In last week’s episode we chatted about ESG investing and also touched on the importance of addressing climate change as one of the major UN Sustainable Development Goals (SDGs). So this week, we welcome two experts, Jeremy Liddle and Zarmeen Pavri, working in the Venture Capital space who run a fund where all the underlying investments address the many issues of climate change. In this conversation Jeremy and Zarmeen talk about their fund: SDGx Ventures – Climate Tech Fund, talk about the difference between deep tech and ordinary technology, the role they envisage climate playing in any investor’s portfolio, and the crucial difference between Impact, and ESG.
Felicity Thomas and Candice Bourke are Senior Advisers at Shaw and Partners, and you can find out more here.
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In the spirit of reconciliation, Equity Mates Media and the hosts of Talk Money To Me acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people today.
Candice: [00:00:05] Hello and welcome to talk money to me, I'm Candice Bourke[00:00:08][2.5]
Felicity: [00:00:08] I'm Felicity Thomas. So hit back once again for our special guest episode to continue our conversation about ESG and impact investing. [00:00:16][7.4]
Candice: [00:00:16] That's right. And do we have a treat installed for you today? [00:00:19][2.9]
Felicity: [00:00:20] If you're new to our show, Talk Money To Me is a podcast where we draw on our extensive expertise and experience to help educate you on all aspects of your financial landscape. [00:00:28][8.1]
Candice: [00:00:29] And if you're one of our regular listeners, firstly, thanks for tuning back in. But you're probably also getting a little bit sick and tired of me saying our financial disclaimer. But sorry, guys, we've just got to quickly cover this off, even though we are registered financial advisors at showroom partners. Please note that this podcast and the content discussed does not constitute financial advice, nor is it a financial product. The content on this podcast is journal Nature, and you should seek professional, appropriate advice before making any financial decisions. [00:00:55][26.7]
Felicity: [00:00:56] Now, in last week's episode, we chatted about ESG investing, and we also touched on the importance of addressing climate change as one of the major UN Sustainable Development Goals, or SDG s. Now, if you're an ESG investor like us and you want a refresher on ways to invest ethically, we do recommend you listen to our need to know episode as we Covid off a few of our preferred ETFs. Managed funds with all within the ESG space. So naturally, I think that's a good episode to listen to before this interview. [00:01:24][27.9]
Candice: [00:01:25] 100 per cent. And these ETFs, of course, for I'd like to make money. So they performed quite well. So in today's episode, we are chatting to two experts in the venture capital space who has recently caught our eye. Not only are they investing their own money into their VC fund, but the underlying investments in the fund all address the many issues of climate change. The fund is called SDG X Ventures Climate Tech Fund. Behind this VC fund are our special guests today Jeremy Liddle and Zarmeen Pavri, [00:01:55][30.0]
Felicity: [00:01:56] and to provide a bit more context. Jeremy Liddle is an investor, advisor and media PR specialist for climate, tech and finance companies. He's a founding partner of SDG X, a private UN Sustainable Development Goals investment and advisory firm focussing on climate tech and also the executive director of third hemisphere and media relations firm. He's been an entrepreneur for over 20 years, invested in over 25 private companies and represented Australia at the G20 Young Entrepreneurs Alliance and the UN. [00:02:28][32.3]
Candice: [00:02:29] And his right hand woman, Zarmeen is the chief impact officer of the firm and has established senior investment management executive with over 26 years experience. Zarmeen dedicates her efforts towards creating impact at every level of the impact economy, with the goal of transforming investment and capital markets to being a force for good and positively impacting people and the planet. Wow, what a goal, right? She's also a non-executive director of an ASX listed company. Magnus Energy Technologies, which is a lithium ion battery manufacturer, and the cold front look it up on the ASX is immense, and she's also the chair of sustainability and also sits on the board of New Ethical Investors Limited, which is a $1.5 billion ethical investment firm. While she is impressive, I [00:03:16][46.9]
Felicity: [00:03:16] mean, they're both very impressive, aren't they? Well, thank you both for joining us on our show today. You know, clearly you're both experts in the room when it comes to ESG investing and making a long lasting positive impact. So to kick start today's conversation, we've been hearing a lot in the markets about the importance of investing into green alternative sources of energy and advanced technology to help reduce greenhouse gas emissions within the next decade. But Jeremy, do you think it's all talk and no action? I guess from your perspective, are we actually getting anywhere to meeting those 20, 30 and 2050 net zero carbon targets? [00:03:53][36.9]
