Investing in climate venture capital

Thomas Mucha, Geopolitical Strategist
Greg Wasserman, CFA, Head of Private Climate Investing
2023-11-16T12:00:00-05:00  | S2:E18  | 27:05

The views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk.

Episode notes

Head of private climate investing Greg Wasserman joins host Thomas Mucha to discuss his latest research on climate venture capital, including highlighting climate technology in the private market, the impact of today's geopolitical and policy environments, and much more.

Key topics:

2:35 – The evolution of climate venture capital

6:45 – Private climate’s growing opportunity set

9:07 – What technologies are maturing versus mature?

10:25 – Leading-edge climate innovations

12:10 – Collaborating with industry and climate experts

15:25 – Climate change disrupting capital markets

17:45 – The US Inflation Reduction Act

20:15 – The intersection of climate and national security

23:30 – What’s driving climate entrepreneurs?


GREG WASSERMAN: You’re in this place where the cost curves have come down so much that the technologies are actually cheaper, and the performance has gotten a lot better, and so the opportunity set’s just much, much larger now.

THOMAS MUCHA:   Every once in a while in history, policymakers at opposite ends of the political spectrum support efforts to resolve big problems, albeit for different reasons. Of course, addressing major challenges may benefit local communities and constituencies, or create new markets that businesses, consumers, and investors can then capitalize on. The global drive to decarbonize the economy, and build resilience to climate change, has led to a modern day gold rush, and is sometimes creating strange bedfellows. Many climate skeptics are increasingly seeing green, thanks to falling costs of alternative energy, as well as rising incentives for climate innovations and growing consumer demand. I’m talking here about clean tech, sustainable infrastructure, electric vehicles, grid resilience, and on and on. Now, we hope and we expect that these solutions will not only help the world adapt to and mitigate some of the worst effects of climate change; they also collectively represent what could be the biggest investment opportunity in a generation. So here to talk about the leading edge of this opportunity, private venture capital, is Wellington’s Head of Private Climate Investing, Greg Wasserman. Now, Greg is a veteran investor who has been at the forefront of alternative energy and clean tech research and investment since 2006, including heading the Clinton Foundation’s Global Solar Initiative. Greg, it’s great to have you here in Boston and welcome to WellSaid.

GREG WASSERMAN:     Good to see you, Tom.

THOMAS MUCHA:  So you’ve been investing in clean energy and tech for longer than pretty much anyone I know. You’re literally a green pioneer. So that begs the question: what made you want to develop expertise in this area way back when the market was tiny there was very little policy support, or even consumer demand that was driving growth?

GREG WASSERMAN:     It was actually not planned, and a little bit random. I was working at Goldman Sachs, and I was part of a principal investing team that invested just Goldman’s capital, and our business had a lot of flexibility from the firm on what our investment mandate was, and so we could go different areas where we thought there was opportunity. And back in 2005, which is really before climate investing or clean tech was a thing the US government passed the Energy Policy Act of 2005, and that’s what was the first big incentives for solar and wind and that’s really what spurred the industry. And my business unit said, “Well, wait a second. There’s probably gonna be a bunch of venture companies that will be building the tech that will rely on those incentives, and will get a lot of scale, and so why don’t we go look at those?” And so they started talkin’ to a couple people around the business, saying, you know, we might spin up this new alternative energy venture investing team; who’s interested in doing that? I was talking to one of the partners in the business, and I had no previous interest in climate -- it’s something I never really thought of before -- but started poking around, and I said, you know, that sounds super interesting. Looked at some of the early technologies in the space. I said, those are really interesting, and thought it would be fun, and went and did that. And that was really the start of my journey, and it’s where I’ve spent almost my entire career since.

THOMAS MUCHA:  So you basically stumbled into it.

GREG WASSERMAN:     Exactly.

THOMAS MUCHA:  Now, Greg, in addition to your time at Goldman, you worked for Generation Investment Management, under Al Gore and David Blood for about a decade, and I think this was a few years after An Inconvenient Truth, the documentary about Mr. Gore’s climate efforts, had been released. So tell us more about what that time was like, and what you learned from it.

