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Josh Haacker

Chief Investment Officer

Climate Investment

June 23, 2023
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Ep 94: Josh Haacker - Chief Investment Officer, Climate Investment
00:00 / 01:04

Michael Crabb [00:00:58] Welcome to another episode of the Energy Impact Podcast. Our guest today is Josh Haacker, the Chief Investment Officer of Climate Investments. Josh, great to have you on.

Josh Haacker [00:01:08] Michael, thanks for the invitation. Happy to be here.

Michael Crabb [00:01:10] Well, excited to hear about all the work you're doing today. But first, before we get into that, tell us about you. Where are you from?

Josh Haacker [00:01:20] I grew up outside of Buffalo, New York, in a town called North Tonawanda, a blue collar city outside the Rust Belt there in the Great Lakes area.

Michael Crabb [00:01:31] That's funny, I was actually born in Rochester. I have a theory that Rochester, New York, has like three degrees of separation from everyone in the world.

Josh Haacker [00:01:38] I think that's fair. I'm here in Los Angeles and have been for about 20 years now, but I'm continually amazed at the western part of New York State connections that seem to evolve and emerge.

Michael Crabb [00:01:51] Yeah, very funny. Okay, so you were born there, you grew up there. Your family was there for work, presumably. How did life progress?

Josh Haacker [00:02:00] That's where I just born and raised, right? For university, I went to Rensselaer Polytechnic Institute, which is down towards Albany in the state of New York, and moved in that direction. And that started a series of moves around the country for various roles and opportunities and just general life adventure, I guess, at that point.

Michael Crabb [00:02:20] And RPI is very engineering focused, right? I mean, you weren't in finance at that point then? You have an engineering background.

Josh Haacker [00:02:28] No, absolutely. I'm a chemical engineer by degree. And I took that into engineering and operations roles for the start of my career, in the pulp and paper industry of all places. So I was working with Procter & Gamble where I'd done an internship. I'd done a few other internships along the way. It was really a great place to start because P&G gives incredible responsibility and accountability for young managers as they're trying to help them develop.

Michael Crabb [00:02:58] And maybe talk to us a little bit about why chemical engineering? Something attracted you, like you had the knack as the joke goes. Is there something that attracted you to that field?

Josh Haacker [00:03:08] I think that's really it. I was good at math and science and I enjoyed math and science, and that just seemed to be the natural progression based on, in all honesty, what was pretty limited exposure to real career counseling of any kind at that point. And that made sense. It seemed general enough where I could continue what I liked. And honestly, I had four years to figure out what to do with an engineering degree. So, that was where it started.

Michael Crabb [00:03:36] And then operations. Yeah, because sometimes people go in academia or go into more design, but was there a lean that pulled you into more of an operations based role?

Josh Haacker [00:03:47] Yeah, I did in my co-ops and internships. I tried some different types of organizations. I did some work in a couple different manufacturing environments. I did an R&D stint for seven or eight months with another industrial firm. And it was just the pace of that delivery, producing something and delivering something. That for me... I like tangible results; I like having an action orientation. It was the timeline of R&D that really didn't work for me at that stage.

Michael Crabb [00:04:22] Yeah, that makes a lot of sense. Okay, so pulp and paper with P&G. What was your specific role and how did that drive your next career decision?

Josh Haacker [00:04:31] Yeah, I mean, it started as process engineering, working on process improvements and internal customers and suppliers, roll out of projects and process upgrades, things of that nature. I got promoted to what effectively was called Paper Machine Leader. It was an operations business leader role. I had 30 or 35 people in the department, an annual budget, big cap, big capex and set of responsibilities. I mean, it wasn't P&L responsibility. I guess it was L responsibility, right? It was just the cost side, but it was real leadership from a very early-20s type perspective. It was great for me because that was a good environment, fast paced set of numbers you had to hit. And I got to work with people and manage and hopefully lead people in a dynamic setting.

Michael Crabb [00:05:29] Yeah, really cool. Okay, so you did that for a number of years, like a super early leadership, operational experience. But at some point, you were looking for the next challenge. What happened next?

Josh Haacker [00:05:40] Yeah, I mean the path there was, in manufacturing, a little bit more of the same. I mean, the idea was you could keep taking on more responsibility or you could move to Cincinnati with P&G, and neither of those were really that compelling to me. The work was interesting, the people were great, but it didn't feel important. And looking back, I think that does summarize what I was feeling.

