This is an audio transcript of the Unhedged podcast episode: ‘Investing in green tech’
Katie Martin
Before we begin, we’d love to hear a bit more about you and what you like about this show. We’re running a short survey and anyone who takes part before August the 29th will be entered into a prize draw for a pair of Bose QuietComfort 35 wireless headphones. You can find a link to the survey and terms and conditions for the prize draw in our show notes.
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The problem with investing in green technology that’s going to change or save the world is that it’s going to change or save the world. A lot of this tech either doesn’t really exist yet or it’s untested at scale. So how on earth do you make money out of that? Today on the show, we’re asking how do the really big green investors think about all this uncertainty? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist here at the FT in London, and I’m joined again by the very lovely Simon Mundy, editor of Moral Money and green investment nerd.
Simon Mundy
Hi, Katie.
Katie Martin
Nerd is a term of affection, please be aware.
Simon Mundy
That sounds fair enough to me.
Katie Martin
Just to kind of get us rolling, does the answer to global energy needs actually exist yet? Do you suspect is it out there somewhere and just not scaled up yet?
Simon Mundy
I mean, there’s no single answer, of course, right? And I think it’s interesting to remember something that John Kerry, former US presidential candidate and the secretary of state and most recently, climate envoy for President Joe Biden, said a couple of years ago. He said about half of the technology that we need, half of the emission cuts that we need will come from technology that we don’t have yet.
And he provoked quite a lot of controversy with that statement, because you have various people within the academic community focused on climate change who say, look, this is unhelpful. We actually have pretty much all of the tech we need. We have solar panels, we have wind turbines, we have electric cars. Let’s roll this stuff out. So it’s a real point of tension and debate right within this space.
It seems to me that we have an awful lot of technology that we should be rolling out a lot more quickly than we are, and we could be going a lot faster with what we have. But there are certain things, certain industries, if you look at cement or steel, where actually, it’s a bit tricky. There’s more work needed when it comes to rolling out or to developing the kind of technology that we’re gonna need. And even within those areas where we have certain solutions, could it be worth pushing for better solutions, real step changes in that space? Quite possibly. So it’s complicated.
Katie Martin
It’s complicated is a good answer. And possibly there’s an element of people making the perfect the enemy of the good here. But you’ve been talking recently to Vinod Khosla, who’s one of the kind of pros here, right? He really knows his way around green investment. Who is he? Why do we care what he thinks about all this?
Simon Mundy
So Vinod Khosla, he was born in India. He moved across to California. He was one of the co-founders of Sun Microsystems, which became one of the most valuable IT companies in the US. That made him a very, very wealthy man. And he then 20 years ago, in 2004, he set up Khosla Ventures. He decided to use his fortune to kick-start a venture investment firm.
And fairly soon after that, he decided to focus in large part — not entirely but in large part — on climate tech, on technologies that could help to address the challenges around decarbonisation and the energy transition. This was around the time when you remember Al Gore came out with his film An Inconvenient Truth, and there was a sense, OK, you know, there’s traction being gained here. Things are gonna move really, really quickly in this direction.
But then various things happened. The financial crisis happened, the shale boom happened. And actually, things didn’t move as quickly as people like Vinod Khosla had been hoping. A lot of those early investments that he made didn’t work out.
Fortunately for him, other investments outside the climate space did work out. And he’s continued to invest in this space, especially over the past few years. And I’d spoken to him previously for my book Race for Tomorrow. And I caught up with him a couple of weeks ago in London. And it was really, really interesting talking to him about where he sees the most exciting opportunities today, because it’s been another turbulent period in that space.
Katie Martin
So talk to me about like, what has worked specifically in climate, what has worked out for him and what hasn’t? What have been the real kind of doozy bets that have just gone horribly wrong?
Simon Mundy
So I think to a certain extent, it’s still remains to be seen which of his bets will really work out in the long run. But what he was talking about to me was the one that he’s most excited about.
So one of them, interestingly, is a fusion power company. This is a company which I’ve written about before. I featured them in the film that we made on fusion power. Now fusion, it’s very, very fashionable to say fusion is 30 years away and it always has been and always will be.
Katie Martin
Well, funny you should say that, because written here on my little list of questions that I have to ask you is, is fusion a load of rubbish?
