On International Day of Clean Air for Blue Skies, shortly after the first day on which there had ever been rain on the highest peak in Greenland and in the run up to COP26, Green Angel Syndicate hosted its first members’ debate on climate change. The motion was:
“This house believes that the solutions to climate change are to be found in growing entrepreneurial-led companies rather than in the energy and industrial giants of the 20th century”
The debate divided members’ opinions on the role of big business in the fight against climate change. But all were agreed on the need for collaboration between corporates and innovative entrepreneurs to ensure that the right technologies are used to transform the global economy. The Green Angels also agreed that the Heads of State at COP26 must make this a priority and call for urgent action to make this happen.
From horse dung to innovation
Proposing the motion was longstanding GAS member Ian Marchant, CEO of SSE from 2002 to 2013, Chairman of Logan Energy and Thames Water. Ian kicked off the evening by describing to us “the great horse manure crisis of 1894, which was the biggest ecological issue facing London, with 50,000 horses leaving between 15 and 35 pounds of manure on the streets.” The prediction was, that in 50 years, “every street in London would be buried under nine feet of manure.”
Pioneers of the automotive industry saw this as a call to action. These were small, start-up entrepreneurs, or as Ian puts it “the men in sheds”. Of course, they weren’t to know then that in solving one environmental problem, they were laying the groundwork for the disastrous acceleration of climate change, but the point here is that they were the innovators and problem-solvers of that time.
The 7 deadly sins of big business
Ian described what he sees as “the seven deadly sins” of large companies, all of which prevent them from acting fast on climate change.
- The oil tanker problem, so called because it takes over 3 km to stop an oil tanker. Large companies suffer from “built-in inertia”, based on the enormous amounts of invested capital in their existing business models and strategies.
- Apollo 13, where “failure is not an option”. Here, it is a sin for large companies, because they have built risk committees, investment committees and investment appraisals, all designed to minimise the chances of failure, which has the unintended consequence of minimising the chance of new ideas succeeding.
- The prop forward. For those who are not familiar with rugby: prop forward is a position in a rugby team and they are strong, but “boy are they slow!” Large companies are slowed down by the layers of bureaucracy and responsibility that come with every decision.
- The Maginot Line — the defensive line built by France in the 1920s and 30s to protect itself against German invasion. All the Germans did was drive the tanks around it. Large companies often build their defenses against the wrong problem. “They are worried about what their competitors are doing and don’t think enough about the fundamental dynamics of the marketplace.”
- The King Canute problem of believing that you can command the tide. Large companies have this “sense of invincibility and suffer from hubris. They’re not humble. They take great pride in their market leadership. They are so busy trumpeting their abilities and achievements, they are unaware of the tide coming in.”
- The Galileo problem. Galileo was convicted of heresy for saying that the Sun did not revolve around the Earth. Big businesses typically don’t listen to unconventional truth-tellers; they like the status quo and those in alignment with their view of the world.
- The Medieval Fortress problem. Large companies generally “pull up the drawbridge and are closed to outside influences. They suffer from the ‘not invented here’ syndrome. They don’t do partnerships or alliances well.”
“The reality of climate change is a creeping problem: it gets a little worse every year. Creeping problems are always a challenge for incumbents because it’s always possible to say ‘it might not be as bad as we think’ or ‘it will take longer’. The COP events are a great chance to think about what has happened over the last 5 years.”
Enough gambling — time for COP26 to turbocharge!
Opposing the motion was Louisa Cilenti, a highly active GAS member and a lawyer specialising in the corporate and financing aspects of complex renewables transactions. Louisa was speaking from London, which was an unreasonable 28 degrees. She said:
“The need to innovate has never been more urgent — our very existence depends on it. We have less than 10 years to halve global greenhouse gas emissions and achieve Net Zero emissions globally by 2050. To achieve this, every sector in the global economy needs to radically transform.”
Louisa argued that we’ve “gambled enough with the future of the planet and time has run out. We can’t afford to play Russian Roulette with the solutions and actions needed to keep us within a 1.5 degrees pathway.” Although new technologies and start-ups have a “vital role to play”, she stated that “long-shot ideas with a high risk of failure cannot be our Plan A. We must streamline the investment pipeline into the mitigation pathways that are a priority to deliver the greatest decarbonisation by 2030.”
“We know that renewables, energy efficiency and direct electrification are the bulk solutions needed. Beyond 2030 these need to be rapidly supplemented by hydrogen and carbon removal technologies. Accelerating the global transition to renewable energy is an imperative and so must be a priority for COP26 discussions.”
Louisa called for the rapid scaling up and commercialisation of these technologies and solutions for decarbonising our energy systems, transport, homes and buildings.
She advocated big business and utilities partnering with smaller, more agile, innovative businesses to bring this scaling about. This would allow startups to leverage the expertise and supply chains of larger companies and bring down costs in a “win-win” scenario.
Louisa sees COP26 as “a platform to turbocharge the partnerships needed to replace today’s outdated business models and create sustainable growth in harmony with the planet.” She also called for COP26 to prioritise “a just and inclusive transition” and “nature-based solutions to protect and enhance our natural carbon sinks and protect our ecosystems from exploitation.”
Why do we need startups in climate tech?