Josh Haacker [00:06:03] I was really into the outdoors then. I was a rock climber, backpacking and mountain bike. That was sort of what I did. I was trying to see if there was a way to marry the two in some way, sort of a technical career focus, but this idea of the environment and trying to preserve or protect the things I loved. And the backdrop of that was this was the late '90s. Enron, the energy crisis, and the whole debacle and the regulated and deregulated markets are a mess.

Josh Haacker [00:06:36] And the "aha" moment for me was here I am managing this annual budget. We're at Procter & Gamble's largest manufacturing facility worldwide. We had like 3,000 employees, and we were shutting the plant down to sell the electricity back to the grid from our cogen plant. Again, I was a young professional. I was like, "There's something way more interesting going on here. That 3,000 people are sitting idle, probably billions of dollars of capex are sitting idle, and we can make more money doing this." That just really captured my attention.

Josh Haacker [00:07:10] So, I started thinking about energy and I had this theme of the environment. And I forget how it got to me, but I got the book, Natural Capitalism, written by Amory Lovins and Hunter Lovins and Paul Hawken. And that was a really another eye opening set of facts or perspectives that I just hadn't been exposed to. And so, all those things came together and I was headed back to business school to make a transition. That's how the next piece of the journey started.

Michael Crabb [00:07:41] Fascinating. So you knew there was something here with energy. You had a personal environmental lean, but environmentalism wasn't really... I mean this is even still pre-Clean Tech 1.0, right?

Josh Haacker [00:07:55] Absolutely. Yeah, absolutely. So I went to business school, and I used all the papers and projects and independent study tasks that I could. It became renewable energy in my mind. That was really where I was going. I was going into the power business, but specifically, it was renewables. And again, context. Enron melted down. GE buys the wind assets of Enron. I think that was the only formal recruiting role that came to campus. And I didn't want to move to Tehachapi, California, to manage a wind farm. And so, I went completely against the advice of the career services group and joined a very small renewables developer to roll up the sleeves and see what this was really all about. And I think that lasted eight or nine months before the money ran out and it was time to figure out what was next.

Michael Crabb [00:08:51] Yeah, that's a tough time. I mean, renewables were incredibly expensive. Like, not understood, and a very slim supply chain at that point and everything, right?

Josh Haacker [00:09:01] Yeah, there was really nothing, to be honest. We were as much trying to advocate for renewable portfolio standards to the utilities as potential customers as we were doing anything with individual project development or delivery. It was an eye opening experience; I think it was a rude awakening. I wouldn't trade it for anything, frankly, because it put me on a path that was really where I've been ever since.

Josh Haacker [00:09:30] So, that failed pretty quickly, at least in terms of my participation. And I then went on to the Rocky Mountain Institute. I had gotten to meet RMI and Amory Lovins who we ended up bringing to campus as part of a club thing, a business and the environment type focus. And the timing just sort of worked. They were working on a book called Winning the Oil Endgame, which was about transitioning profitably off of oil to alternative sources of supply, and they needed some quantitative analysis and business perspective on some of the topics. And so, I joined and I hopped around across a number of... They were like, "Would you be open to living in... We'd like you to start in Snowmass, Colorado, and then we'd like you to move to Kona, Hawaii for a number of months and then come back to Boulder, Colorado. Would that work?" And so, for at the time, a single guy who loved the outdoors, that was a pretty easy yes.

Michael Crabb [00:10:32] Yeah, that's the point where you're like, "Oh, yeah, maybe with a little per diem." Or like, "Throw in a lift ticket, I could make it work," right?

Josh Haacker [00:10:41] I mean, that's where I learned to surf, those days in Kona. And you're right, I missed the ski season. I hit the wrong months in Snowmass, but there was a fair amount of... The people who work there love the outdoors, and so there was plenty.

Michael Crabb [00:10:54] Hiking, biking. Okay, very cool. Very cool. So somehow you still got some work done while being tempted with those distractions?

Josh Haacker [00:11:02] Yeah, it was great. I mean, that organization, particularly at that time... That's before they merged with Carbon War Room and since all the growth. It was still a pretty small "think and do tank," as it was described, and a strong perspective and I learned a ton. You know, that was pre-ethanol, pre-biodiesel. I was building the supply stacks for those potential technologies.

Michael Crabb [00:11:24] Interesting. Was that like the RIN program development as well, or not even?