GREG WASSERMAN:     I think that time was really incredible, and in a lot of ways set the foundation for our approach to investing in the climate space. In the early days of when I joined Generation, I was part of their climate solution fund platform, which was investing in private climate companies, very similar to what we do here, and in the early time in that space much of the market was clean tech, right? It was all, what is the latest solar cell technology that will drive solar down the cost curve; what are people doing in the carbon markets; what is battery innovation that’s happening; what’s wind turbine innovation. And eventually those, in a lot of ways, become commodities, and, as targeted investment areas, may be not all that interesting, and throughout that time we started realizing there’s opportunities for all these other things around the edges where you don’t necessarily immediately think of this as a clean tech company -- maybe it’s not even a clean tech company -- but you start seeing that there’s climate benefits that can happen really across the board in everything the world does, and so really, throughout that time at Generation in the back half, expanding our thinking beyond what’s actually a climate solution. And just to give a few examples, I invested in a leading digital signature company. People don’t often think about electronic signatures as a climate solution, but you’re actually saving a ton of paper and ink, and you’re not shipping signatures around the world --

THOMAS MUCHA:  And water that goes into all that, right.

GREG WASSERMAN:     Exactly. I was an investor in a prominent bike sharing company. And, you know, people don’t ride a bike share because they think that they’re saving the emissions of a taxi ride; they do it because it’s faster to get from one point to another within the city, depending on how far you’re going. And so really just love those solutions where it’s no longer just core what everyone thinks of as, as clean tech, and really just much broader climate solutions, and that was a lot of the evolution during the time at Generation, which led to a lot of my foundational views on investing in the space.

THOMAS MUCHA:  That’s funny: I’ve had a similar experience. Once you see the world through the climate change lens, it sort of changes the way you think about a lot of other things, and I’ve had similar conversations with investors all across Wellington who have come to the same conclusion. It’s such a driving force that it forces a change in your thinking.

GREG WASSERMAN:     Exactly.

THOMAS MUCHA:  All right, well, let’s fast forward to today. Now, the current climate change imperative has, of course, led to an explosion of private investment. More than 32 billion in climate VC deals were made in 2021. That went to north of 25 billion in 2022, which was an abysmal year for almost all corners of the market. And I think we’re up to about 15 billion in deals already in the first half of this year. I even saw one figure that says climate VC deals represent almost 10 percent of the overall private investment universe right now. So, Greg, what do you make of all this, and, in your mind, what’s driving this boom?

GREG WASSERMAN:     I think it’s a couple things. It’s very much around the opportunity set. As the markets matured, and cost curves have to come down, all the sudden you’re in this situation where the climate-friendly version of something is actually better. You know, if I think about electric vehicles, ten years ago they were really expensive and, and very niche; now, they’re quite mass market, and they’re just better. And so you’re in this place where the cost curves have come down so much that the technologies are actually cheaper, and the performance has gotten a lot better, and so the opportunity set’s just much, much larger now. And so what you see is because of that cost decline, deployment’s really accelerated and so you’re seeing this huge adoption of electric vehicles, huge adoption of people doing solar in their homes, people starting to put batteries in their homes. Smart thermostats are no longer a leading edge technology; they’re sort of a standard thing that people install now. And I think when investors and markets see adoption, they say, okay, we can really turbocharge this with more capital, and so you see a lot of capital going in and saying, these were all the first generations and the second generations, and now we can keep building more, because it’s no longer sort of an emerging space; these things are starting to take over a lot of the incumbents, and that just creates a lot of market opportunity, and needs a lot of capital alongside that.

THOMAS MUCHA:  So it’s a virtuous circle.

GREG WASSERMAN:     Exactly, yeah.

THOMAS MUCHA:  All right, so, down to brass tacks: where’s the money going? And what do you think are the biggest areas that are getting more funding?

