Firehose #155: 🌤 A climate for change. 🌤

Embracing the climate challenge, the retail boom on Main St, podcast groups on Facebook, and everyone is chilling out (literally).

One Big Thought

Image result for climate change australia

All of a sudden, businesses seem to be taking climate change seriously.

The last several months have seen pledges to reduce carbon emissions from Amazon*, Microsoft*, Intuit, and IKEA. These voluntary commitments take various forms. Microsoft, for example, has pledged to be carbon negative by 2030, to remove all cumulative carbon emissions to date by 2050, and to invest $1 billion in its vendors/partners to help them reduce emissions.

Microsoft’s pledge opens with the following motivation:

As the scientific community has concluded, human activity has released more than 2 trillion metric tons of greenhouse gases into the Earth’s atmosphere since the start of the First Industrial Revolution in the mid-1700s. Over three-quarters of this is carbon dioxide, with most of this carbon emitted since the mid-1950s. This is more carbon than nature can re-absorb, and every year humanity pumps more than 50 billion metric tons of additional greenhouse gases into the air. This isn’t a problem that lasts a few years or even a decade. Once excess carbon enters the atmosphere it can take thousands of years to dissipate.

The world’s climate experts agree that the world must take urgent action to bring down emissions. Ultimately, we must reach “net zero” emissions, meaning that humanity must remove as much carbon as it emits each year. This will take aggressive approaches, new technology that doesn’t exist today, and innovative public policy. It is an ambitious – even audacious – goal, but science tells us that it’s a goal of fundamental importance to every person alive today and for every generation to follow.

The company has gone to great lengths to move its organization in a carbon negative direction. One notable detail is that Microsoft has an internal carbon market that will extend to all “scopes” of emissions, direct and indirect:

In July 2020, we will start phasing in our current internal carbon tax to cover our scope 3 emissions. Currently this fee is $15/metric ton and covers all scope 1 and 2 emissions, plus scope 3 travel emissions. Unlike some other companies, our internal carbon tax isn’t a “shadow fee” that is calculated but not charged. Our fee is paid by each division in our business based on its carbon emissions, and the funds are used to pay for sustainability improvements.

The pace of these announcements says something about the appetite of consumers, employees, and shareholders to bear the short-term costs of climate transformation.

For consumers, climate change has become a political topic, at least in America. The rise in concern level has been driven predominately by Democrats and Independents, as shown in research from the Center for Climate Change Communication:

Image for Global Warming as a Priority Issue: Political Trends

67% of Americans believe “global warming is happening,” and 72% believe CO2 should be regulated as a pollutant. While those beliefs are split in America by a political divide, half of all Republicans actually believe in climate change.

Because America’s economic power is concentrated in the green areas on this map, businesses are waking up to the fact that the climate conscious consumer will increasingly spend at the intersection of her conscience and needs.

Employees are also putting pressure on emitters. Those with more progressive workforces have begun grassroots campaigns of internal activism. For example, 1,000 Google employees recently signed a letter to the company’s CFO demanding a climate neutral stance by 2030. Because roughly 100 global companies (mostly oil & gas) account for 71% of all carbon emissions, corporate activism will be a strong vector for change.

Shareholder activism is ticking up as well. Blackrock, the world’s largest asset manager with $7 trillion under management, announced that climate factors will lead to a “fundamental reshaping of finance” and a “significant reallocation of capital.” The company’s CEO Larry Fink writes:

Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?

Yet, while concern and activism may be high, change is not inevitable. The fervor for addressing climate change has seen numerous local maxima since Jimmy Carter put solar cells on the White House roof in 1979.

The last one was my first year in venture capital. In 2008, I landed an internship at a cleantech focused fund. That summer, the price of oil peaked over $160/bbl (vs. a range of $40-60 in recent years). Cleantech firms attracted $4 billion in VC dollars in 2008, or 15% of all VC raised that year. All the top venture firms had teams focused on cleantech, or at the very least had made a few exploratory investments. KPCB had famously made at least 40 Cleantech investments by late 2008, when its partners (including Al Gore) appeared on the cover of New York Times Magazine in a piece entitled “Capitalism to the Rescue.”