Jeremy Liddle: [00:03:54] Yeah, there's certainly a lot of talk about tech and targets and meeting fate and things like that from the government, like we've got a climate technology fund. So obviously, we think technology is one of the best possible ways to solve this problem. And the fact that we're investing means we also believe that it's one of the best ways that we can deliver above market returns to investors. However, it's not the only solution, and it can't be done in a void of good policy and greenwashing. So I think unfortunately, what's happening with the current current government, depending on when this goes to air, is that there is a significant amount of greenwashing. And Scotty, from marketing old tricks of coming up with catchy slogans when instead of doing the really important things like setting strong 2030 targets and looking at a whole breadth of solutions instead of cherry picking the odd one or two to put into advertising campaigns and. Really going hard on the future industries and the jobs that will support them, as opposed to supporting legacy industries like the fossil fuel industry and I [00:05:10][76.4]
Felicity: [00:05:10] mean, just a quick, I guess recap for our audience what is greenwashing? And you know, what is brown washing because we hear about greenwashing, brown washing? Can you kind of explain it for the rest of us? [00:05:21][10.6]
Jeremy Liddle: [00:05:21] I don't really quickly. I think so. I mean, is our chief impact officer and the expert on this stuff. But I guess what I was referring to in the way that the government is currently greenwashing is that they are taking examples of doing something that's somewhat good for the environment and then blowing that way out of proportion to wash over all of the things that they continue to do wrong and continue to do that undermine or completely remove any potential positive effect of that on. A good example that they're using that.., Zarm Might be you've got a better, broader answer. [00:05:58][36.4]
Zarmeen Pavri: [00:05:58] Yeah, I think from an investment perspective, at least we're seeing lots of existing funds and investments being made into various companies and being relabelled related, you know, things for good and the use of the word impact is being used very colloquially and not really addressing the actual underlying problem statements that are going to impact society. So, you know, a common one is just we. We are addressing the labour market and we're creating jobs. Jobs is fantastic, but every single company is creating jobs and it goes on for various other environmental or social other metrics where the reframe is being done and it's almost the equivalent of putting lipstick on a pig. In some cases, so yeah. [00:06:54][55.2]
Jeremy Liddle: [00:06:54] Clean coal is a great one. Like we don't we don't need clean coal and an alternative to coal. [00:07:00][5.9]
Candice: [00:07:01] Exactly. So I guess the frustrations if the government's not going to take charge, particularly here in Australia, zameen, I mean, if we educate the investor right on the micro level, what role do you think climate plays in the investors portfolio and why is it important for them to consider that? [00:07:17][15.1]
Zarmeen Pavri: [00:07:17] Well, if we think about every working adult, most in Australia have superannuation just as a starting point, so every single person working is actually an investor, even though they don't see their superannuation for a long time. So when you're looking at the superannuation industry and all our money is sitting, around three trillion dollars might make close to four trillion dollars that have actually exposure to climate climate risk. And we know that climate risk is actually a financial risk and there's two elements to the climate risk. One is the physical aspects of climate change, with strand exposure to stranded assets sitting in your portfolio. And the other one is the transition risk and the the ongoing, you know, journey, I suppose the energy transition to a low carbon economy and having transition risk sitting in your portfolio. So it's extremely important to whether you're a passive investor or an active one to actually start challenging your superannuation as to what's happening with them, addressing climate risk as a fiduciary and just really understanding that, you know, well, there's high weather impacts, heat, extreme weather conditions. What does that mean for your underlying assets and the companies that are holding those assets? So tremendous opportunities also with risk. So that's the other thing. The biggest risk is to not invest in opportunities that are coming onto the scene. So two sides of your investment and it's pretty important to address. [00:08:56][99.4]