Simon Mundy
Well, it’s certainly not a load of rubbish, right? Fusion reactions have been generated in huge numbers going back decades. They’ve been used to make bombs. The challenge is, of course, having a fusion reaction that puts out more energy than it takes in, which no one’s done yet in any way which could be the prototype of a working fusion power station. But the scientists that I’ve spoken to, the investors that I’ve spoken to, are getting really quite serious about this.
So the company that Khosla’s invested in, Commonwealth Fusion Systems, they came out of the Massachusetts Institute of Technology (MIT) and they’re building at a site that I visited; the first . . . what they say will be the first working prototype of a fusion power station, which could put out more power than it takes.
Katie Martin
This is like zero carbon. This is like . . .
Simon Mundy
And this would, yeah. No carbon emissions. There would be radioactivity, but much shorter-lived than from conventional nuclear power stations. They could put out far more energy than those. So we’re talking about zero-carbon baseload power. And they’ve raised about $2bn from investors, including Khosla Ventures, including really quite serious investors like Temasek of Singapore. So this is the sort of thing that he’s interested in.
And what I find interesting about his approach is he is completely focused on the things that don’t exist yet. He’s not interested in financing things that are iterative or incremental. It’s gonna be . . . His strategy really involves failing, that he expects to fail with a lot of his bets, probably most of his bets. But the ones that succeed are gonna succeed in a really, really big way.
Katie Martin
So like you said, this isn’t the first time that you’ve chatted to him. You know, for him, is this a moneymaking venture or is he trying to be one of those guys that saves the world?
Simon Mundy
Well, I think he is seeing that the direction of the world economy is towards cleaner energy, because that’s what’s needed to address this terrifying challenge that we have in the form of climate change. That’s the way the world is going, and he wants to make money out of it. So in the process, yes, he I suppose would be helping to save the world if the world does end up getting saved. But it’s very much a commercial undertaking for him. I don’t think there’s anything remotely philanthropic about it. I think he’s fundamentally looking at where he can really have smash hit investments. But it’s a tricky area to be investing in.
Katie Martin
Definitely. I mean, to what extent are these like, smash hit investments really contingent on some sort of help from government? Is, you know, let me play devil’s advocate here for a bit. Are kind of, you know, big-shot green investors effectively just sucking up subsidies from government and making lots of money out of it?
Simon Mundy
So I asked him about that, because it seems to me personally that what’s really needed to move the needle around the energy transition is very different, much more ambitious policy measures from governments — things like carbon pricing and in much more serious ways, which will change the economic incentives for businesses and for investors.
But what Khosla said was that for him, that’s not what he’s interested in in terms of his strategy. He wants to invest in things which if they work, which may or may not work, but if they work, they will be cost-competitive, profitable today without subsidies and without the need for rival incumbent technologies to be hit with carbon pricing.
So another of the investments he talked about, which he’s really happy with, is Impossible Foods. This is a plant-based alternative meat company. And the argument that’s put forward by the CEO, Pat Brown of Impossible Foods, is that this is simply a superior product to normal meat. It’s healthier, it’s tastier, in his opinion. So this is about giving people products that they’re going to prefer.
Similarly, there’s another company that Khosla’s invested in called Glydways. And this is providing cars. But instead of being designed for someone to have like their personal car or like a taxi, they’re gonna be pursuing routes, fixed routes, which makes them safer because they’re not gonna be veering off in various directions, and therefore, they can be lighter. And so this is a public transit option. And the idea again is that this is simply gonna be more user-friendly. People are gonna like it. It’s gonna be cheaper.
Katie Martin
Aren’t they just reinventing trams or buses?
Simon Mundy
When he first mentioned it to me, I’d sort of thought, well, this . . . Exactly. I mean, it sounds like a reinvention of the tram.
Katie Martin
Congratulations! You’ve invented the bus.
Simon Mundy
But they’re getting customers. They’re getting city governments to invest in in rolling this stuff out. So the strategy is that a lot of this stuff won’t work, but those that do will work in a big way. I think it’s interesting also to think about the wider funding ecosystem at the moment, which is something we should probably talk about too, because it’s been a tough period in VC, including in this part of (inaudible).
Katie Martin
Yeah. I mean, venture capital is a funny space, isn’t it? And one of the things that always strikes me when I talk to people who are in that industry is exactly like the point you were making just a bit earlier: is they don’t expect all of their bets to work out. They expect a massive rate of failure in their investments and they expect to learn stuff from the things that go wrong and feed that back into the next project. And that’s all kind of all well and good when interest rates are really low and you can basically borrow for nothing and just sort of have a punt on a technology or on a company and see what happens. That’s not the environment that they’re in now.
