Starting a Climate Change Startup
Updated: Jan 17, 2021
My major principles for building a climate change startup are below. This article is how I got to, and defend these principles...
1Gigaton of carbon reduction
Decarbonize a major sector without offsets
Solve business problems with data solutions
Why should you care?
Climate will effect all of us. From more extreme weather to major shifts in our food supply we will all be effected in major ways. We are already on track for 2 degrees of warming and its only by working on solving some major problems can we hope to limit the worst effects. A post fossil fuel world is also potentially amazing! Finally, it is also the largest startup opportunity of any of our lifetimes and so if you want to build companies, it should be top of the list.
How it began
Jan 2nd 2020, I was on a flight from Thailand to Ireland after a friend’s wedding. I love flying alone, its my best time to think. My mind started to wander to climate. I had read The Uninhabitable Earth a few weeks earlier but had not really absorbed it. I was sitting there, around hour 8 on the BKK>DXB leg and I started to feel indignant. Then furious. Why did I not know anyone working on climate change? Didn’t they know the world was on fire? This fury lasted 2 minutes and was left with a dull feeling of insight. “James, you are not working on climate… Why not?”. From that moment to leaving Ireland was about three days and I had fully decided to work on climate change for the rest of my life.
How it is going
Since leaving my last role in July 2020, I have learnt so much! From the great My Climate Journey and Airminers communities, the Climate Change Academy twice monthly study group, conversations with amazing On Deck fellows, and great resources on the best companies in the decarbonization space. As I narrow in on building a company focused on decarbonization, I wanted to share the main things I’ve learned as well as what underlies the principles above...
Sector specific decarbonization
My view is that sectors need to clean their own house up without offsets. This is a massive opportunity for new startups to aid in this (this is a great overview of opportunities in fashion alone). Why would a sector decarbonize? What are the incentives? Where is the pressure? There are three...
The Three Pressures
Consumer pressure: This is by far the weakest form of pressure (currently). Climate change is rising as a number 1 political issue but it is not there yet, and Consumers are not yet voting with their wallets. Consumer pressure for more sustainable brands is close to non-existent in the developing world.
Shareholder pressure: This is a fascinating space. Since the blackrock divestment announcement more and more companies are making decarbonization pledges. This is the type of pressure I plan to build a company around.
Regulatory pressure: I include both governmental regulations/incentives as well as compliance standards created by business organizations. Europe is the main region which uses regulations to put decarbonization pressure on companies. When building technology for the US market regulation may be a helpful talewind (especially in some blue states), it is important to build business models that do not depend on it.
Why not offsets?
When I started looking into large scale climate mitigation I was a big fan of offsets. As I learned more, I went 180. Offsets are an essential part of a couple of sectors but in general fail as a major part of decarbonization:
Opaque: Why can I not type $CARBON into yahoo finance and get the cost of offsetting a ton of carbon? There are dozens of offsets marketplaces, from soil to DAC. The price generated for an offset ton of carbon is incredibly variable and opaque. Without a global clearing price for the cost of a ton of carbon (driven by regulation or market forces) offset markets are too opaque to be a major factor in decarbonization.
Sector arbitrage: In an effective offsets market, the cost of an offsetted ton of carbon would be $x. That would be the same price for any company, regardless of sector. So McDonald’s, Delta and Google would all be able to offset for the same price; however, each of their businesses have wildly different margins. It is my view that sector’s that can clean themselves up and decarbonize directly, will do so from a cost POV, as they will not be able to compete with the price dirtier sectors are willing to pay for offsets (Delta will outbid McDonald’s)
Timing: I spoke to the head of sustainability at one of the largest beverage companies in the world and she straight up told me - we cannot do nature based offsets because of the timing. Offsets for things like forestry commit to the forest existing for 10-20 years. Fewer companies with robust carbon accounting are trusting timelines like that. She told me, we would need to buy the land the forest is on and hold it 10 years if we wanted to count it as a proper offset! Instead, they are working to get their entire supply chain to net carbon negative.
ESG: I have a few friends working at some of the major ESG indices. The general vibe is that offsets are likely to be downgraded in terms of a good ESG score relative to direct decarbonization efforts made by enterprises.
Great, I can see where the pressures are building, where some business models might emerge from those pressures. But what technology do we need?
I do not believe we need to invent new technologies to decarbonize most sectors of the economy. Either the technologies we need are scaling (renewable energy), established but not fully at scale (electrical vehicles, hydrogen applications and building heat pumps) or technology is not the major limiting factor, but rather it is social/educational (food, fashion). We likely need new technology to get some sectors net negative without offsets (aviation, mining?), but I am personally less concerned with those as they are a relatively small part of the emissions pie. The way I think about technology is using existing, commercial scale technologies to push new, zero carbon practices. Some technologies I am most interested in:
Machine learning: I could write a whole essay just on this, but suffice to say, I am bullish on ML.
Remote sensing: satellites are cheap! From completely free, to ~$0.04 per acre. There are also amazing advances in drones and even high altitude balloons.
IoT: when I chatted about hellotherma.com for the podcast I was blown away by the potential for next gen IOT devices to be deployed at scale.