Josh Haacker [00:11:29] Even before that. This was basically, "Could we convert corn to ethanol? What's this cellulosic ethanol thing? How many fats and greases are there that could be converted to biodiesel?" I mean, this was the earliest... Before the first boom of that as well. And it was also the company or the NGO. I was playing the role of independent advisor of sorts to the California and Nevada investor-owned utilities at that time around demand response. And so, we were getting to see all the data and try to clean it and help draw the conclusions and make a recommendation. So, it didn't last; it was a year and a half or something I was there. But it was a very timely set of experiences given what was to unfold in the energy landscape.

Michael Crabb [00:12:22] I find people that have that grounding in some form of supply-demand fundamental analysis... That model is translated everywhere in energy markets, right? And then all we're arguing about is the rules.

Josh Haacker [00:12:37] Well, that's right. That's right. Fast forward, I went to AES Corporation after that, sort of moved into project development and project finance roles. Away from corporate in Southern California, but another organization that really decentralizes decision making and autonomy. And I worked with a small group. We supported 10 operating power plants. We helped them coordinate power purchase agreements and refinancings and then greenfield development and small M&A. And really, to your point, got to see and learned the industry. I got a lot of direct, hands-on exposure to the markets and contracting and financing and how these assets operate in a marketplace.

Michael Crabb [00:13:22] And that's a pretty complex set of... I mean, again, it's all algebra, but it's a pretty complex set of interconnected contracts. Was that like a general program that exposed a suite of people to those things, or are you just kind of locked into a position? I shouldn't use lock; I mean that in the best way. But like, ended up in a position that gave you that breadth? Because you hadn't yet done real project finance up to that point, it doesn't sound like.

Josh Haacker [00:13:48] No, I mean I had some exposure, but just through a quick development assignment. But you're right. It wasn't a program; it was some element of luck, for sure. I joined this small team and really got to learn it from the ground up, learning from people who had been in this business for some amount of time and who were willing to, of course, invest in an associate at the time or whatever my title was. And then, I quickly was able to get into being the project director for a big greenfield generation facility and looking at portfolios of assets or individual assets to bring in. It was a great set of experiences over what were really only a few years.

Michael Crabb [00:14:35] Yeah, fascinating. Okay, so now you really hit it all. You've hit the fundamental analysis, you had the ops background. You got exposed to, I guess, probably the deregulated arm of AES, right? So you got exposed to this broader project capital process for a couple of years. And then what?

Josh Haacker [00:14:58] At least looking back, that was sort of the next moment. I mentioned being a project director. It was for a 600 megawatt pulverized coal plant in Oklahoma. And at some moment, I sort of picked my head up and said, "Something's gone astray here in terms of my intent and my interest and what I'm passionate about." It was still early, and AES was thinking about renewables. They had a wind business out of San Diego at the time, but that was it. And that was sort of along that time, so now we're in early to mid-2000s.

Josh Haacker [00:15:39] I met a firm called US Renewables Group, which at the time was one of the only dedicated funds and fund managers who were thinking about clean energy, in that scope and space. They were raising a second fund and the first bigger check writers were coming into the sector. And so, they intentionally moved earlier in the development cycle. And that was what I was doing and I met the founding partners there and quickly found an opportunity for myself. So, a little bit of timing, a little bit of luck, and a little bit of persistence. I think I was accused of stalking them for some number of months or even a year before the timing finally worked out.

Michael Crabb [00:16:18] That's great. I love that. Yeah, you make your own luck, right? You have to put in that effort, I think.

Josh Haacker [00:16:27] There just weren't any seats, right? I mean, this wasn't a theme yet. This wasn't a sector or an asset class; it was still fringe. And so, there was a seat I had to try to find a way to get into.

Michael Crabb [00:16:39] Okay, well, you hounded these people and hung out at their coffee shops and were at the end of their driveways. You got in. How did that evolve?

Josh Haacker [00:16:50] I ended up spending about about 10 years there, maybe just short of 10 years. It was an incredible set of experiences. This was a dynamic landscape in an evolving sector.

Michael Crabb [00:17:02] And timeline, was this mid-2000s?

Josh Haacker [00:17:04] Yeah, we're just before the financial markets collapse of '08 and '09. So, join the flow, things are going great. Everybody's talking about big valuations and assets and lots of transactions and then the bottom fell out. I think we sort of went into that trough period of 2010 through 2013 of having capital, having capital to deploy, but really having to manage a portfolio that was facing a lot of uncertainty and volatility.

