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Colin le Duc

Founding Partner

Generation Investment Management

May 13, 2021
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Ep 20: Colin le Duc - Founding Partner, Generation Investment Management
00:00 / 01:04

Bret Kugelmass
We are here today with Colin le Duc, who is a founding partner at Generation Investment Management. Colin, welcome to Energy Impact.

Colin le Duc
Thanks for having me, Bret. Really appreciate the invitation.

Bret Kugelmass
I've been following your work for some time, like super impressed with everything that you guys have done to pioneer the space. And you really are pioneers in sustainable investing. So, kudos to you. I'd love to take this time, though, to maybe just learn a little bit more about you personally, and understand what your journey was to get to this point.

Colin le Duc
Thank you. I think plenty of people have been on their sustainable investing journey for a really long time. And I think Generation is one of those players, but I want to recognize a much wider movement than just Generation in terms of helping mainstream and the idea of sustainable investing. My background, I sort of grew up in lots of different countries and I think that really helped shape my view on the world and got me very interested in sustainability very early in my life.

Bret Kugelmass
What prompted that? Did your parents, were they diplomats or something? Why did you move around a lot?

Colin le Duc
My dad was a civil engineer, apparently, he might have been doing something else. I don't know. That's a bit of a joke, obviously. We just moved around for his work. And as a consequence, and also, probably more seriously, we left South Africa because of apartheid. That was a very kind of formative stage in my life, where I realized - my family was involved in politics in South Africa, obviously, in the anti-apartheid side of the story - and so, it became just untenable to live there. That was the first sort of real awareness I had around social justice issues in particular, and then ended up just being a bit of a nomad, I have lived in nine countries across the world in my life, and currently reside in California, but have lived everywhere, all over the world, which is, was really, I thought was entirely normal, growing up and moving every two or three years to a completely different country on a different continent, but obviously not. I also was very exposed to a lot of poverty and a lot of environmental issues as I was sort of on that journey around the world growing up, and then also finally ended up at a British boarding school, actually, and that was run by a bunch of Benedictine monks. The moral and ethical education that came through that was very formative as well. It became very clear to me that I was obviously very privileged in life and with my family situation, etc. and it was very much an opportunity to just think a little bit bigger about what I wanted to do, and went to an undergraduate university in the UK, which was quite progressive, and really turned me on to the idea of climate in particular, and the evolving climate crisis.

Bret Kugelmass
What year was that? What year did they start teaching about climate?

Colin le Duc
I was there from '89 to '93.

Bret Kugelmass
Wow, I can't believe it. I mean, that's really early that was part of the university conversation.

Colin le Duc
The University of Bath down in the West Country in the UK, they had a course there called "Emerging Patterns of Thought and Belief" which was effectively new ageism packaged as academically credible. And it talks a lot about Gaia theory, it talked a lot about climate, it talked a lot about the planet being a living organism, and all of these things, and it really turned me on to the idea of sustainability, and then I was studying business. I was obviously interested in business and investing and it became very clear that maybe those two things could come together. In the mid 90s, I started working on sustainability and business topics, and very, very few people were thinking about this. So, I got involved in various different projects, worked for different people.

Bret Kugelmass
Let's say that you started your early career as the sustainability finance or investor business guy, what was it like talking to your colleagues back then before there was a generalized awareness of sustainability issues? Was it a fight every time? Was it like, Hey, this is going to negatively impact our financial outlooks so we just don't want to do it? Did you have to like scrounge for it? Or were people like, No, sustainability is important, but we don't know how we're going to make it work. What was the general sentiment?

Colin le Duc
Yes, I mean, I started with Total, the French energy company, with a belief that the big energy majors were the ones that were going to lead the transition to net zero, and it was a little bit too early. Then I quickly sort of moved, via consulting, into investing, because I realized that friends of mine were very involved in the investment world and it became clear that, if one owns shares in companies, you can influence outcomes. But at the time, the overarching narrative around sustainable investing was very much focused on socially responsible ethical negative screening type investing, and it was very much seen as a way to basically lose money. That was a difficult slog, but I could, going into the internet boom period, there was a nascent sense that there was a long-term inevitable surprise to the sustainability challenges of the world.

Bret Kugelmass
Who was this being driven by, this sense? Was this from still from academia? Was this from government? Was this from the well educated in the business elite, like just kind of had this ethical underpinning? Who was really bubbling this the sentiment up?