GREG WASSERMAN:     I think it’s really quite broad. Over the years that I’ve been investing in the climate space, we’ve seen just more of a bifurcation of the market. As the markets matured you’ve seen all these different segments pop up. And so there’s now venture capital going after climate change technologies. Even within the venture capital stack, you’re starting to see specialization, either by end sector, you know, of people just focusing on energy, just focusing on food just focusing on transportation. You’re seeing a lot more stage diversification now, so funds that only do early stage, funds that only do growth stage. Still early with private equity and buyout, but you’re starting to see a little bit of that. As the markets matured and these segments become cleaner, the capital now has much more targeted places to go after, and so investors can more target the places they’re most interested in, both from the fund side, but also LPs can allocate their capital to where it best fits what they’re looking for.

THOMAS MUCHA:  From an industry perspective, where are we on this spectrum? Are we a maturing market still, or is it a mature market?

GREG WASSERMAN:     I think it’s still maturing, and obviously there’s a lot of different slices to it. If you peel back the onion, even if you just look at energy transition, which is obviously one of the big areas within the space, things like wind are quite mature. Onshore wind’s very mature; offshore wind, fairly mature. Solar has become a pretty standard technology now, and so I’d say solar is very mature. But now you’re starting to see solar get deployed alongside batteries, and other electrification in the house, and so it’s sort of the next generation. Sticking with the EV theme, charging, and how chargers become smart and connected. You know, if you look forward a couple years, your car’s basically a giant battery, and so all the sudden why can’t the car back up your house, or why can’t the car be there to support the grid in the middle of the day if there’s ever grid shortage, just by treating it like a big battery. And so all of the pieces that go into the software and the connectivity and the standards is probably on the emerging side. And so we really just see the market like that, where there’s aspects that are maturing, but then there’s always just new things popping up on the emerging side, and for me, that’s always what’s most exciting.

THOMAS MUCHA:  Well, let’s dig a little bit deeper into what the future looks like. What are some of the most intriguing leading edge innovations that you’re seeing right now that may not be investable, or may not be scalable, but that you have your eye on right now?

GREG WASSERMAN:     It’s really across the board that we see a lot of this innovation happening. If I think about themes ’cause I tend to try to think about things in themes --

THOMAS MUCHA:  Yeah, me, too.

GREG WASSERMAN:     One big theme is around just things becoming smarter and more connected, and so you can take a device, or a widget, or an appliance that used to be just out there and dumb and not connected, and you can put some brains inside of it. You can put microchips and semiconductors and connectivity and Bluetooth and Wi-Fi and all the sudden you can make it smart, and put some software around it, and there’s interesting things you can do with that. And so that’s a big theme we see. And our colleague Molly who you obviously know, has spent a lot of time looking at the agriculture space, and saying, well, there’s all this farm equipment out there, and farms, with crops and soil and censors and everything. How are those getting smarter? And we’re at very early edges of starting to see autonomy come into tractors, electrification come into farm equipment. You know, Molly’s talked to companies that do machine vision for better spraying of pesticides, where, instead of blanketing a whole field with pesticides, you can have a camera just see where there’s actually something that needs to be addressed and just spray that, and you can save 90 percent of the crop treatment, which saves farmers tons of money, but it also, obviously, saves the chemicals that go into those treatments. So we’re really just early days of starting to see all these technologies come out, but a lot of what’s exciting for us is they don’t rely on leapfrogs in technology, right? It’s all machine vision, it’s semiconductors, it’s censors, it’s connectivity, and all that stuff’s pretty mature, but just as those ecosystems have driven cost down and performance up, it’s really opening up all these different applications and areas you can start deploying in.

THOMAS MUCHA:  That’s interesting. So, it’s the combination of these technologies used in different ways.

GREG WASSERMAN:     Exactly.

THOMAS MUCHA:  As a follow-up to this hunt for innovation, who’s your universe of collaborators here?