And then, the collapse occurred. After raising billions, few of the companies supported by venture capital in that era survive today. Nearly all the companies mentioned in the above article are gone, with the notable exception of Bloom Energy. It went public in 2018 and has a $1.2 billion market cap after nearly two decades, with an accumulated deficit of $2.3 billion at IPO. The electric car company featured in the article suspended operations two months later, was recapitalized in 2009, and then filed for bankruptcy in 2011.

Tesla is the sole thriving, independent company from the Cleantech era. It had the benefit of a founder with significant financial resources to back it when VCs grew skittish. Most other Cleantech startups succumbed to some combination of long sales cycles, apathetic end customers, commodity margins, significant CapEx requirements, lack of project equity/debt financing, technology aversion, misaligned incentives, or a host of other factors endemic to the energy industry.

Maybe this time is different. The cultural resonance around climate change feels palpable compared to a decade ago. Pervasive social media allows shocking pictures of fires in California and Australia to drive collective anxiety and awareness. A cultural milestone that struck me personally was the name of Pearl Jam’s new album Gigaton, i.e. the metric scientists use to weigh carbon.

Image result for pearl jam gigaton

The costs of underlying technologies have quietly made remarkable progress in the last decade. For example, the cost of a residential solar photovoltaic system has fallen at a 12% CAGR to under $3/Watt in recent years, mostly driven by cost reductions in the panels themselves from increased scale:

Finally, digitally native startups are speaking directly to their customers about carbon impact for the first time. A good example is thredUP’s* “fashion footprint” calculator. Increasingly, we will likely see startups positioning their products and services as solutions to their customers’ climate conundrum.

I am encouraged by what seems to be a shifting tide in the attitude towards climate change in the last several quarters. The collective action problem we face requires unprecedented global alignment, only comparable to the fight against nuclear proliferation.

This time, consumers and businesses will likely lead the way, not politicians. Startups may play a role enabling this transformation, but hopefully it will be more productive than the last era of Cleantech.


Tweet of the Week

Links I Enjoy


Down on Main Street. →

This piece in Fast Company describes what cities all around America are witnessing: a revitalization of downtown corridors and the resulting resurgence of local retail.

If you’re a loyal subscriber to this newsletter, you know I’ve been beating this drum for several years. Retail is re-platforming, not disappearing.


A comment section for podcasts. →

Podcasts are still an isolated experience, even though many have millions of loyal fans. Lately, fans are turning to Facebook* Groups to find one and other. As Taylor Lorenz notes in this New York Times piece, that shift plays nicely into Facebook’s hands:

The growth of these groups represents both a cultural shift and a strategic one. In 2017, Facebook saw that users were posting fewer personal updates, and younger users were flocking to Instagram. The network could no longer rely on friend suggestions for growth. Groups, on the other hand, might encourage connections between strangers with common interests, and become places to engage in endless conversation online.


The Plaid network

Plaid gets pre-approved. →

Fintech saw its biggest acquisition yet, with VISA gobbling up Plaid for $5.3 billion, including retention packages.

Ben Thompson of Stratechery had the best take I read on the rationale behind the deal. Essentially, Plaid’s customers (developers of consumer fintech apps) are akin to storefronts in the early days of credit cards. Since VISA (then BankAmericard) invented the latter business, it had unique insight into Plaid’s potential in a world shifting to digital commerce.


Everybody chill out. →

A new study shows that “normal” human body temperature has declined by up to a full degree from the “standard” 98.6 degrees Fahrenheit, which only became cannon in 1851. Scientists attribute the change to better overall health. We have fewer infectious diseases on average, which lowers inflammation in the body. Air conditioning and a relatively sedentary lifestyle may also play a role.


Boston Public Library, Flickr, Public Domain, Wikimedia Commons

Sticky situation. →

101 years ago in Boston’s North End, 2.5 million gallons of molasses exploded from a flimsy tank and wreaked havoc on the community. Clean up required over 80,000 man-hours of labor. Since molasses doesn’t easily dissolve in fresh water, firefighters needed to pump salt water from the ocean nearby to wash away the sticky goo.

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Disclaimer: * indicates a Lightspeed portfolio company, or other company in which I have economic interest. I also own stock directly in AAPL, ADBE, AMZN, CRM, FB, FTCH, GOOG/GOOGL, NFLX, SHOP, SNAP, SPOT, SQ, and TWLO.

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