate @Generate: For those born ready for team #ProjectFinance
• Chief of Staff @Kiverdi: Be a literal alchemist and make food from air
• Senior Communications Associate @Carbon180: For those eager to flip carbon on its head
• Founding/Lead Engineer @Cooler: If you think using AI to solve climate change is chill
• Fellowship Manager @Activate: Press play on turning scientists into entrepreneurs with the folks of Cyclotron Road

Feel free to send us new ideas, recent fundings, or general curiosities. Have a great week ahead!