GREG WASSERMAN:     Yeah, it’s quite large, and this is one of the most exciting things about doing the investing that we do within Wellington is the space for climate solutions is really quite broad. Climate’s not a sector, right? It cuts across everything we do. Most people think of the obvious ones, like energy and food and agriculture and transportation, but it really gets into fintech, it gets into insurance, it gets into metals and mining, and so it’s really broad. And so having access to all of our global industry analysts, who are just experts in their spaces, has proven just really powerful for us. And so, Molly spends a lot of time with Catherine Gunn talking about agriculture equipment. Catherine covers the incumbents, and so thinking how powerful those incumbents are, and how difficult it is for some of these startups to go challenge them, is really valuable for us on the investing side. David Katter covers solar and the renewables space, which is obviously very core to what we do, and so me and Mike DeLucia spend a lot of time with him. Tim Casaletto on the utilities side. Anytime we see utility software, we’re like, “Hey, Tim, what do you think of this? Would your companies use this? We’re diligencing something. Can we talk to someone at some of the utilities you cover. Can you help us get to some diligence contacts and we can get some market insights from them?” You know, Sean spends time with Andrew Byrne on mining. Obviously a lot of the critical minerals that go into a lot of these solutions and people are talking about copper shortages and all this stuff going forward, and Sean sees interesting companies doing software to help mining machines better target where they go dig so you can have better yields with less digging and less emissions that go along with that. And then we have our external partnerships, which are hugely valuable. A really important one for us is Woodwell, which is one of the world’s leading scientific organizations around climate change. Woodwell’s insights are interesting and unique, because they really focus on what we call the physical risk of climate change, which isn’t the carbon side, and what’s causing climate change, but it’s much more what are the effects climate change is actually happening on the world, and how that’s driving extreme weather with heat, storm, drought, fire, flood. And they’re at the leading edge of seeing what the scientific community’s doing, what they’re seeing, solutions, and ideas. They also have very particular expertise in a lot of areas that’s quite additive to what we have internally as a platform. One space we see a lot of activity is around climate risk, climate analytics, better weather forecasting, trying to do better projections of flood risk or fire risk for insurance and things like that. And Woodwell has people that have their PhD in weather modeling or climate modeling. And so when we see a company that tells us they have better —weather projection algorithms, we can grab one of the scientists from Woodwell and say, “Hey, Dr. Zach, can you join a call with us and tell us what you think of this?”

THOMAS MUCHA:  I spend a lot of time with the Woodwell people, as well, applying it to my own research, and it’s a huge secret weapon that we can employ in our own thinking. So, Greg, let me back up a little bit here, and talk about how history shows us that robust private activity, a lot of the things that you’re describing today can be a leading indicator of a big public market opportunity down the road. So do you agree with that path, first of all? And how do you think climate solutions are gonna reshape capital markets writ large?

GREG WASSERMAN:     I certainly agree with that. There’s so much disruption happening in our space, and what’s interesting about it is, compared to the public markets, the companies we see tend to be a little bit more of a pure play. You know, obviously there’s a range of incumbents, but a lot of them tend to be a little bit more diversified. And so as these companies grow and eventually make their way to the public markets, A, it’s a whole new opportunity set, but also it’s a way for the public investors to play certain themes, maybe on a more targeted basis than they can currently do in the public markets, where you can see that theme but it’s maybe only 20 percent of a company’s revenue, so it’s not quite as direct. I think that’s a big piece of it. And then I think we are going to see climate change affect, you know, the entire market. I mean, this is something obviously we talk about a lot with you, and our colleagues around the firm, but when you look at all of the data, all of these weather impacts that we’re seeing, you know, every day there’s a new weather event or climate-related event that’s been on TV. One of the ones that I just saw recently is that Spain lost half of their olive crop this past summer to heat and drought. And so olive oil prices are skyrocketing 100 percent now. And all of those impacts you’re gonna see much more broadly, and so people’s real estate assets, manufacturing assets, the insurance sector, financial sectors, banks and lenders, and manufacturers needs to rethink their supply chains and make sure that they’re resilient. The utility sector’s going through a huge shift because of electrification. You know, as people shift away from fossil fuel-powered cars to an electric car, and a heat pump instead of a gas furnace, you know, your electricity usage goes way up, and all so all the sudden the utilities share as a percentage of your energy use goes way up. And so there’s really just quite substantial shifts in the market that I think you see underlying themes of climate driving some of that and will be a lot of interesting opportunity really for a long time.

