Steve Ellis, A Managing Partner, TPG's Rise Funds Kentaro Kawamori, Chief Executive Officer, Persefoni Moderator: Sheryl Estrada, Fortune
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TechTranscript
00:00Thank you, Steve and Kentaro, for joining us today.
00:02Thanks for having us.
00:03Great.
00:04So I'm going to dive right in with the first question
00:06to you, Steve.
00:07For almost a decade, TPG Rise has
00:10been investing in companies that drive
00:12environmental and social impact and change while making money
00:16by virtue of what they do.
00:18From the lens of private equity and for-profit capital,
00:21how are you identifying and supporting
00:24companies that are using tech to tackle
00:26some of these large problems?
00:28Yeah.
00:28So first of all, it's wonderful being here.
00:31Let me maybe start just with a quick definition
00:33of impact investing, because sometimes it
00:36gets conflated with ESG.
00:38They're siblings, but they're different.
00:43Impact investing is about finding companies
00:45that, by virtue of what they do to make money,
00:48are creating net positive social and environmental good.
00:52And while ESG can be a policy and a set of practices
00:55that apply to every business, there's
00:58only a subset of businesses that are inherently
01:01what we call collinear, meaning that their business
01:04model is focused on not just making profit,
01:06but in creating social and environmental good that
01:09can be measured, that's sustainable,
01:11and that is ultimately going to address some of the world's
01:14biggest problems.
01:15So we start from that premise.
01:18And when it comes to identifying where, particularly,
01:22technology can make a difference,
01:24we start with the fundamental premise of access,
01:29that if you think about, really, the cornerstone of impact
01:33investing is finding ways, innovative ways,
01:37to improve access to really valuable resources and services
01:45that underserved populations have difficult time
01:48gaining access to.
01:49So if you think about it, education,
01:53quality education, access to affordable and high quality
01:57health care, financial inclusion, quality jobs,
02:01food security, clean water, clean energy, even access
02:07to a sustainable environment, those
02:10are all problems that can be addressed
02:14through commercial businesses.
02:17And oftentimes, the innovation, in fact, most of the time,
02:21the innovation is anchored on the application of technology.
02:26Obviously, software has enabled an enormous amount
02:30of innovation in areas like education,
02:33in ed tech for K-12, adaptive personalized learning.
02:38In the health care world, the advent
02:40of gene therapy, cell therapy, advanced diagnostics
02:43have dramatically reduced the time it takes
02:47and the cost associated with diagnosing and treating
02:50illness.
02:52Even in material sciences, we've found ways now
02:54with advanced technology to dramatically reduce
02:58the cost of solar panels, to find ways
03:02to create clean hydrogen, clean ammonia.
03:06We've even found ways to convert municipal waste
03:08into usable thermal plastic that can replace
03:12petroleum-based solutions.
03:14So we start with these, what we call,
03:18impact pathways that are driven by this view of creating access.
03:24And then we figure out where technology
03:28can inflect the ability for a business to grow
03:32and to expand the footprint of its impact.
03:35Now, you do this all over the world.
03:39Are you learning best practices based on different regions,
03:43how to utilizing technologies that can maybe
03:46apply to other places?
03:49Yeah, I mean, we are a global fund, which
03:51is a little bit unusual.
03:52We invest literally all around the world,
03:54developed and developing markets.
03:56And one of the things that we've seen
03:59is that this application of new technologies,
04:04it needs to propagate.
04:06And interestingly, we're in sort of a de-globalizing world
04:09as we sit here today, given everything
04:11that's happening geopolitically.
04:14And what that's creating is a void.
04:18There used to be free flow of commercial ideas
04:22and intellectual property and talent.
04:24And that's all now being restricted a little bit.
04:27And so one of the things that we found
04:28is that we can be a conduit for that, a very efficient conduit
04:33for being able to take some of the best practices
04:35from the developing world that are doing technology skipping,
04:39bringing those back to more mature, developed economy
04:43business models.
04:44And vice versa, bringing advanced technology
04:46from the developed world into the developing world.