Josh Haacker [00:17:32] But an incredible opportunity for me because it was a private equity firm, but it was still very creative and entrepreneurial. Hands on, I guess is the way to say it. So for someone who liked operating, liked development, I got to work very closely with the management teams of each of the investments. I learned the art of investing in terms of... I had not led those types of transactions prior, but it was across a set of assets that I had a pretty good base of knowledge around. I got to take on some board roles and then got to start to lead transactions and then, through a couple of promotions, really in a span of about 10 years, a number of board seats, board roles over the years. And I took these two, maybe three interim management positions as well. So, I stepped into a general manager role of a power plant. I took on a CFO role for a couple of rounds of capital raising. So for me, it was a perfect balance, right? It was this opportunity to do both.

Michael Crabb [00:18:40] Yeah, what a crazy... Yeah, you don't hear many private equity investors having stepped in to be a plant manager somewhere at a power plant. That's a pretty unique set of skills.

Josh Haacker [00:18:51] I mean, for anybody who's listening, this was an unconventional path. Hopefully, there's an example where that exists. This was not the traditional way to get to where I'm lucky enough to sit today.

Michael Crabb [00:19:04] Well, and I think that's a real superpower. And to the extent there is a conventional path, I assume you're alluding to your traditional financial sort of traditional path.

Josh Haacker [00:19:16] Yeah, exactly. More of a banking into a venture PE firm or some type of asset manager where you're working back up, hitting business school and coming back, you know?

Michael Crabb [00:19:29] Sure. I think it's a real superpower to have real operational expertise and experience. I mean, I never like really worked in a plant setting, but I've sat around with enough engineers and tagged along on enough site visits. My strategy was always just to pester those people to the point of being annoying. Because then you learn what's on the sheet is not really reality, right? It's like a bizarre projection of reality.

Josh Haacker [00:19:55] Absolutely, absolutely. My engineering degree is pretty dusty at this point, as is any operational experience, but I think there's there's just enough insight and understanding there, whether it's from a first principles perspective or it's how do things really get done on night shift, on a holiday weekend. that the perspective and the empathy is there as we look at new opportunities and challenge some of the assumptions along the way.

Michael Crabb [00:20:25] Fascinating. One other question on that timeline. I think everyone focuses on the global financial crisis in '07, '08, '09. Certainly liquidity was challenging, interest rates were challenging, but how would you compare that to shale gas prices in 2010, 2011? I mean, it was really in this sector at the time you were going through this. I would say it's kind of a double whammy. And I would guess the shale gas price evolution... For our listeners, what, $10 an MMBtu to $3 an MMBtu. I mean, it was crazy.

Josh Haacker [00:21:02] No, you're right. I mean, absolutely. I think you had the economic hit or the hit to the economy was the first hit and then the shale gas revolution second in terms of the renewables. And look, we were doing clean fuels, we were doing other recycling, other sustainable assets or infrastructure. We even started doing some commercial licensing deals of technology, putting a thesis together and spinning it out on its own. But you're right. I mean ultimately, unfortunately, we were exposed across a number of assets to gas prices and it hurt.

Michael Crabb [00:21:34] Yeah, it's tough. I think there's sort of a news bias today that like, "Oh, environmentalism was always a thing. We're always improving." And like, it really wasn't. You were 10 years, if not 15, ahead of your time on thinking about some of the externalities that drove your decision making.

Josh Haacker [00:21:52] Yeah, everything we've talking about was early, right? Then China decided to invest how many tens of billions into PV and panel manufacturing. Again, with the series of baseload bets versus intermittent resources at that time, ultimately we learned a set of lessons. And it's not the invisible hand, but it's some sort of stroke of pen risk that top down decisions can impact global markets. That was a big deal. I think in the end, it was huge on the back of the shale gas price disruption. And then, this challenge and this choice to make PV economically viable. It really did upend the energy markets for what was three, four, five years.

Michael Crabb [00:22:48] Yeah, stroke of pen risk. I love that. It's all supply-demand fundamentals, but the rules always matter, right? You can change the rules.

Josh Haacker [00:23:00] Yeah. So for me, after about 10 years I left there. I went to a family office that was focused on water and wastewater. So it was a bit of a similar industry construct, and yet a hard industry that I think has been looked at as being hard from the outside in terms of how do you make money on those investments. We launched a couple of businesses, then we started investing from a true family office perspective. After a handful of years there, I moved back into more of a advisory, independent sponsor type investing role, more out on my own for a few years before ultimately joining Climate Investments.

Michael Crabb [00:23:40] Wow. Yeah, quite a path. That brings us to today, I guess. Tell us about climate investments. What drew you to that opportunity? And then, tell us more about the platform.