Colin le Duc
I think a lot of credit goes to the NGOs, frankly, at that time. I think civil society, when it works really well, is very good at awareness raising around topics that then more mainstream actors can take on over time. I certainly learned a lot from a lot of the early NGO commentary around the climate crisis and the potential positive role of business, not just the negative impacts of business, but the potential positive role. So, it was very much in in this kind of academic realm, a lot of sort of quite underground conferences, which had a lot of very out there entrepreneurs, or academics talking about very random thing for sustainability and it just really struck me as an enormous idea that very few people were paying attention to. I just couldn't- it's not magic, it's just, Hey, the world's got a lot of major sustainability challenges and the notion of perpetual growth is just untenable with the resource constraints of the world. It just struck me that investing had a role to play in that. I really started off in the investing community working on the Dow Jones Sustainability Index, which was the first kind of large cap stock index that focused on trying to assess corporate sustainability. And then move - that was my first kind of investing experience, if you like - and then also was quite involved in setting up other strategies in venture capital, private equity, and other thematic funds in public equity, too, before we got together to create Generation.

Bret Kugelmass
And before we get to Generation, how did people hear about you? Was it through these conferences or other events? I mean, how did people know to reach out to you when they needed consulting, when they needed strategy work on their investing portfolio?

Colin le Duc
I was I was working for Sustainable Asset Management in Zurich and that was really the first credible institutional asset manager in the world that was focused on shareholder value driven by sustainability. I went to work there because, in my view, they were the best at the time and people migrated to that. A lot of people went to work for them in sort of the early 2000s period, when they really were propagating a model that was genuinely one step forward from the negative screening model. It attracted a lot of really interesting people. SAM was seen as the leader at the time and that attracted a lot of attention, including, how I really got to know Al Gore and David Blood was really primarily through that. I mean, there were other connections, but it was because of what I was doing at SAM that I was lucky enough to be introduced through to David and Al.

Bret Kugelmass
And SAM is Sustainable Asset Management, correct?

Colin le Duc
Yes, it's now owned by the Dutch organization Robeco. But yes, they are Sustainable Asset Management, they're a fantastic shop in Switzerland.

Bret Kugelmass
Okay, so, people are coming to this organization, because the organization has developed a reputation as really understanding these ESG themes, and then they find their way to you because you're the resident expert. What types of conversations are you having in the 2000s? And when you met with Gore, what was that conversation like?

Colin le Duc
I wouldn't want to classify myself as a resident expert, I was just one of multiple people involved in thinking about sustainable investing. I just happened to have some personal connections into David Blood, in particular, through a mutual friend of mine and David's, who is also one of the founders of Generation, a guy called Mark Ferguson, who was working with David at Goldman's at the time, and we all got together and started talking to Al as well. That was a very serendipitous kind of process with various different interconnections all coming together simultaneously. Al had, obviously, his political experiences and was looking to get involved in the investment industry, because he could see the opportunity to drive change and bring sustainability to capital markets and was looking to really do ultimately what Generation does, which is to focus on sustainable investing as best practice and to try and demonstrate that sustainability is a very good way to manage money. It just so happened that there were two or three different groups of people that were thinking about a very similar thing, so Al Gore and one of his kind of collaborators and then you know, the Goldman Sachs kind of cohort with David Blood coming out of Goldman's, Mark Ferguson, Peter Harris, and then myself, we sort of came together as this, the seven sort of founding partners, if you like, to, there was a couple of others, but you know - Peter, Harris, and Miguel Nogales, they also came along - that we were all looking to do a very similar thing, which was to set up a dedicated sustainable investing business that would apply world class understanding and thinking around investing in a fully integrated way with sustainability thinking.

Bret Kugelmass
How broad was that definition of sustainability when it first got started? Was it sustainability, even outside of the environmental space, like in terms of just like sustainable business practices? Or was it confined to environment? Or was climate even really the main underpinning even back then?