Candice: [00:08:57] Yeah. And I like that because, as you say, superannuation, everyone here in Australia has it right. It's 10 per cent of your net wealth or your income. So very important. And I guess it is. ESG has been very topical, I think, with the pandemic roll out in the last two years. So I guess a question for both of you. Do you think with all the trends and data that we're seeing that, you know, we weren't commuting to work as much greenhouse gas emissions around the world has dropped a little bit with obviously the pandemic keeping us all in a lockdown. Do you think investors now thinking this is the time to like you were saying, I mean, to act on investing in the space and pack space? Or do you think that we've still got a lot more education to go? [00:09:37][40.4]
Zarmeen Pavri: [00:09:38] I think that is the twin crisis of health health for the people through the pandemic and health of the planet and with the health of the people with the pandemic, I think it's causing an awakening to the conscious consumer. The conscious investor and people have recognised during this period that there is. Your life is actually quite short, could be cut short. So looking at their investments and how they want to live their life and better, you know, for the future, they are starting to look at that. There is a massive increase in lots of data on ethical investing, ESG investing, sustainable investing, so we can see definite trends, new products coming to market. And I think that really what's happening also is with that conscious investor awakening is people want to express their values and their moral compass through financial expression, which is through ethical investing, through having investments, making real world outcomes. So definitely a demand that's increased and continues to increase. Where no longer will a traditional investment products be viable? There's that there won't be existing and [00:10:52][74.3]
Felicity: [00:10:53] you make a really good point. You know, the superannuation industry is at three point three trillion dollar industry. So I think, you know, most people have superannuation and most, you know, investors are seeking, I guess, that ESG filter and companies that actually do make a real impact. So I guess in your opinion in both of you can answer this. I mean, what is the best strategy in reducing global greenhouse gas emissions? You know, what should companies around the globe be aiming to achieve and really put into place? And this is a pretty hard question. [00:11:22][29.0]
Jeremy Liddle: [00:11:23] It's a very big question. So depending on whose numbers you look at, there's something like forty two gigatons of carbon being emitted every year. And so reducing that is not an easy task. It's kind of a mind boggling figure. One of the things or probably two overarching fanatics in the use of fossil fuels, that kind of that. Everyone says it. But if you think about it simply, you stop burning carbon entirely, then you solve the emissions problem. So we just need to stop burning every single form of carbon, which is not an easy thing to do. And then if because we are depending on again, which mass you look at and which projections, potentially beyond solving the problem simply by reducing carbon, it might just be too late because the world's not moving fast enough. We need to capture as much carbon as possible as at the same time, and that can be done through technology solutions, but also environmental solutions like so we're seeing a lot of you've probably heard about the seaweed. There's pink seaweed coming out that can help decarbonise our agricultural industry by by solving four problems in the animals was one thing, but then just planting lots of seaweed. It's one of the best possible carbon sinks. So there's sort of two overarching themes, like one company that I've invested in. Personally, Ola is producing a plastic replacement technology made from seaweed and at the same time, encouraging the use of seaweed, which captures like five kilograms of carbon for every kilogram of plastic replacement product, which is really cool. And hopefully our fund will invest in them at some point in the future once they mature the technology a little bit further. And so and then you've got sort of these five thematic electrify everything, get to zero carbon transport, get to zero carbon buildings and zero carbon production, manufacturing and industry and the agriculture, like I mentioned. And so like another really cool, there's two companies that that we've invested in on those fanatics. So kind of battery technologies that crosses over between electricity and transport that are producing this really amazing new battery anode technology that improves the efficiency of batteries, particularly for electric vehicles and spin drive, which have created a magnetic ball bearing replacement technology. So did you digitise ball bearings that are completely free of friction of friction? So every turbine or rotary engine, which is in a lot of manufacturing equipment, can be replaced and which massively reduces the carbon output and also the ongoing costs of upgrading that equipment as well. [00:14:06][163.1]