Josh Haacker [00:23:50] I joined the firm just over two years ago now. So, this was 2021. We were in the middle of COVID. I think the reality is it was a firm I had known for a number of years. The OGCI, the Oil and Gas Climate Initiative is an industry coalition of 12 large oil and gas producers, energy producers. They came together in 2014 to really take a leadership position on behalf of the industry. And so, it's still a collective or a coalition that is focused on setting emissions objectives, holding one another accountable, building tools and platforms to help across the industry, and ultimately looking to, again, lead in the face of decarbonization on the energy transition. And I think we have to give them real credit because 2014 was not the decarbonization climate world that we're in today.

Michael Crabb [00:24:45] Yeah, totally. And as far as my stance and this platform, ignoring or trying to throw shade on the oil and gas industry is not only completely unproductive, but is nonsensical. So, you don't have to caveat anything here.

Josh Haacker [00:25:01] I'm not here to caveat, I know. I jump in with both feet, right? So for someone who really pivoted his career around the environmental benefits and a clean energy personal platform, at least, I got some questions from people I've known for a long time. "Really? That's next, okay."

Josh Haacker [00:25:23] So, there's OGCI and then there's Climate Investments. In 2016, and it really became operational in '17, 11 of those 12 member companies, as we call them, created a fund. They each contributed $100 million to put together a $1.1 billion pool of capital with a shorthand mandate to catalyze and demonstrate decarbonization solutions. So, I got to know the organization, got to build some relationships, and then in late '20 or early '21, I got a phone call and had some conversations about the next phase of growth for this platform.

Josh Haacker [00:26:06] And the backdrop there was we were just coming off of... Which COP was that? There was a moment there in early '21, just pre-pandemic and the forces were really aligning. I mean, the politics, the policies, the regulation, the incentives. And I think ultimately, it was the demand. I mean, we were seeing demand driven by consumers, and driven by corporates as a result, that net zero commitments were becoming real. All these various mandates and objectives were becoming real, GFANZ was taking hold. It was this moment where for me, I was just like, "Here's an opportunity, a moment in time. Can't say no based on what I hope to accomplish in my career."

Josh Haacker [00:26:58] And so, a unique platform for sure, again, representing... And we are independent of those investors. We have a pool of capital. We're not a CVC. We don't have the obligations that a CVC has. I hope and I think we have some of the benefits of having 11 corporates as our investors in terms of resources we can use and utilize as for when we need them or want them in terms of specialized expertise.

Josh Haacker [00:27:25] And then, absolutely having that voice of the customer. We understand and we work closely to understand the pain points and the priorities that each of them... And to be clear, we may say 11 oil and gas producers, but they are very different in terms of how they think about the energy transition, as you might imagine. And so, it's really a mutual relationship in terms of we're out looking for solutions and technologies and services that can be deployed in their operations and can help them achieve their net zero commitments, but also look to play offense as well. How can they grow through the transition knowing that there are some headwinds on their core and historical business?

Michael Crabb [00:28:10] That makes a lot of sense. And yeah, out of those 11 companies you probably have 14 different opinions on any given thing, right? You alluded to this, the next stage of the platform's growth. Tell us more about what that looks like and then a little bit on how the team is structured and sources investments.

Josh Haacker [00:28:30] Sure. So the current fund is an early stage mandate. So first, it's dual mandate. It is impact and financial returns; it's both. We have a fund level objective around impact, a sort of 2030 type target. We're at near-term. We use a near-term perspective. There's a lot of 2050, there are a lot of moonshots. They have to be part of the solution, don't get me wrong. And if you look at our portfolio, you might find one or two that are longer dated. But whether it's our view that there's a time value to carbon or whether it's our LPs who think quarter to quarter, you know, "What have you done for me lately?" that's how we've operationalized it.

Josh Haacker [00:29:08] We set an annual target for realized emissions reductions and our compensation is tied to it. So, we're on the hook. Impact first and financial returns because the same way that group of LPs is not interested in philanthropy. It's got to move the needle for them towards the bottom line. So, it's a venture's technology entry point and a deployment or development stage projects entry point. And the idea is that we can do either or both because not everything is a software, AI-enabled, cloud-based solution.

Michael Crabb [00:29:42] In this space, most of it isn't, right?