Colin le Duc
We've always taken a very broad definition of sustainability. The name Generation itself, was really was inspired by the Brundtland definition of sustainable development, in terms of thinking about intergenerational equity are on multiple levels. Generation has always taken a systems view to sustainability and as a consequence. You need to think about the social, as well as the environmental dimensions, to the world and how the world is evolving to have a holistic perspective on where best to invest. David Blood has always been very inspired by his time in Brazil as a child growing up and he had a very strong poverty angle to some of his motivations as well to complement Al Gore's primarily climate angle, but Al is a phenomenally intelligent individual who really understands many aspects of the world, way beyond climate. But climate is obviously such a big topic that is the center of the Gordian Knot of many of the problems that the world faces, and as a consequence, it is central, but Generation has always taken the view that, what a company does, how a company operates, needs to be focused on the long term needs of society. If you are managing your company well for the long term and you're providing products and services that society really needs, you're probably going to be around for a while. It's really about- and that helps, when you think about compounding effects within investing and in business, that, if you're on the right side of history, with what you provide and how you do it, you probably got a good chance of surviving in the long term. Survival is often half of the key in terms of just building a franchise over time, making good investments.

Bret Kugelmass
It makes -especially the way you spell it out it - makes it pretty clear. So often across the world, fiduciary duty, maybe it's used as an excuse, or maybe people actually believe it, but it seems to be geared more towards short term profits. To me, fiduciary duty should mean long term thinking. How did you see the way other people behaved with their investments and other ways that a company run versus this new line of thinking that you wanted to promote?

Colin le Duc
It's pretty clear - and I think the legal case is clear on this now - that integrating ESG is part of your fiduciary responsibility. That is really interesting, because that was not the case when we started Generation in 2004. It did very much feel that you have to maximize financial returns. We would argue - and I think the case is pretty much proven, with our track record and others track records - that ESG integration helps you optimize risk and return and helps you in a long term framework generate very good financial returns. I think that case is made, but it's been a journey. There are still people who don't get that. But I think, you know, we may be reaching a tipping point in terms of the mainstreaming of sustainability thinking across capital markets. Now, there are lots of challenges, which maybe we can talk about in terms of what that now means. But I think the general awareness that sustainability impact ESG considerations help you get a better lens on the quality of the business and the quality of the management team and the valuation of the security is common sense. There's plenty of examples of- and people often ask me, Oh, can you point to where value is created by sustainability? And I can do that, but I also ask the question, Help me understand how unsustainable businesses are good long term bets?

Bret Kugelmass
Right. The inverse logic, the contrapositive is an excellent argument in this case.

Colin le Duc
If you just look at - I don't want to bash on traditional energy too much - but if you just look at the facts in terms of what percentage of global index traditional fossil companies were literally 10 years ago versus where they are today, that tells a story. They have gone from 12-13% of the benchmark down to two or 3%. And that is sustainability in action right there. I think this notion of fiduciary responsibility is a very, very important one, because asset owners, obviously have a lot of concern around making sure they're aligned with that. As I say, I think the legal case is made for ESG integration. I think the next phase that is interesting is to what extent fiduciary responsibility actually includes the notion of generating positive impact. So, not just minimizing damage, but actually genuinely contributing to the health of society through your investments. And that I think, is sort of next wave, if you like, of discussion around fiduciary.

Bret Kugelmass
Is this sometimes referred to as double bottom line or triple bottom line when that's built into the governance of an organization itself?

Colin le Duc
Yes, I think at a very high macro level, there's an increasing understanding that having a single financial target to measure progress by is a very blunt instrument, GDP being the most extreme example of that. So, I think we all know that, and even the people who came up with GDP as an original construct said, please don't use it as a way to measure the progress of a country. That limitation to a single financial metric to measure progress, that trickles all the way down to the micro level. Just looking at IRR, right, or ROI, doesn't capture everything, either. You actually need to think more broadly and holistically in terms of how you're how you're assessing progress and value creation. We do believe you need a wider set of metrics and equally, the long term is not just a series of short-term steps. You can't just optimize for the short term every three months and then hope that the long term just magically builds up. You actually need to put R&D into long term thinking. You need to think about innovation. You need to manage your people for the long term. You need to govern your entity for the long term. You need to set incentives for the long term. You need to invest in your communities like these are long term license to operate foundational aspects that enable financial performance over the long term. If you were, just purely for example, driving your people as hard as you possibly could and burning them out every three months, that's not long term, your human capital is going to deplete long term, that's not a good strategy. Or if you're just rent seeking and gouging as much money as you can out of your clients and increasing prices all the time, that might help you for one quarter, but it's not gonna help you long term because you're going to really annoy your clients and lose all your customers. These are very pragmatic things. Equally, how you are investing your dollars in terms of R&D in terms of maximizing what is in your product suite today versus what needs to be there in 10 years time, because of the pressures of sustainability, is also a very good indicator of how long term thinking really is pervading in our organization.