Bockchain: Mentioning it because it comes up alot - I am not a fan of blockchain for non-digital assets. A key aspect of managing the flow of data with disparate stakeholders is NOT uniqueness and immutability (uuid works great!) but rather the ability to map data sets together using COMMON identifiers based on real world things. If I build a fancy new data set and I want it deployed in a way that it can link to other data easily, then I may use an ID that is geography based (geohash9)! That allows both uniqueness and a easily reference-able id that works with other systems.
There are a couple of additional market tailwinds that are helping move us to a decarbonized economy:
Digital Transformation: Enterprises love to talk about digital transformation! And most are doing so! Digital transformation generates lots of data about how they do things and makes orgs more willing to experiment with new practices. At the margin this helps decarbonization
Cross enterprise domain expertise: When i started talking to large enterprises in the food/ag space, i was quite surprised by how few knew about types of technology that i have used for years in other sectors. As people with domain experience in more high tech sectors start to move into lower tech sector, they will cross pollinate the best ideas.
We still have big blockers to mass decarbonization:
Talent: “I have solved some of the biggest problems in the world working for great companies… how do i get started in climate?”. As part of my cofounder search I have talked to more than 100 people massively interested in working on climate change… But most have not yet made the move. There is a real mismatch between perceived opportunity for roles in climatetech and the actual scale of problems to work on.
Startup Capital: The lack of a global price for carbon means that capital flows into climatech are not efficient. This is starting to change thankfully, but we still have no where near the VC/PE capital inflows that we need into climatetech. Sidenote! If you are a VC and have asked a potential investment or existing portfolio company how they are coping with COVID, my challenge is, have you asked them about how their thesis incorporates climate? (if there is a COVID slide in the deck, there should be a CLIMATE slide in the deck)!
Financing: If I was not so obsessed with data solutions, I would be focused on financing large scale decarbonization. There are so many massive companies to be built in this space but sadly we are far behind where we need to be. My thinking here is heavily influenced by Solving Climate Change with a Loan.
Social: This is the biggest one. The majority of people do not have climate as a number one issue yet. This is changing, but too slowly.
There are some debates popping up around decarbonization technologies. Nature based proponents arguing with DAC technologists on scale and timing. Debate is good! But my take on all the debates is:
Portfolio approach: The scale of the problem is so massive that we will need massive change across all sectors and technologies. We will need mass electrification to make the economy overall more efficient. We need new practices like regenerative farming to make supply chains carbon negative. We need to sequester using nature based solutions (short to mid term) and DAC style solutions (long term). Everyone has a chance to build something massive as every economic sector is effected.
Buy time: Nature based solutions are a great way to buy time over a 5-15 year frame. I do not believe nature based solutions can in total sequester already released atmospheric carbon.
Worst case scenario?: Say DAC becomes as cheap as electricity and solves the entire problem? Will those working on soil sequestration via regenerative farming for 10 years be upset? Of course not! They have made farming better for the farmer and local ecosystems. In many cases there are so many positive externalities to decarbonizing a sector that it should be done regardless of the overall state of global warming.
Onwards and upwards! or stop the bleeding… : There are a lot of cool technology companies emerging focused on decarbonization and fighting climate change. I love them all and want them all to do well! But they are often developing cool new ways to do something positive when often there is a massive negative that is counteracting their efforts. A big example is forestry. There are cool companies coming along that are planting trees (many using offsets as their business model). At the same time we lost 9MILLION ACRES of forest to deforestation last year. "At least 1.8 gigatonnes of carbon dioxide emissions are associated with 2019 primary forest loss, equivalent to the annual emissions of 400 million cars." We should be entirely focused on stopping the bleeding first as that is by far the bigger problem!
Founders and potential founders!
Want to work on climate change? Want to be a part of saving the bloody world? My quick guide to getting involved in climate:
Pick a sector you find compelling
At your current company, what sector are you in? What are the challenges to decarbonizing that sector?
Project Drawdown is a great place to find ideas
I personally had a look at this map and thought through sectors I found compelling (i came to food/ag after first playing a bit in manufacturing!)
Gain a community
Join slack communities like My Climate Journey and Airminers
Set up masterminds/discussion groups - you know 3-4 people who want to work on climate and don’t know how? Set up a once a month mastermind/discussion group on zoom
Expertise Mad Libs: Climatetech is so new becoming an “expert” is not difficult! Pick a region, a sector and a technology, learn as much as you can on how those three things intersect and and in 6months you are an expert! Examples: Southern US, Office Buildings, Heat Pumps OR British Columbia, Forestry, Biochar - I knew nothing about ag soil carbon for the US on July 10th, 3 months later I’m asked to speak about it at online conferences!
Talk to experts! Don’t know any? Find them on linkedin and send them something like the below. The conversion rate is pretty high! (Hi NAME, I am interested in building technology to do X and decarbonize SECTOR. As an expert in the space are you available for a 15minute research chat to discuss the biggest blockers to decarbonization in your SECTOR? Thanks!)
Podcasts! My Climate Journey, Carbotnic (shameless plug), Energy Gang etc!
Read! Order 10 books and read them!
Honestly just start. Put ideas out there, talk to potential users. Do the usual great, fun, stressful startup pivot dance. As long as you have some principles to guide you, you WILL FIND A THESIS.
My principles are repeated below and are the sum up of all I have learnt. Create your own, take mine, rejig, juggle them around etc. Tweet me @james_mcwalter if you want to chat more on starting a climate change startup!!
1Gigaton of carbon reduction
Decarbonize a major sector without offsets
Solve business problems with data solutions