Josh Haacker [00:29:45] It's hardware; it takes steel on the ground, right? Or, it takes a combination of the two. And so, that's the flexibility we have in that pool of capital. Sector-wise, I talked about our energy producer LPs, but if you look at their portfolio, it's only about a third directly applicable to oil and gas. So I'd say, it wasn't a Scope 1, 2, 3 perspective back in 2016, but if you use that lens now, about a third Scope 1, Scope 2 for those operators. And then, the other two-thirds is in the Scope 3 perspective. It's heavy industry, cement, concrete, steel, primary chemicals. It's transportation, but particularly heavy duty vehicles and shipping. Again, we're doing some work on aviation now more recently. And then, the built environment. Low-carbon construction materials and energy management or energy efficiency of those assets.

Josh Haacker [00:30:40] We used to call those the hard to abate sectors. We call those the undercapitalized sectors now, from a decarbonization or innovation perspective. But it really is. It's focusing on the emissions. We're not focused on renewable energy or renewable power because those solutions are proven in mainstream at this point. We've not done much in EVs or personal mobility because again, a lot of capital, and relatively speaking, not the lion's share of the emissions source. And so, we view ourselves as a specialized industrial decarbonization investor.

Josh Haacker [00:31:18] That's what we've done to date. So, the next stage for us is we've looked at the landscape and thought about what we're good at. It's really about now adding a growth strategy. We've seen the data, but we feel it with our portfolio companies. Some number of those companies in the portfolio are outraising a Series C, D, pre-IPO type round. And maybe that's $50, but maybe that's $100 or $150 million. And they tend to fall between the large, clearly the large infrastructure and the big generalist PE firms who are managing multibillion dollar funds. These are too small and maybe around too early. And then the venture investors, of course, if they're in they're being extended beyond maybe what they're comfortable with. And as a first check opportunity, it's a stage or two too late.

Josh Haacker [00:32:15] There's not a dearth of capital. Let's be quite clear, right? There's billions that have been raised, tens or even hundreds depending on how you define climate or decarbonization. But there's a relative gap here, and we feel it. So, that's where we're going. It's this idea that if we need to, we can continue to support the companies in the portfolio, although I would say that's not the intent of the strategy we're putting together. But it's really all those companies we've talked to and the relationships we've built and managed and supported that now are becoming or evolving as the early winners from this industrial decarbonization landscape. So, it's the high-growth scaling and business execution risks that we're intending to focus on there.

Michael Crabb [00:33:01] Yeah, super interesting. So do you envision, I guess, keeping the first two tracks alive as well? And then, are there like new funds? Or is it an evergreen concept and then you'll just sort of add these additional silos on top of them? Or perhaps they're not in separate funds at all? I mean, with a small LP base, you could probably just think about it as an allocation as opposed to discrete funds.

Josh Haacker [00:33:27] No, I mean, really good questions. I think there are a few elements to it. So first, independent pools of capital is the idea, right? And I think it took us a while, internally, thinking about what are what are we good at? What do we think we have a track record in and credibility. And then, looking at the market in terms of where is this this gap? And so, the idea is to build two mutually reinforcing strategies. We have the catalyst strategy, which is what we call the current fund, which is early stage. Still technology risks and business model risk, it's those early, those first commercial inflection points. And now, where the technology and the business model have been proven at scale in the market, it's about that rapid scaling support. And so, all the relationships and learnings and diligence and origination inform that later stage strategy. And then, understanding what customers really want and what they need to see and what the later stage of buyers or next round investors are really looking for helps us inform the early strategy as well. So, it's sort of these catalyst and growth strategies running in parallel.

Josh Haacker [00:34:37] The other piece that I hit is we're really thinking about how do we broaden this set of investor relationships? Because our view is it's not about decarbonizing my sector, my industry, just my operations. And the Scope 3 definition, and if you want to get into Scope 4, it's a bigger box.

Michael Crabb [00:34:57] I liked your description about decarbonizing existing systems for your LPs. Who really cares about the number? And then, playing offense, the growth sector, which isn't... I guess technically it's Scope 3, but it's not really, right?

Josh Haacker [00:35:13] No, but it could be, right? I mean, you could think about growing... Like, you're vertically integrating or you might be forward integrating depending on your piece of the value chain. And so, I think a value chain analysis that we're trying to... I mean, again, I said the portfolio is quite broad already, but it's... Again, it's the steel players, the aviation players. It's the primary chemicals, methanol and ammonia and hydrogen. It's the transport pieces. These are the customers and suppliers of our current LP base. And so again, unfortunately, the emissions don't necessarily clearly align with where your balance sheet says your assets sit today. And that's what we're building. And I think there's real momentum, again, around the work we've done, around the expertise we've built and the conversations we're having with potential partners of the future, we're really starting to get some some buy in to that thesis.