Bret Kugelmass
I think that yeah, that term parading. Isn't it the case, though, that people's behaviors are really kind of driven by incentives? Do you feel like there needs to be an official change to law or case law, or we just have to drive it into the culture through leadership? How do we create the right set of incentives to govern people's behavior?

Colin le Duc
I think that's a great question. And people do what you pay them to do, for sure. That incentive question applies right through the system. It's not just within companies, it's also, what is the stock market rewarding? Right? And what should the stock market award? And how should, as we've said, a country think about what they're incentivizing, as well? We do believe that, increasingly, is becoming the law of the land in terms of thinking about longer term societal issues is integrated into incentives. A lot of companies, for example, they trigger bonuses based on what one achieves in terms of CO2 reductions, for example, or, there are incentives in terms of making sure that there's a certain percentage of the various different types of diversity represented in the company, and you won't get a bonus unless that is in place within a certain amount of time.

Bret Kugelmass
When you guys invest in a company, is that part of what you do as your onboarding? You say, Hey, we're going to go in, and we're going to change the actual compensation structures to match our values?

Colin le Duc
Generation invests in public and private equity. Our levels of engagement and influence is different depending on the investing strategies, but we do engage and advocate for long term incentives in both public and private equity. Sometimes, in the private companies where we can have more direct influence, we do insist on and help companies basically develop all of their sustainability strategies, including compensation, and governance, which is obviously a very, very important part of what we think about. It sort of depends on the situation. But absolutely. Companies like to work with Generation because of our sustainability focus, because of what we can bring in terms of helping them make their own sustainability case much stronger, and all of the different tools and techniques that we can bring to bear to help them do that. Navigating through the increasing alphabet soup of everything related to climate and sustainability, and reporting and all these different things, and navigating the increasing regulatory complexity associated to all this, as well as just sharing best practice amongst our portfolio companies, is an enormous value add and differentiator for Generation because we're a pure play sustainable investment boutique and that's sort of what we do.

Bret Kugelmass
When you say public and private investments, can you just give us some examples, just so the audience has a sense of what types of projects and companies you're involved in?

Colin le Duc
Generation invests in both public and private equity where we manage about $35 billion today. We're a relatively small fund in the grand scheme of things.

Bret Kugelmass
Doesn't sound that small to me.

Colin le Duc
It's an enormous amount of money, obviously, but the point I'm trying to make is that we are quite concentrated in how we invest. We're not BlackRock or something that is invested in the whole market, necessarily, because of the size of their funds. So, we can be relatively selective in what we invest in, so we can be quite narrow and concentrated in what we do. I'm not in a position to talk about public companies per se, but you can imagine that the businesses that we're invested in are the ones that are on the right side of history, are very long term focused-

Bret Kugelmass
I guess I'm wondering if you could just describe the category of the type of company. Are these technology companies, are they utilities? What are they?

Colin le Duc
We see sustainability as being relevant to every sector in the world. It is an imperative for everyone. In the public book, we do a lot of tech investing, we do a lot of healthcare investing, we do a lot of industrials investing in businesses that we believe are at the forefront of accelerating the transition to sustainability in those sectors. Within the private side, we are a little bit more explicit in terms of the sectoral focus, so that would be on the three pillars of planetary health, human health and financial inclusion. That portfolio will include growth stage companies that have technologies, products, services that are either accelerating the shift to renewables, or the shift to electric mobility, or the electrification of buildings or basically, you name it, right across the board, obviously, food, ag, healthcare is all part of that as well and so we do a lot of investing around that type of theme as well.

Bret Kugelmass
You mentioned earlier some of the challenges that we're seeing now. How have those challenges changed when you first got started to how the world looks today? From my perspective, we've made so much progress, but it only makes it painfully clear how far we have to go in terms of overhauling so much infrastructure to get to our goals, like just so much more. Is that the type of challenge you're talking about? Or are there other challenges that you're saying?