THOMAS MUCHA:  So all the things you just mentioned have a macro component to them, as well. These are big, structural shifts not only in technology and society and politics but in the macro environment. And I know declining cost curves, rising return on investment, these are the biggest drivers for you here, but from your perspective, Greg, how do you think about, let’s say, the potential for GDP growth, job creation, shifting political backdrops? I mean, how do those aspects fit into your thinking about the future?

GREG WASSERMAN:     Yeah, it’s all directly related, and this is why you see governments playing a role in this energy transition. Look at what’s happening with the US Inflation Reduction Act, which is obviously a big topic of discussion, there’s been this huge explosion of local manufacturing in the US, partially driven by some geopolitical concerns, and so there’s really been this big driver of all this growth.

THOMAS MUCHA:  Yeah, I’ve heard 275 billion into the economy, 170,000 new jobs created, so there’s clearly macro impacts, right?

GREG WASSERMAN:     Yeah, the numbers are huge, and, you know, it’s job creation, and people care about that. People care about GDP growth and innovation happening, you know, locally. And so that’s really a big, key driver of that. And I think that’s why, when you think about something like the IRA, that is the role for government to play: to take something that you can see the path to it being economical, but it’s not there yet, and public markets have a hard time funding that, and so there’s a role for government to play. And I think that what you’ve seen happen with renewables is a perfect example of when it works, right? Like, I was saying at the early days of my career at Goldman, which is back when the government first passed their incentives, you know, solar was way more expensive than traditional power. Wind was still way more expensive. Batteries, people didn’t even really think about them because of how expensive they were, and then EVs would always be a niche. And just roll forward today: solar’s cheaper now, and wind is cheaper now. And so there is this role to play to help that bridge. And if we look at, you know, what the IRA’s done, I think the IRA’s pretty interesting, because there’s two pieces to it. One is it’s put a little bit more juice behind areas that are already working quite well, so it extended the solar incentives, extended the wind incentives, and really just kept those going, but really focused on how do we make sure that there aren’t people left out of that. And so not just solar for people that can afford solar, but how do we make sure it’s getting to low- and moderate-income households, and really making sure that everyone has access. And then there’s a second half of the IRA, which is a little bit like the original days of something’s really expensive but we need to push it down the cost curve, and there’s huge incentives for things like hydrogen. The potential for hydrogen’s really large; it’s not something I typically look at for investment just because of the cost gap, but with the right capital and the right amount of time you can really get down the cost curve, and that can be quite disruptive. 

THOMAS MUCHA:  Well, to me, the IRA, the Inflation Reduction Act, is interesting in another way, because it’s gonna drive spending for a decade, right? And so these impacts are gonna be multiplied over time, which brings me to my other area of focus here, in addition to policy, of course: this intersection of climate and national security. There’s a lot going on in the policy side related to climate change and geopolitics. Now, I’ve noted previously and repeatedly on this podcast the importance of building climate resilience with regard to national security interests. Governments and militaries around the world are laser-focused on developing not only adaptation, and, you know, population safety measures, but also energy independence, grid hardening, agricultural security -- you mentioned that earlier. There are things like censors and cyber protection. So how do you see this secular trend, one that’s rooted in national security, how’s that gonna shape innovation in the private markets?