Michael Crabb [00:36:08] Yeah, fascinating. Okay, can I say explicitly what I think you're saying, which is bringing in additional LPs, sort of broadening your fund customer source and continuing to broaden the scope of the platform along with that process.

Josh Haacker [00:36:26] That's right. That's right. And I think, again, to our current investors credit, this has never been about them controlling the message, controlling the tools. Frankly, they were, as we call it... They were looking to catalyze this transition in the decarbonization solutions. We think a lot about how do we help them, and the intent is, again, with another set of investors or LPs.

Josh Haacker [00:36:53] I'd like to just pause and give you one example. In 2017, when the firm was founded, the fund and the firm, there were carbon accounting systems and concepts, but everything was backward looking, meaning towards the past. There wasn't really a set of tools from an investors perspective about how we estimate forward looking emissions reductions. And that was key to our mandate. I think further, if we're honest with each other, given the set of LPs, it wasn't just important, it was mission critical that we had a set of tools that were credible, could be viewed as credible in the marketplace. And so, the team, certainly, that predated me gets full credit for really building a rigorous methodology for quantifying the emissions reductions. And against what baseline? Against a baseline that's dynamic and changing over time as the supplies stack changes. It's not an easy task, and it gets very messy.

Josh Haacker [00:37:51] Quickly, they brought in a series of partners, Energy Impact Partners, Boston Consulting Group, Prime. There were six or seven that came in as a founding group that then started to say, "Okay, how can we use what's been started here to really formalize?" And now that's been rolled out as Project Frame. It's an open-source tool, effectively, trying to get investors, asset managers, corporates to use a common set of terms and a methodology. And I don't have the numbers at my fingertips, but I think it's 600 or 700, again, firms and companies that represent over $60 billion of AUM who are now using the tool.

Josh Haacker [00:38:38] On behalf of our investor group, we looked at this gap in... Not even the marketplace, but in the tool set that we had. We don't need to own it; it doesn't need to be our proprietary methodology, in fact, just the opposite. Our numbers are reviewed by an independent auditor, the methodology has been reviewed by an independent auditor. So here's an example of how, again, the oil and gas producers need credit for trying to do something more broadly in terms of moving the whole mandate forward.

Michael Crabb [00:39:10] Yeah, very interesting. We have a couple of episodes dedicated almost exclusively to carbon accounting and folks who are thinking about what that means and the 17 different ways that gets interpreted, or more.

Josh Haacker [00:39:26] We could spend hours and days and I would quickly defer to the experts on our team. We've got an impact team. In terms of every investment we look at, that's where it starts as it gets to some of the earliest screens. What is the potential for not just planned impact as we talk about, for 10 years out, but realized impact in the near-term, and how will we affect that? How can we drive and help accelerate through adoption or pilots and demos and commercial engagements with our current set of investors and the relationships we're building?

Michael Crabb [00:40:00] Yeah, very cool. Maybe give us some flavor of what some of the technologies and platforms that maybe you've done recently or that you're most excited about. As much forward looking, or what we can caveat it all as forward looking statements are relevant or best judgment or whatever.

Josh Haacker [00:40:21] Sure, sure. So, no specific returns projections.

Michael Crabb [00:40:25] Yeah, right, right.

Josh Haacker [00:40:29] No, look, I think some areas we didn't really hit earlier. The themes or the objectives we invest towards are methane emissions reduction, CO2 emissions reduction, and then carbon recycling, CCUS-type opportunities right across those sectors. So just to use that as maybe the lens, we've done a lot in terms of methane emissions. It started with the detection and monitoring and measurement technologies because... It's cliche of course, but if you can't measure it, you can't manage it. Now, that was driven by insight and even maybe access from our investors. So again, using that lens and those relationships. But it has now evolved to mitigation where we're actually investing in some project-type assets and platforms who are out repairing the leaks, whether that comes from an LDAR leak detection repair or it's from flares or what have you, we're trying to close those loops because just detecting and monitoring is not the solution. It's not what we're here to do.

Josh Haacker [00:41:27] So, I think that's an area where we were out ahead of the market, frankly. And now, responsibly sourced gas and border carbon tax adjustments. And again, OGCI put together the Aiming for Zero Methane Initiative on behalf of the industry. EPA regulations are looming, right? The tailwinds are there. So, there's a sector we continue to be focused on. That tends to be the Scope 1 and 2 perspective of our current investor base.