Colin le Duc
I think you've nailed it. There has been a lot of mainstreaming of sustainable investing. I think the phases we've gone through are, what on earth is sustainability? I think people have basically understood that, to a certain degree. Now, we're into the sort of, how do you implement that? There's an increasing imperative beyond that which is the sort of "when" dimension, so there's this idea in particular as it relates to climate of the time value of carbon. We need to decarbonize 50% of of emissions by 2030, which is eight and a half years away and, the current way the capital markets are set up and businesses set up is a long way from actually being able to deliver that. The complexities now are more about, Okay, so there's a sustainability imperative that is challenging traditional industries, like the energy industry or the car industry, and they are reacting by delivering clean energy and electric mobility. But what does the imperative mean for asset managers? What does it mean for capital allocators? We also need to innovate our model so that we can generate, not just great long term financial returns, but we can also generate the necessary impact and get capital into the right parts of the economy to truly decarbonize it. There's this question about just the rigor of implementation of ESG. There's lots of talk about the greenwashing wave, which I think is alive and well right now, and there's a lot of focus on making sure that there's rigor and integrity to a lot of the ESG claims that a lot of funds are making and a lot of companies are making. This is becoming the law of the land. The EU taxonomy is a very important initiative that will help define what is truly sustainable activity. The TCFD, the Task Force on Climate-related Financial Disclosures, is a very important reporting framework that will be forcing people to be explicit about, in particular, their climate risk that they're running. And then you have the SEC here in the US that is putting together an enforcement task force to focus in on ESG claims being made by asset managers. That is really important, because it will basically shake out greenwash and it will force asset managers to really make sure that they are true to what they're saying in terms of ESG. Because I think the consumer in the investment products is confused. Both institutional clients, as well as retail clients, I think, are confused. There are so many different shades of gray in the investment community, and everything. needs to happen. Every asset class, every subsector, everything needs to integrate ESG. There are different levels of ambition and rigor associated to different types of claims. At the moment, it's a bit of a one size fits all, everyone's an ESG fund or a sustainable fund, but the reality is much more complicated behind that. We feel that this notion of, maybe we're going through peak greenwashing, if you like, and we're going to be coming out the other side where the focus is going to be on authentic impact.

Bret Kugelmass
I'm worried about that, because I can see a universe where all these structures do come into play. And there is some sort of like enforcement around if you can really call yourself ESG, but then people still just do the bare minimum to be able to use the ESG in their marketing. So, they don't say we're an ESG fund, but they do one ESG project, and then put the word ESG, somewhere on their website, so people at least feel better about themselves, they give themselves as pass to invest. Are you worried about that, too?

Colin le Duc
Yeah, definitely. But I think the problem with that is that we are heading to a three to four degrees C temperature rise right now. The likelihood of a disorderly transition to net zero is very, very high. And so what does that mean? That means that the physical climate risk that is in the system today is is getting more and more extreme, and related to that, the regulatory intervention risk is going up, a lot. The inevitable policy response around climate is a very real risk where the capital markets are generally undereducated and overexposed.

Bret Kugelmass
What you mean is, that somebody might literally have a stranded asset, they might think that they've invested in this technology and they're going to receive revenue from it for the next 40 years to pay off their debt, but if they see some of those assets being shut down, not generating revenue anymore, they're going to be a little bit more wary about joining the next project where that might happen. And so there's gonna be some self-modulation of their behavior, seeing that regulatory risk, is that the type of thing you're referring to?

Colin le Duc
Yes, that and I think that the regulator is going to play a lot more of a directive role in how capital is allocated, and how quickly we need to transition to net zero.

Bret Kugelmass
Tell me more about that. How are they going to get involved in how capital is allocated?

Colin le Duc
COVID is a very good dress rehearsal for climate.

Bret Kugelmass
Yeah, that's interesting. That is interesting.

Colin le Duc
The level of intervention from governments around COVID, look at what it's done. The same is gonna happen with climate.

Bret Kugelmass
That can be scary, too, right? Because, if government does well, that's great. But, if the wrong people are in government, or if they're mis-educated on what's true impact, if they don't have you as the coach in their corner, and they've got some other guy, what if the big hammer of government comes in with $3 trillion and knocks the wrong nail?

Colin le Duc
Again, I don't think we're the fountain of all truth on this at all.

Bret Kugelmass
You're too humble, I'm trying to talk you up here, all your accomplishments.