Felicity: [00:14:06] That's impressive. I guess on this point, Jeremy, I kind of you know, what I read recently is that actually a lot of companies are just buying carbon credits rather than actually solving the problem. You know, a lot of these huge, I guess not tech companies, but a lot of the companies in the S&P 500 are just doing that. You know, what are your thoughts on that? Because it seems like they're just kind of putting everything under the carpet or under the rug, [00:14:29][22.5]
Jeremy Liddle: [00:14:29] something we talk a lot about and we are, I think in all honesty, still learning ourselves about the carbon trading market and all the implications of it, like in a in a perfect world, the carbon the price of carbon would be zero because there would be so much carbon capture credits being offered by all the amazing ways in which people were implementing carbon capture solutions that it outstrips demand. But I think the reality is it's going completely the. Why everyone's just trying to buy carbon credits instead of focussing on what the solutions are. So the carbon price is probably going to go through the roof, which is great for people that want to try it on that, but probably not amazing for the environment and the actual solutions that it's trying to inspire to the point. And until the price becomes untenable, which is obviously the goal of it all. [00:15:20][51.0]
Zarmeen Pavri: [00:15:21] The question is also around strategy, right? First of all, is to have a strategy and commitment and a target and moving from aspiration to action. And so companies really need to start putting creating short term goals as well as long term commitments and then then moving towards demonstrating those, you know, an action plan towards it through doing some of those solutions that Jeremy talked about. But some industries may need to do recognise that they are going to be harder to address. And and for those companies, you know, there's a there's a cost of transitioning. And you know, businesses will need to do an assessment of the spending on the transition and make a credible stance on using high, you know, high quality solutions to address their scope one, two and three emissions that are coming from that business definitely [00:16:18][56.9]
Candice: [00:16:18] falls onto your point. You know, falls on the the decision makers of these companies to really get these statements up and running actually have ESG focussed targets emissions. But on the other side of the spectrum political level, you know, do you think government step in here and make some really strong policies, I guess, in your opinion, on a global scale, who is leading the charge on the climate change conversation on a political level? You can Scott Morrison take some notes from me in your opinion. [00:16:46][28.4]
Zarmeen Pavri: [00:16:47] We're at the bottom of the pile right at the moment. Just look totally embarrassing. And even for us as a global, well, Australian based investment managers and talking to the global arena, it really is actually embarrassing. Look, the European market, they've already got legislation for the EU tax on green taxonomy. They've got transparency and legislation on sustainable development, financial reporting as if they are happening for the investment market UK. So all of the the the European markets we saw even at the last moment, us and China coming together to and that's a really big signal, right? You know, what happens is fine, but signals also need to be made to the rest of the globe. So, yeah, Australia does need to have a very strong position, so it helps private sector get on with the job. So, you know, domestically, we also have an incredible opportunity. We've got everything to be a renewable energy export superpower. We've got India sunshine, lots of wind, abundant space and strong trade relationships. So we're actually not actually capturing the latent value sitting in our country due to lack of policy and strong policy leadership. [00:18:13][86.1]
Jeremy Liddle: [00:18:15] And we've got some good examples here, like the Zali Steggall revised climate change bill. Excellent. And should we get more independence into government off the back of some of the great work that organisations like Climate Two Hundred are doing, putting more independent pays out? Maybe we can shift the balance of power towards the independents that are being that have got amazing examples like Sally. And you know, one of the many things there's a lot to unpack in that bill. But she upped the target for 20, 30 to 60 for a commitment to sixty five percent reductions beyond Paris, which as a policy framework would be excellent because there would be some pressure and some potentially legally binding pressure for governments and organisations to invest and to reward companies that invest in getting towards that target. So there's there's good examples here as well. Be interesting to see how the next election goes. [00:19:12][57.0]