Josh Haacker [00:41:55] I think carbon capture, again, is another area where we were out early. But the IRA, right, just in terms of... I think our internal estimate was by moving 45Q up 4 to 5 times, a sort of increase in the economic opportunity set in the US perspective. But huge...

Michael Crabb [00:42:20] Yeah, carbon capture sort of kills me a little bit. I mean, those are hefty tax credits, and that is a real challenge to scale, right?

Josh Haacker [00:42:36] I mean, fair point. That is a hefty tax credit. I think we could, again, do a sidebar on the breadth and depth and history of tax credits and other incentives. We'll start with PTCs and ITCs and RINs and we'll go all the way back to other natural resources. But, fair point.

Michael Crabb [00:42:57] And not to pick on carbon capture, I also think hydrogen is sort of a similar challenging tough economic structure as well. So, I don't just pick on carbon capture.

Josh Haacker [00:43:11] Yeah, setting the economics debate aside, because I think they are fair on both points, we think about avoid the emissions, reduce the emissions, recycle or utilize the emissions, and then store them. I think it is that pecking order. From a practical or realist perspective, again, to your point, it's a transition. We're calling it a transition for a reason, right? There are trillions of dollars of assets out there in the oil and gas complex that are operating. They're not going to go away tomorrow. Carbon capture has got to be a part of that if we want to start making impact now. And so, I do think this has been a key jumpstart in terms of the higher tax credit to help them move forward. And we've got both technology bets like Svante, which is using a solid-state capture and is being leveraged not just in oil and gas, but across a range of industrial applications and even has direct air capture technology and product partnerships, so they're working on that end as well. But we've also done projects where it's a more proven technology but in a new application. So, post-combustion in terms of power plants or LNG, and of course tied to some hydrogen, blue hydrogen and other chemical opportunities.

Josh Haacker [00:44:27] The key thing for now and of the moment, certainly, is energy efficiency is a huge area and that's as broad as it gets when you use the label. I think recently, we've been pretty active in that built environment application. So it's from a HVAC, energy efficiency, energy management perspective. We've got a recent investment in a company called Aeroseal, which is about sealing ductwork or sealing building envelopes and having huge efficiency gains just in terms of that energy lost through cracks and leaks. Really incredible results there; we're excited about that one.

Josh Haacker [00:45:05] We've got other hardware enabled software solutions or vice versa that we think are key in terms of, again, closing those loops. I think the agency issues we've seen for many years and decades in energy efficiency between those who use the use the energy, those who pay the bills, and those who make the capex investments, I think again, it's hard to solve, but it's not rocket science. We are finding those solutions and there are plenty of platforms and intermediaries now. And so, we're seeing a lot of opportunity there and even around optimizing...

Josh Haacker [00:45:42] Converge is a company we back that's a real-time hardware sensor in curing concrete in big construction jobs. And it's sold on an ROI basis because the real-time data allows them to move more quickly with the schedule. But what it's really doing is allowing for the optimization of the cement content in the concrete, which is where the bulk of the CO2 emissions are embedded. And so, it's that optimization that drives the CO2 emissions reduction. So I think, a number of elements or real interesting areas around that theme as well.

Michael Crabb [00:46:17] Interesting. Yeah, that's super cool. What about some of the other hot subject tech of the day? Geothermal is always one. Pumped storage is one. Nuclear is one. Any other hardware stuff? I'm sure there's a couple others that I missed.

Josh Haacker [00:46:40] Just so I don't lead anyone astray, we're not just hardware. We are doing software. We've got a couple of industrial focused AI-type software platforms that are looking to really just deliver efficiency gains where it's really just through a more effective control and optimization. So I think there's definitely a place for that as well in the repeatability of those types of solutions.

Michael Crabb [00:52:24] Yeah, fascinating. Oh, that's super cool. I love how you walked through all of that. I do want to be conscious of time. Anything that we didn't talk about that we should have or that you wanted to?

Josh Haacker [00:52:35] I mean, I think we covered a fair amount of ground. I think this is an exciting time, right? [00:52:42]I think the momentum has built and I think we've moved past the point of, well, for many, whether or not climate and decarbonization need to be a part of the collective effort going forward. I think it's maybe more about how and how fast. And frankly, my own two cents is not fast enough in terms of what we're doing. [20.6s] I look forward to continuing the conversation and seeing if this inspired any conversations with others going forward.

Michael Crabb [00:53:11] Yeah, incredible. Thanks so much for coming on. It was awesome.

Josh Haacker [00:53:14] Great. Thank you, Michael. I appreciate it.

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