Colin le Duc
I just want to thank you, I appreciate that, but it's a team effort in general. But also, I think, more importantly, for governments, they should listen to scientists. That's who they should listen to. If you just take science-based policy, and you look at what's happening in terms of greenhouse gas emissions, which is still going up, despite all the great announcements and everything, and we're not in line for the Paris Agreement, even with all the most recent announcements, which are all fantastic, and heading in the right direction, but they are insufficient. And as a consequence, the realization that the market itself will just solve this, people are realizing that as a fallacy. What that does for investors is that increases the risk that we will be constrained in what we can do. Right? If, for example, you are one of the more cynical funds that are as using ESG, as a pure marketing tool, your portfolio will end up being very overexposed, in a bad way, to a disorderly transition to net zero. You wouldn't have genuinely de-risked your portfolio to be climate ready, you did it for marketing. All I'm trying to say is, what has really impressed me over the last two years, in terms of how the COVID response globally has been, is the power of government. I agree with you, there needs to be sensible people who are science driven that are doing this, but you know, the idea that maybe, at some point, we the capital markets will be asked to put impact alongside risk return optimization for genuine societal outcomes, I think is the next wave of where this is all going, because of the severity of the climate crisis, because we're not solving it. We're not solving it. And it won't happen through just faster incrementalism. So, that is a huge investment risk, huge investment risk, and opportunity by the way, Bret, and opportunity, I must stress.

Bret Kugelmass
No, of course.

Colin le Duc
I think the capital markets are waking up to this. The entire capital stock of the world needs to turn over to become net zero aligned. That is an enormous investment opportunity, the biggest that we have ever seen in history, because of the size of the market today and the level of transformation that needs to happen, in particular in the physical infrastructure of the world. People are waking up to that. It's fantastic. I mean, if you look at the Net Zero Asset Managers Alliance that Generation was central in putting together, that now has something like $37 trillion behind it with 80 asset managers covering 40% of assets in the world that are committing to net zero. That is amazing.

Bret Kugelmass
I know. I mean, listen, my former background as a technology entrepreneur, and I'm constantly, for the last three years that I've been doing this, I've been constantly going back to Silicon Valley and trying to convince investors that you guys are playing in a very small place. If you're thinking about the next little piece of enterprise software and you think that's your big win, get into climate and energy. I still haven't seen, I mean, now I'm starting to see a little bit more, but I'd like to see the venture capital community, which has so many interesting lessons from scalability and the rise of technology, there's so many interesting lessons to be able to, and pattern matching, to be able to apply to a totally different subset of companies. I think I see a little bit more of it happening now, but I've been trying to push them to say, No, make this a core pillar of your fund, it's going to be the biggest opportunity in the world, it is going to dwarf your software investments by far.

Colin le Duc
Yeah, and I think the VC community's making a comeback when it comes to climate, for sure. I think there are some really interesting funds out there that are doing amazing work. I think the highest profile is probably the Breakthrough Energy Platform that Gates put together, which is a phenomenal group.

Bret Kugelmass
Phenomenal group, interesting mandate. But, man, that is not a typical VC fund. That took Bill Gates kind of strong arming a few of his buddies to get them all in a room, that wasn't so typical.

Colin le Duc
Yeah. But what they're doing is truly material, they're managing a few billion now, I think, and whatever. I would say, as well, that part of the problem here is back to incentives. The mandate that venture capitalists are given today by their investors is to generate as much my financial return as possible. As a consequence, they focus in on capital light, software businesses, because that is the best, quote, easiest way to make money, right - I'm just sort of generalizing, but you take my point - versus investing in a project in a difficult geography to decarbonize the steel industry.

Bret Kugelmass
I know, but you said it yourself. Because the size, the opportunity, what is the second slide in every pitch deck? It's total addressable market. And if what we do is say, Look at all the infrastructure that has to be overhauled in the next 30 years, if we as a society are going to survive - which, I'm placing a bet that we will - let's look at this total addressable market, and that's bigger than software,