Candice: [00:19:12] No, definitely. And like, look, we're we're not taking a side here on politics, and I'm sure you guys aren't aren't either. But it's interesting to I think in our opinion, you've got to have both sides of the private and the public sector working together to achieve these goals or we're just going to keep going around in circles. [00:19:28][15.4]
Felicity: [00:19:29] It's everyone's problem, really. [00:19:30][1.2]
Jeremy Liddle: [00:19:30] That's something that Malcolm Turnbull and others have talked about. Like it shouldn't be a political issue, correct? It should be completely politicised. It's an economic and national and labour issue. It's not. It shouldn't be a political issue. [00:19:44][13.4]
Candice: [00:19:44] So in a moment, we're going to be chatting more about the returns your actual fund as well. We're excited to hear more about that. How you guys actually screened for impact in ESG investing when you pick these deep tech companies to make up the fund. But before we do. We're just going to take a short break to hear from our sponsors. So I want to focus more on the actual B.C. Impact Fund that you guys run, so tell us why venture capital as an asset class provides the best investor returns in your opinion when it comes to making these impact outcomes towards climate change. [00:20:14][29.8]
Jeremy Liddle: [00:20:15] I guess we see as an asset class gives you a really nice balance of risk and scale and impact. So you know, you can get into, particularly when we're talking about date technologies, which I think we'll explain in more detail a little bit later in a future question. But with that with deep technology, are there any technologies through V.C? You can get a portfolio of companies, which is really important. You need a portfolio because the risk is high. If you were to take a bet on any single company you're looking for, typically anywhere between 10. If you're super concentrated up to 30 plus companies in a single VC fund and across that portfolio, you can get significant upside. You know, some of the better performing VC funds in Australia or doing anywhere from 40 per cent per annum to 100 percent per annum, plus an IRR on on some of their portfolios. So you get you can get incredible returns from a financial perspective, and these these technologies scale quickly to use the old buzzword exponentially. But it's true. So, you know, you look two, three, four years down the track and the impact that these technologies can have upon hundreds of millions, if not billions of people tends to outstrip most other sort of places that you can place your time and energy and capital. So that's one of the many reasons that we like see is an asset class, and we took a bit of a leaf out of Breakthrough Energy Ventures when we were designing our funds. Bill Gates is fun where he got many of the global tech luminaries together and raised about $1 billion, and I think subsequently that Bryce and other 1.2 billion or something globally, as well as applying money in Europe. And I said, we want to look at deep technologies, particularly in the area of energy that can reduce or remove up to half a gigatons or a minimum of half of gigaton of carbon per year within 10 years, or inspire an industry that can do that by investing in a company. It could inspire an industry. So we really loved that as a shining, as a sort of a guiding light, a north star, and we've applied a similar framework to how we assess our investments. And by virtue of that, we're not going to invest in 84 companies in the next year or two, but we might over, you know, with our goal of investing a billion dollars by 2030 and climate tech, we might invest in 84 companies and if they won't, but if they already had, half of Gigaton would solve the problem. But we're not the only ones trying to solve this. There's billions and billions of dollars being raised all around the world by funds and investors trying to do similar things. So we think it's a really nice way to a potential way to solve the problem. [00:23:05][169.8]
Zarmeen Pavri: [00:23:05] Lastly, for the to just Jeremy's statements, you know, if investors are looking for how do you connect your investment dollars to real world outcomes, the private markets is the the the area where you actually can connect your investment dollars to something very tangible that's actually going to solve for solutions so they see as an asset class. But I'd like to probably couch that or put a caveat on that. Not every V-C, it's an impact they fund that's going to measure and be accountable for those solutions that we're investing in. And that's probably also the big difference. Otherwise, you'll see greenwash in investor asset classes as well. So I think that it's really important that from an authenticity perspective, where it's at least is coming from a perspective of not only will we give you exponential financial returns and address the climate solutions, but we're going to measure it and create impact returns. And that's pretty fundamental because what you measure matters. Because when someone says I'm reducing water usage and this is a fabulous technology, well, compared to what you know, what's the relativity? Is it, you know, did you invest in a possibly a very water intensive company that that's then reducing it or you don't have any relativity, so you have to measure it? And I think that's one of the key differentiators between what we're also doing. This is a, you know, traditional VC asset classes just, you know, investing in renewables and could be renewables in middle in the Middle East and have human rights issues, right? So that's that and going back to that point about impact washing and greenwashing as well. [00:24:58][112.7]