GREG WASSERMAN:     Yeah, I think it really just pushes people to realize what they need, and thinking about security around us. And if you look at what happened with Ukraine, obviously you’ve spent a ton of time there, it all the sudden became about energy security, and, you know, the Europeans thinking about, well, wait a second: how do we get the natural gas that powers our grid? And when people see their electricity prices skyrocket because of a war, it’s almost like the politics gets pushed out of the equation, and it’s more about just, like you said, energy security and price security and making sure that you have access to everything you need. And so I think there’s been this shift around climate being seen as a political issue to now more being about security and just your basic needs. I also think it’s quite interesting, when you go back to the trend that we talked about with this extreme weather coming around, it doesn’t matter your politics, whether you believe in manmade climate change or not; whether the government should fund it or not. You know, reality is there’s more fires, there’s more storms, they’re getting stronger, they’re causing more damage, and people have to deal with that. And so these trends are really driving the need for these solutions, a little bit irrespective of the politics, which is part of what we get excited about from the market opportunity, and the political angle’s still quite important for making sure that there’s the support to get these things kind of pushed along. But it is just a really interesting environment that we’re in because of these trends.

THOMAS MUCHA:  Yeah, I spend a lot of time on Capitol Hill, of course, I concur that the national security piece of this, combined with the drip, drip, drip of the daily headlines, has changed the way that most policymakers view climate change. And it is -- not gonna say it’s eliminated the partisan divide, but it is making it a lot more palatable to both sides, ’cause it’s real.

GREG WASSERMAN:     Yeah, it’s the last point that you made that I think is the most important one: because it’s real. For all the time that I’ve been in climate change, and this even goes back before I was in climate, it’s always been this invisible thing that people can’t see, right? It’s scientists screaming that this is coming, and people talk about polar bears, and melting icecaps, and, you know, for the average citizen, you’re like what does that really mean for me, and why should you take my tax dollars and spend this, or why should I really care about this? And then all the sudden when you’re in New York City and the skies have become an apocalyptic orange because, you know, wildfires in Canada a thousand miles away, all the sudden it becomes quite real for you.

THOMAS MUCHA:  Now, Greg, you’re obviously someone who believes that climate change is one of the, if not the, biggest defining challenges of our time. You’re also a venture capitalist, though, who’s been investing in this for a very long time to make money for clients. So when you meet with management teams of private companies who are developing a lot of these solutions we’ve been talking about, what’s your sense of the biggest driver from their perspective? Is it saving the planet, or is it making money in a massive new marketplace?

GREG WASSERMAN:     I think it’s a little bit of both. If you think about the typical entrepreneur, it’s a unique personality to be an entrepreneur, right? Because you see a problem in the world that you think nobody else is addressing, and you think that you have an idea how to solve that better than anybody else in the world. And so it takes a certain mindset and a certain personality to go do that, and I think that’s part of why the entrepreneurs that we see are just so passionate about what they’re doing, because just that foundational idea that led them to form their business, to go build the solution that they’re building, is just so core to what they see out in the market and so it’s passion what drives execution. And I think for them it’s definitely both, right? They all want monetary compensation, but it’s easy to be more excited when you actually are excited about what you’re doing, and this is part of what keeps me going. I’m not an entrepreneur, but on the investor side -- why I love what I do, because I feel like we’re doing something for the world, even though we’re in it to deliver returns for our clients and solve these problems, but you feel like you’re doing something good for the world. And so I think for the average entrepreneur, it’s sort of like an extra piece of passion that goes along with them that really pushes them along.

THOMAS MUCHA:  All right, I’m gonna end on that optimistic note. So thank you for joining us today on WellSaid, Greg Wasserman, Wellington’s Head of Private Climate Investing.

GREG WASSERMAN:     Thanks, Thomas. Good to see you.


Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For  professional/institutional investors only. Your capital may be at risk. Podcast produced November 2023.

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In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore)  (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets  Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you  represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any  person.   In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this  material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge  and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available  to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services  licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to  certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws  and regulatory requirements of the United States, which are different from the laws applying in Australia.  In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a  Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM  Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the  Type II Financial Instruments Firms Association (T2FIFA).  WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will  comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.  

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