Colin le Duc
Yes, but the value, the return on investment, or the value that you can generate, the return on capital is lower. This is a problem. There are easier ways to make money, just in a returns perspective. I agree with you in terms of the volume of capital, but the return on that capital is low. The point to make, as well, is, revenue growth is just one metric, you need value creation, you need to focus on profitability and returns as well as just revenue growth. Just having a big market is the starting point, but it's not the end. The other point I would make is, or what I'm trying to say is that, the incentive scheme needs to be broadened, broaden to include impact. If the VCs had a mandate from their investors to generate great financial returns, and generate enormous climate impact, then they would do other things. But their mandate at the moment is purely a risk return mandate, it's purely a return. They are given targets around a financial outcome, non-impact outcomes. So, what we're saying at Generation is, Listen, a natural next step beyond where we are in best practice of sustainable investing today, is to explicitly include impact as a target and as an outcome. It particularly relates to the decarbonisation challenge where you can monitor the progress you're making relative to the 50% emissions reduction we need by 2030. You can count that, a ton of CO2 is a unit of currency that is understood and you can track it. Yes, it's art and science, but you can track it. I think VCs are waking up to that, and private equity is waking up to that, infrastructure funds are waking up to that, that thinking about, not just your financial target, but also what your proposition is on impact, climate impact in particular, is going to become something that people are going to be very interested in. The other thing you got to remember is that asset manager's clients are often pension funds.

Bret Kugelmass
I was literally just gonna bring that up. I was gonna ask you, what is the actual targeted way that we get the LPs of any of these asset classes to tell the investors themselves that this is important. And so, with pension funds, since they've got this long term thinking kind of built into their business, are they the first ones that we go after? And we just go from board to board of the pension funds and say, you have to do this, this is too important?

Colin le Duc
Yes, absolutely. I think the pension funds are absolutely critical, as are many other asset owners. Now, I recognize that organizations only move at a certain pace, but ultimately, persuading the financial fiduciary community, the very large asset owners of the world, to allocate to climate transition assets very explicitly, is what we all collectively have to do in the next five years. And we have to make that case, collectively. Many of these asset owners are obviously extremely smart and they are very good at thinking about systemic risk. Many of them are very, very concerned about climate and are making commitments themselves to being net zero and are pushing this down to the asset managers that they work with. So, the question is, how serious can they be and how quickly can they integrate climate across their entire portfolio? Not just a little 5% allocation in the corner. Right? That's the starting point, but what about everything else you're invested in? What about the entire infrastructure that you are invested in and all of the assets that you own that are fundamentally underpinned by assumptions of business as usual? Business is not going to be as usual because of the disorderly transition that is coming on climate. There are many very sophisticated investors, very large investors and asset owners in the world who are thinking about this in a very, very serious way. If you look at the Net Zero Asset Owners Alliance, distinct to the Asset Managers Alliance, that includes some of the smartest, biggest investors in the world who are committing to net zero. The question now is, we're at a point of how do you do that? And when do you do that?

Bret Kugelmass
You're talking about the BlackRocks? Is that what you're talking about in terms of the new cohort of asset owners?

Colin le Duc
I would classify BlackRock as an asset manager, rather than an asset owner. They're like us in the sense that we manage assets on behalf of asset owners like pension funds. But BlackRock is certainly a leader and Larry Fink has done amazing work, along with his colleagues, in terms of integrating sustainability into BlackRock 's mandate. They have other challenges than Generation has, because they manage a few trillion dollars, or whatever the number is, and as a consequence, they have a lot of legacy assets in there. BlackRock's challenge is, how do we deal with all of that stuff, as well as dealing with the new innovation and the next level of thinking in terms of the exciting up and coming companies and projects. The other point I want to make is, let's not forget that the transition to net zero requires many, many things to happen simultaneously, in all parts of the world. This is not just the US nor North America decarbonize the grid story, right? Or get some electric vehicles on the road. Stopping deforestation, thinking about oceanic sequestration issues, and thinking about food and agriculture, when the climate, the physical climate risks around food, food, productivity, and crop yields, is a major threat. And we need to shift to regenerative agriculture everywhere as quickly as possible. We're miles behind on that.

Bret Kugelmass
Are you more in the camp of, technology, like big technology breakthroughs are going to enable this? Or are you more in the camp of, we just have to act appropriately and just slight advances on the technologies that we have to do the trick? Regenerative agriculture is already a thing, do you feel like if we just got everyone into regenerative agriculture, that would be fine? Or do you think that we need real, new regenerative tools, bioengineering, whatever it is, to get us to the level we really need to do to fix the global climate issue?