04:48So we've seen that cycle accelerate very meaningfully
04:53just at a time when the world seems
04:54to be retreating from the power of globalization.
04:58Thank you, Steve.
05:00Kentaro, you're the CEO of Persephone
05:02and also a co-founder and one of TPG's portfolio companies.
05:07Can you talk a little bit about why you started your company
05:10and how you are leveraging AI to help carbon
05:13accounting in corporations?
05:15Absolutely.
05:16We talked about it a little bit when we started Persephone
05:19almost five years ago now, which is just wild.
05:23We really looked at the problem that we solve a little bit
05:25differently than most.
05:26And thankfully, Steve saw that along the way
05:29and decided to endorse that strategy.
05:31And that was looking at what was traditionally
05:33environmental disclosures, which had
05:35been the providence of, I think, state, local regulators, the EPA
05:39and heavy industries.
05:41And we really saw that becoming a financially material topic,
05:44both for investors like Steve, for example,
05:47or in the corporate side.
05:49So us as a portfolio company at TPG,
05:53we don't just build the tools to help companies do that.
05:56We actually do what we say.
05:58And so as part of the rise funds, for example,
06:01we provide carbon and climate disclosures
06:03to our investors like Steve.
06:05But the core of what we looked at
06:07was all this data that's required to calculate
06:10the carbon footprints looks a whole lot
06:12different than traditional environmental data
06:14for a lot of people.
06:15And what that means is we had to build a system that
06:18can take a huge variety of data sets, by all accounts,
06:22the largest range of diverse enterprise data
06:25we've ever seen in a single system of record,
06:28be able to ingest that, transform it, and then publish
06:32it in a standardized format that could
06:35meet regulatory scrutiny.
06:37That was really the vision that we laid out,
06:39which was quite different than the rest of the market that
06:41was saying, hey, if you look at the previous cycles of ESG
06:45and sustainability, that was really CSR.
06:47It was driven by marketing and reputation.
06:50Now it's really become a financially material topic,
06:53sitting very often now in the office of the CFO as well.
06:57Yes, and with SCC regulations in financial reporting
07:02when it comes to climate initiatives,
07:07especially scope one, two, and three,
07:09how do you explain to companies, especially scope three?
07:13I know that's an issue that a lot of companies
07:16are grappling with.
07:17So can you tell us a little bit about that?
07:19Definitely.
07:19The disclosure regulations that are either here already
07:23or about to be here is topic number one
07:26that we deal with in our customer base.
07:27And the advice that we have to dispense
07:31is quite diverse, because companies
07:34tend to be in such a broad range of stages in this journey.
07:39And it's best to think about sustainability and climate
07:42as a journey.
07:43And it doesn't matter if you've set an SBTI target first,
07:47and now you're sort of realizing,
07:49like we saw on the panel before, how do we get there?
07:52Maybe we have to rethink these targets.
07:53Or if you're just starting out and you're
07:55looking at how do I set a target, what does good look
07:58like, you've got to start with the fundamentals
08:00of understanding what you have and where you're headed.
08:03That's where we focus a lot of our time and advice.
08:06There's, rightfully so, a lot of excitement and desire
08:09to get to the end stage of that.
08:11So for example, in private equity or in corporates,
08:13there's a lot of discussion about value creation.
08:16How do you create value from impact and sustainability
08:20and climate?
08:21But for a lot of people, I mean, look
08:22at what's happening in the news today.
08:24It's about getting the basics right first, value protection.
08:28We're dealing with a massive hurricane right now.
08:30We have people in our business that
08:32from that event.
08:34And so we very much advise our customers and our prospects
08:38that we deal with, disclosure isn't just
08:41about sending something to a regulator.
08:43It's about understanding what you have
08:45and where you're headed so you can actually manage the thing
08:48that you're trying to manage against.
08:50Yeah, I would say one of the things that
08:53has become very, very clear as we've
08:55gone through this journey is that the market has been
08:59waiting for a lot of regulation to create top-down mandates
09:04for reporting.