Seconding the motion was new GAS honorary member, Toronto-based Phil De Luna, a carbon-tech innovator, Green Party candidate and the youngest ever Director of the National Research Council of Canada, where he leads a C$57 million research programme. Phil was speaking from Toronto, at the end of a heatwave that reached up to 35 degrees, an unusual temperature for the city in September.
Phil backed up Ian’s argument, stating that “innovative small technology companies are the key to solving our climate crisis.” He called attention to a report by the International Energy Agency called Energy Technologies Perspectives. They analysed over 1000 different technologies across hundreds of potential sustainable development pathways to explore what it takes for us to get to net zero by 2050.
These wedges show types of technology that need scaling: hydrogen, bio energy, renewables, electrification, fuel shifts, technology performance, and carbon capture, utilisation and storage.
“There’s no one size fits all approach, but rather a combination of the technologies used in a very specific way in each specific jurisdiction will lead us to Net Zero by 2050,” said Phil.
Interestingly, almost half the emissions reductions needed by 2050 rely on technologies that are not yet commercial. These technologies exist as pre-commercial prototypes or in labs. Here are the astonishing metrics Phil drew our attention to, if we are to succeed:
- Build a solar park every 2 days, starting today
- Build the world’s largest electrolyser every hour, starting today
- Build the world’s largest carbon capture facility every week… starting today.
“There aren’t enough multinational companies in the world to be able to build up all of this infrastructure, especially given the slow speed at which they move.”
All this leads to the need for innovation. It takes time to go from “invention to impact” says Phil, “and we don’t have half a lifetime to develop the next generation of clean tech to help us solve climate change. We can’t wait for decades for traditional discovery, development and commercialisation. We need the solutions now, because time is running out.”
We need small, innovative companies to find the technological solutions. Rather than “a gamble”, Phil sees “every single investment as a lesson learned.” Big business is risk-averse, while startups take those risks needed to move fast and innovate: “that’s the beauty of small companies”. He went on to say: “Yes, time to market is longer. Yes, the failure rate is high and 75–90% of climate tech startups fail. But as I said, every one of those failures is a lesson, not billions of dollars wasted. These new innovative companies are spurring the sector, developing a highly skilled workforce that can learn, evolve and create new solutions. It’s a much more cost effective approach than the overheads required from large multinationals.”
Phil talks about big businesses that have pivoted into the sustainability space and asks: “If large multinationals are the answer to solving climate change, why haven’t they done it already? What is the business case for them to solve climate change? If this was truly the case, then going into COP26, we would have a much more robust and clear pathway towards decarbonisation.”
Shouldn’t the world spend more on climate tech R&D than Netflix does on new stories?
Seconding the opposition to the motion was polymath Benjamin Yeoh, Senior Portfolio Manager at RBC Global Asset Management, Playwright and Chair of the Responsible Investment Advisory Committee.
Ben counters that yes, we need both big business and small innovators, but puts forward that “we need the big old companies more”. He talks about climate justice, with almost 1 billion people living in deep poverty, on less than $2 a day. How we tackle climate change and how we tackle poverty intersect. These are problems involving: electricity and power generation; land, food and agriculture; manufacturing; transport; and buildings.
Research and development (R&D) spend is crucial for innovation. Like Phil, Ben shows us some alarming figures: the amount of financial capital we need every year from now until 2050, is approximately $1.5 trillion. Last year, our global renewable R&D spend — both public and private — was $17 billion. In comparison, Netflix spent more on new films last year. Ben poses that this investment cannot come from startups. Even if they have the ideas, it is the big old companies that will fund them.
“These businesses need to pivot — the bulk of the heavy lifting will be done by the old companies in old industries, in collaboration with the new.” Governments need to facilitate this at COP26. Ben says we need “both personal and systemic change… We’re using our voice to influence governments and nonprofits. We need the old and the new, big old companies and startups. Systemic change only comes about by actors and individual actors getting together and influencing that system.” And how will this come about? “Through new ideas leading to cultural change, through collaboration and innovation, through pivoting.” Ben touches on some of these themes in his podcast with economist Diane Coyle.
In his summing up, Phil commented: “If we did not have small companies, where would the big companies go for innovation? For me, I always like to put my bet on the thing that is yet to be to be a first mover. And I implore all of you to ask yourself the question, what would you rather do, put your money in stocks of a large corporation, or would you rather be a member of the Green Angel Syndicate and invest in innovative companies that could change the world.”
Louisa added: “We’re not saying change the startup ecosystem. Let the innovators rain. But we won’t see meaningful and drastic change without partnerships. And those partnerships will make it easier to attract capital.”
Splitting the vote
GAS members, who were not allowed to sit on the fence, were split evenly, suggesting (as many said during audience participation) that both innovators and large companies must be encouraged to work together for both need ends of the business spectrum need to succeed if Net Zero is to be attained by 2050.
Green Angel Syndicate members came to the debate with an acute appreciation of the important innovations coming through at grassroots level. These innovations have the capacity to transform the practical processes used to access goods and services in the modern economy. Investment through Green Angel Syndicate is crucial to facilitating their development. The huge companies that dominated the 20th century cannot make the transition alone and unaided in the 21st. Big companies are designed not to take risks, but they need to. Angel investors know that there is an element of risk in investing in start-ups, which is why they build portfolios.
The Heads of State at COP26 have a chance to, as Louisa says, “turbocharge” partnerships between big business and climate tech innovators. We call on them to listen and do just that.