Colin le Duc
Well, we need both. We need innovation and we need deployment, they both need to be accelerated and applied at scale. I think what's very exciting about climate solutions, investing generally, is that there are plenty of ways to reduce emissions that are- but they just need to be deployed. If you think about the retrofitting of old buildings, that is not a technical challenge, it's really an implementation challenge around the principal agent problem. That is a business model challenge for deployment. It's not a technical challenge. Whereas there are some aspects where you do need technical breakthroughs. Equally, in the renewable energy space, wind and solar works perfectly well today and is economic in most parts of the world. And so, that is a no brainer economically. But what are the constraints to rolling that out? It's T&D infrastructure in difficult parts of the world. It's a lack of storage capability to deal with the intermittency. It's other things that need to happen beyond just pure tech breakthroughs in fundamental technologies. We're saying you need both, you need to do all the innovation stuff. The challenge is the timeliness of decarbonisation. We don't have time to wait for innovations that are going to be ready in 2050. We have to deploy solutions right now. The biggest part of the 2050, 2040 net zero challenge is the next eight or nine years, we have to make it. If we don't reduce by '50, we will have no chance, because the climate system will reach tipping points where human intervention will be impotent. That's why deployment becomes so important and not not just innovation. And it is both, you need both.

Bret Kugelmass
The concern that you are expressing is the same thing that drove me into this space. But eight or nine years is not a lot of time with the types of things that you're talking about, like, collectively, we need to change people's minds to incorporate sustainability into every part of their holdings, and the assets that they own and manage. Eight or nine years to get everyone on board with that just doesn't seem like a lot. Are you worried? Optimistic? When I hear things like that, that makes me think more that we need some fundamental breakthroughs to come through, kick ass, and help, from a technology perspective, overcome some of the challenges that we have just from a deployment perspective. For instance, like with the building efficiencies, yes, you could get everyone to upgrade all their buildings, but that's dealing with a lot of people and a lot of unique, different infrastructure. But if we could produce clean energy three times cheaper, maybe you don't need that. What do you feel about that?

Colin le Duc
Fundamentally, we feel optimistic. I think it is fair to say, we do feel we are reaching a tipping point this year, in particular, in policy, general culture, business investing. So, I think we overall feel optimistic However, I take your point in terms of eight, nine years, in terms of changing people's mindsets, is going to be difficult. This ties back to the point I was trying to make earlier, which is, the likelihood of regulatory intervention is going up every day, because people aren't waking up quickly enough. The government will take responsibility. They'll start saying, okay, we're doing this, even if you don't understand it yet, but we're doing it because it affects all of us.

Bret Kugelmass
I see, now I see what you're saying. What you're saying is, the risk is actually tied to the urgency.

Colin le Duc
Absolutely. 100%. That's why the market has been left to deal with climate for the last 10-20 years and it's gotten nowhere. So, the regulator, i.e. the governments, are kind of saying, Whoa, we have to protect our populations here, we actually need to intervene. This is a fundamental quality of life question that's going to destroy our economy if we don't do something with it. We can't just leave it up to the Generations and the BlackRocks and the TPGs of the world to deal with it, because, while we're all doing great work, it's not enough, because the system is still geared to maximizing financial returns. It's not geared to maximizing impact. And that's why you need a systemic change, which can only come through a very firm regulatory intervention. Now, we are off to a good start with the Biden administration. What he is doing and what he has done, and if he gets all these bills through, is an enormous step in the right direction. What China is committing to is an enormous step in the right direction. What's going to happen in Glasgow at the COP later this year is going to hopefully be more momentum. I think people do feel we're getting to a tipping point, I think the challenge will be in the implementation. We're very good at setting ambition, making announcements, setting targets that some people think of far too far out there that no one's really gonna think about, I mean, it's easy to put a 2050 target out, right? I think people are increasingly focusing on, what is your stepping stone to 2050? Where are you going to be in 2025? Where are you going to be in 2030? That's what I really want to know, to be credible, if you're a business or an investor, or a country, in terms of your journey to net zero. And so, the point I'm trying to make is that, unfortunately - you know, Al Gore made a movie about this - it's an inconvenient truth. Climate is a very inconvenient thing, unfortunately. The urgency question is very real. That's why I say COVID is a dress rehearsal for climate, because the governments wouldn't just leave the market to deal with COVID, right? They didn't, they intervened. They're going to do the same with climate.

Bret Kugelmass
Colin le Duc, as we wrap up here, final thought?

Colin le Duc
Basically, if anybody is listening and is invested in the market, please make sure your money is directed to climate solutions and sustainable investments. That's my final thought.

Bret Kugelmass
Colin le Duc, thank you so much for your time, sharing your insight and wisdom with us today.

Colin le Duc
Thanks a lot, Bret, really appreciate it.

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