09:07And obviously, those mandates have been more fragmented.
09:13They've been delayed.
09:14They've been controversial.
09:17But what we've seen happening now increasingly
09:19is that people realize that they're
09:23going to need to be accountable for their carbon footprint
09:26and that they're going to have to have an accounting
09:29system to start so that they can understand exactly where
09:33their footprint is, one, two, and three.
09:37But more importantly, they're going
09:39to need actionable information from that system that
09:42gives them the ability to manage their footprint.
09:45And that's what seems to be missing.
09:48A lot of people are getting the initial footprint.
09:50I like to call it sort of the blueprint of the house.
09:53But we need working drawings.
09:55We've got to understand specifically
09:57how we're going to address that footprint, whether it
10:01means mitigation approaches, whether it
10:03means going into the voluntary carbon markets.
10:08And that's the tie that has been missing.
10:12But we're beginning to see now sort of an organic tipping
10:14point where companies are doing it on their own.
10:20I am going to open the floor to questions in just a moment.
10:23If you have a question, you can raise your hand.
10:25And someone with a mic will come.
10:29We can start now.
10:33This is Khoja Sheikh from IBM.
10:37When we look into the SEC regulations
10:39around the climate change, and when
10:41we look at the VC investment, typically
10:44the venture capitalists have got a high risk, more patience,
10:50long-term orientation attitude.
10:52But we don't have the same mindset
10:56for the companies which are more short-term oriented,
10:59because the culture has to change for the new era, where
11:03they need to be more long-term focused.
11:05What advice would you offer if you
11:08are part of a business roundtable
11:11so that the CEOs can infuse the VC mindset, where we just
11:17don't necessarily look at the SEC climate regulation
11:20standpoint, but also for the value creation
11:23for all stakeholders?
11:24Yeah.
11:28That is a great question.
11:31And I'll start, and Kintora will finish.
11:35This is one of the biggest challenges that we face,
11:37because this concept of what is the method of change management
11:42to get organizations to stop just responding
11:45to the stick, which is regulation,
11:48and start responding to the carrot,
11:50which is all the extraordinary benefits that
11:53flow from embracing this kind of management discipline
11:56and principle.
11:59And in my mind, the most important thing
12:02is to just be crystal clear with how
12:05this aligns with your broader business objectives,
12:07to create the linkage between doing what's
12:11right from a sustainability standpoint with what's
12:14right for the important stakeholders in your business,
12:16whether it's your shareholders, whether it's your customers,
12:18your employees.
12:20And really spending time to understand what they want,
12:23what they need, how they measure it,
12:25how they metabolize whatever information or evidence
12:31that you provide them for what you're
12:33doing to contribute to a more sustainable world.
12:37And that's just good business.
12:39I mean, you don't want to be working
12:41against the grain of the organization.
12:43Let's take that focus on commercial success and profit
12:47and use it to our advantage to accelerate the change.
12:52Yeah, and I think the regulatory piece
12:54is such a bear in our world, right?
12:56It's both this immense opportunity
12:59for acceleration and standardization
13:01and a whole bunch of things in between.
13:03But at the same time, if I come back to your question on how
13:06would I talk to a VC or a corporate board
13:10and sort of infusing the VC mentality,
13:12I would say building a business off of regulation alone
13:15is very risky.
13:16You need to look at what are the intrinsic macro forces
13:20happening, and is there an underlying set of drivers
13:23that's going to make this business or this product
13:25successful regardless?
13:27And a great example in our business,
13:30Steve and I are very aligned on the vision of Persephone,
13:32obviously, as an investor and entrepreneur.
13:35And our business is going to benefit massively
13:37from regulation, but it hasn't needed it yet.
13:42We're seeing a huge groundswell right now, for example.
13:45So you have some data to tie to this.
13:46We released a free-to-use, first-of-its-kind,
13:51what we call a freemium-type product that
13:53allows any company to do scope 1, 2, 3, and accounting,
13:56completely free.
13:58And we've seen 3,500 sign-ups in six months.