Felicity: [00:24:59] Thanks for clarifying that. I think that's a really important. Point for our listeners to hear about now, let's add to the entries question, because everyone's probably like, what is deep tech? I mean, could you explain the difference between deep tech and I guess, is it ordinary tech? You know, and the second part? How do you screen for potential deep tech companies and how do you assess this? You know, what process do they undergo? [00:25:21][22.4]
Jeremy Liddle: [00:25:22] Yeah. And we've got a framework that we sort of have borrowed and adapted from various different people around the world that have tried to answer exactly the same question. So this is sort of six points, and we say that three or four of these points, if the company takes them, then we're going to classify them sort of deep tech enough for our phones anyway, for our definition. So the first one is that it's based on the scientific or engineering research, which leads to commercial breakthroughs, like some companies take three years in research before they even think about a product. Some take Flight 50 like. The extreme example is that there's a nuclear fusion company that we're looking at that we really love called HP 11. We haven't invested yet, but I just I just love the guys and the original scientists conceptualised this idea of creating nuclear fusion with lasers in 1948, and then the technology had to catch up. The lasers didn't exist. So the lights went around back in 1948, and now they're getting to the point where they're proving it out and it could potentially work. It's not the company, it's it's that's really cool. So that's an extreme example. But that's that's a that's an extreme example of the depth of research that is often backing a deep tech company vs. creating a web app or a mobile app or something like that, just a lighter tech company. So that's one thing that leads to Category two, which is sort of revolutionary, not evolutionary or incremental innovation. So it creates new markets. It creates massive change. It's not just sort of an incremental improvement on something that's existed before. That tends to lead to Category three, which is it's transformational and, like I mentioned, creates and creates entirely new markets, new revenue streams. It's something that didn't exist. Once that technology is implemented, it did create something that wasn't there before Category four Deep Dive. So the intellectual properties typically protected with a family of patents, but it's one and across multiple jurisdictions or at the very least, the tech is patentable. And there's a whole bunch of economic reasons or commercial reasons behind that as well, because intellectual property builds more valuable companies over the over the longer term. But that's a category that that we look closely at. By virtue of that, they've had heavy investment in R&D over a long time, and that often includes trials or pilots, which is sort of category six. We like to see the tech's been piloted in an environment either at MIT, at that at a minimum and minimum in the laboratory environment, but ideally a commercial environment. So we look at those and if we get three or four or five of the six, then that's a tick for us on deep tech. [00:28:05][163.1]
Felicity: [00:28:06] Great. That's a great definition. Now everyone can walk away from this knowing what deep tech is when they come across it again. [00:28:13][6.7]
Candice: [00:28:14] So one area that really stood out to me in those six criteria is Jeremy, was that it sounds like the main crux is does this technology companies solve a climate change problem, right? What role does impact play in your opinion within the fund? And how do you assess companies when it comes to their impact to make that decision? [00:28:32][18.5]
Zarmeen Pavri: [00:28:33] It's a great question for differentiating us between, you know, how we invest, and one of those criteria in looking at deep tech companies is what is their impact footprint. And so it could be things that are outputs of of that deep tech company. And we use that measurement that Jeremy said that the first cut, if you like, of the impact eligibility to coming to the portfolio is has this company got the ability to reduce that half a gigaton of greenhouse gas emissions per annum within the 10 years? Now that's a really important criteria and it's actually a filter. So we've had as an investment committee, quite a lot of debate on could this potentially do it or not? And we go back to the founders and say, Well, you know, create your proxy and let's see how