Simon Mundy
Yeah. And so this again, we come back to this issue of carbon pricing, which is a bit of a hobbyhorse of mine because it strikes me as such a powerful tool that doesn’t involve straining national balance sheets. I think there is a place for strategic catalytic investments by governments, as we’ve seen from the US under Joe Biden’s IRA; we’re now seeing to a lesser extent in the UK under the new Labour government.
But carbon pricing, you shift the incentives, you make the high carbon optionsmore expensive, you make the greener options more attractive. And crucially, it can be revenue neutral. You can pay it back into people’s pockets through a carbon dividend and that helps to get it over the line politically.
So this is where I understand Khosla’s strategy and probably, you know, that there’s a lot of logic behind investing in things that don’t need government support. But the idea that we can just rely on people like Khosla to fix the whole problem without that wider shift in government policy seems very optimistic.
Katie Martin
There’s only so many Khoslas that exist at any one time. Since you mentioned it, let me throw you a curveball. You talk to a lot of green investors. How are they feeling about the new Labour government in the UK? There’s a lot of, you know, all of a sudden you’ve got like, onshore wind farms that are kind of getting the green light to go ahead. This new government stance is very different to the previous ones. Is the private sector on board here?
Simon Mundy
Yeah, I think so. I think the Labour government have been very assiduously courting the private sector. Starmer, Rachel Reeves, Jonathan Reynolds, the shadow . . . former shadow business secretary, now just business secretary. (Katie laughs) During their time in opposition, they were really going on a charm offensive. We saw at the last Labour conference, business was out in force because there was a real sense they were the incoming government.
So I think right across the private sector, there’s been really quite a receptive approach to them and particularly around green investment. I actually think in the UK something really interesting has happened in this last election. So obviously across various other countries, notably in Europe and seemingly in the US, we’re seeing a move towards the right, towards greater scepticism around the green agenda. In the UK, thanks in large part to the weak performance of the previous Conservative government, we’ve seen a move in the other direction — towards the centre left, towards more of a green agenda.
And I think actually, I read the Labour manifesto and right at the centre of it, their guiding mission to a large extent is around green investment. Not to save the polar bears, but because they see it as the key to a long-term national competitiveness that the country really needs.
And they actually, it seems to me they were actually relatively quiet about it in terms of their public communications during the campaign. But if you look at the real meat of their manifesto to do with national investment plans, to do with the guiding targets they’ve set, for example, decarbonising the whole electric grid by 2030. These are big, ambitious plans which are gonna create a lot of opportunities for a lot of companies.
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Katie Martin
For a lot of Vinod Khoslas that are out there.
Simon Mundy
Quite possibly too. Yeah.
Katie Martin
OK. Well we’ve set the world to rights here, Simon. But we’re gonna be back in a second with Long/Short.
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All right. Now it’s time for Long/Short, that part of the show where we go long a thing we love, short a thing we hate. Simon, what you got?
Simon Mundy
I’m short cars, in particular in cities. I mean, I get that there are many, many situations where you got to take that, but I would venture that there are many, perhaps most car journeys, especially in cities, that you don’t actually need to take a car and you could be getting much more exercise and getting some fresh air on a bike, like I do every day. So I am, I would say for that reason, with sympathy to the many people who do have to drive a lot, I’m short on cars.
Katie Martin
I’m gonna be slightly annoying and be short like, electric bikes. So I cycle a lot on what I would call a proper bike with actual pedals. And I know this makes me sound like one of those tiresome bike bores, but like, there’s lots of people zipping around at enormous speed on electric bikes who don’t appear to pay attention to any of the road signs or any of the traffic lights. And I don’t know, I feel like my next bike accident, because we all know it will happen at some point, is going to be at the hands of an electric cyclist.
Simon Mundy
So I think we can unite on a single message, which is get on your bike, your old-fashioned bike.
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Katie Martin
Get on your old-fashioned bike and stop when the lights are red. This is not hard. OK, we really have set the world to rights now, so let’s wrap it up there. We are gonna be back in your feed on Thursday, so listen up then.
Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com/unhedgedoffer. I’m Katie Martin. Thanks for listening.
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