14:02Nobody's signing up because the regulation is live.
14:05They're signing up because their investors are
14:07asking for these disclosures, their customers are
14:09asking for these disclosures, or some other stakeholder
14:13is forcing them to do this.
14:14So there's these intrinsic market forces
14:16already creating this market.
14:17So there's a small microcosm coming back to that.
14:20I think you have to look at macro developments and trends
14:23far beyond the regulatory side.
14:25And then regulation either can go both ways.
14:27It can be a huge accelerant, or it can be a huge inhibitor.
14:33So Kentaro, if you're a company that
14:36is having to do this type of reporting,
14:40there's a lot of data.
14:42There's a lot of different technology that you can use.
14:46How do you actually figure out what is right for your company?
14:50In terms of if I'm, like for us, helping our customers?
14:53Yes, yes.
14:55Fortunately for us, there's a gold standard in our world.
14:59Everybody here is probably familiar with the Greenhouse
15:01Gas Protocol.
15:01And it's sort of like what GAAP is to financial accounting.
15:05That's where the complexity starts.
15:06So the Greenhouse Gas Protocol documentation in itself
15:09is over 600 pages in its various iterations,
15:12which is nutty.
15:13The best example I give to people
15:15is if you really have trouble falling asleep,
15:19go download the IRS tax code.
15:21And the IRS tax code is sort of like the Greenhouse Gas
15:23Protocol in our world.
15:25So we have to have an immensely talented set of individuals
15:29that, from a support and advisory perspective,
15:31helps our customers interpret that.
15:34Our software has codified a whole bunch of that.
15:37So there's absolutely patterns, and there
15:39are data-driven ways that we can extrapolate what it is you
15:43should be reporting.
15:44That tends to be question number one, to your point,
15:47on scope one, two, or three.
15:48A lot of people say, I know I need to do this,
15:50but there's 15 subcategories in scope three.
15:52Which one's actually material for me?
15:55And there's various ways to answer that.
15:57The data informs that.
15:59The methodologies give the prescription
16:01of how to actually translate that data from one
16:04form into the other.
16:06And that's what our software does.
16:07That's what our team does every day.
16:10And we've been fortunate.
16:12We've been able to invest a whole bunch of cash
16:14into R&D, frankly, which has allowed
16:17us to have a very strong set of IP,
16:19both in our system of record, so the underlying software
16:24workflows, as soon as you come in, actually will tell you,
16:27here's what's material to you.
16:28Here's how you calculate this.
16:30And then from an AI component, massive opportunity.
16:34Massive.
16:34Steve and I geek out about this all the time.
16:36Because especially in the GPT world,
16:40where software really excels, is when you
16:42have human-readable language.
16:45And there's a great amount of data
16:47that sits in a company that is human-readable, that can now
16:51be read by machines, but in the past wasn't.
16:54Meaning a lot of data that sits in a SQL database,
16:57for example, isn't human-readable.
16:59It's machine-readable.
17:01But now the GPT world has really enabled
17:02a whole new set of use cases, where
17:04we can look at things like supply chain data
17:08in a whole new different light.
17:10When companies are getting small invoices from small vendors
17:13that say, you know, I was with a car manufacturer in Italy.
17:16You can take a guess which one.
17:17And getting materials welded at small shops.
17:22And literally, they're getting handwritten notes
17:24that now can be transcribed and read by AI,
17:26which wasn't possible before.
17:27Yeah, I think just one of the things that we're seeing
17:30is it's a classic technology playbook, which
17:32is to leverage the power of virality.
17:35And what's happening is many companies' scopes 1 and 2
17:45are other companies' scope 3.
17:47So if you can start to get the flywheel spinning, where
17:51people are addressing the question of their carbon
17:54footprint on a common platform with a really well-designed
17:58and curated data layer, that's when
18:01you can start to really accelerate
18:04the adoption of practices that change behavior.
18:07Well, we're out of time.
18:08That was an interesting discussion.
18:09Thank you so much, Stephen Quintaro.
18:11Thanks for having us.