how this can actually give us a line of sight. And and with also that we also, you know, look at other impact elements, not only the the E factors, if you like, which is the greenhouse gas emissions, but also the, I wouldn't say, secondary impacts, because that's how typically people talk the secondary and the third impact in the fourth order impact. But the social aspect. So one of the companies we're also looking at. Is focussed on the last energy mile and addressing that problem in Nigeria, so giving access to energy to people in remote villages, you know that it has impact metrics. If you like on health, they don't, you know, families don't have to use would call dirty, dirty energy. Have got clean energy. Health impacts. Societal impacts. Economic impacts that continue. So we look at a multitude of impact factors. But our first one is the the airport, which is the greenhouse gas emissions reductions and that potential. [00:30:41][127.6]
Candice: [00:30:42] And a follow up on that. You know, there's a lot of interest, as you guys are mentioning in the East. Space and impact funds maybe just provide us and our listeners more background on the views and the difference between the two and how you apply this to your fund. [00:30:54][12.2]
Zarmeen Pavri: [00:30:54] So if you think about there's the alphabet soup of responsible investing, IRA SRP ESG Impact II keeps on continuing so many acronyms, so many acronyms. So the fundamental thing is really there's a delta factor between ESG and impact investing. There's a few of those things, actually. If you think about ESG, it really focuses on, first of all, risk mitigation on the company, on the underlying asset. Looking at, you know, how does this company, how does the environment and its surroundings impact the actual company? So it's very company focussed and looks at outputs, possibly. So companies like say, for instance, MasterCard may have a fantastic ESG practises. You know, it looks after its people. It's got a good footprint. It's highly rated as from the agencies as a good ESG scorecard through data service provider. It's got a low carbon footprint, but doesn't actually really have a strong sustainability and impact related outcome. So that could be one. Or it could be something like even Philip Morris. When you're looking at ESG, you know, it could have again, a strong ESG practise, a high school card, low carbon footprint. But is it ethical and is it causing? If you look at it from an impact lens, it's causing tremendous health outcomes. So when you look at the impact, when you're using an impact lens, the actual investment universe changes the way you look at things change. It could be the same same investment company, but just looked at in a different way and it would be screened out. And so impact is really about problem orientated solutions. It's and investments. So it's not looking from top down, it's looking from bottom up. And there's a few key factors the intentionality, the additional debt that investment's going to bring to the market access and addressing the Sustainable Development Goals is the true north of impact investing. So ESG is very company focussed. Impact is addressing systemic. Issues in the marketplace and how do we solve for those big, big hairy challenges? [00:33:17][142.6]
Felicity: [00:33:18] That's a fantastic quote. I think we need to take that plastered everywhere. [00:33:22][3.8]
Candice: [00:33:23] I think that's the crux of the whole interview right now. So I just want to ask on that point when you are assessing these companies and I guess in your experience in the in the impact investing space, is there any material difference between if you just focus on ESG investing, let's say you get 25 percent Kaguya return vs. impact investing, you're going to make more as an investor, do you think? [00:33:46][22.9]
Zarmeen Pavri: [00:33:47] I think that if you look at traditional markets, you have say, for instance, and I will answer the question in a roundabout way. If you look at your equity portfolio and your superannuation fund, you'll have a range of fund managers running equity funds management. You'll get a range of returns and you'll get a range of risk profiles. Even across asset classes, you'll get a range of returns. The same goes for ESG. There are studies that show that when you're investing in sustainable companies, that there is long term value creation and they are more sustainable and create more financial return with impact. The data is still not, as it's only been around maybe 10 years. SDGs are five years old, [00:34:36][49.1]
Candice: [00:34:36] so it's hard to make a benchmark really for impact investing [00:34:39][2.3]
Zarmeen Pavri: [00:34:39] on the returns profile if you think about what Jeremy said about VC returns and exponential returns with impact. You know that VC asset class with impact is there, right? It can. It's a stand out. What we do need to recognise is that the marketplace is shifting towards actually not necessarily counting, but valuing and valuing impact returns, meaning, you know, we want to make a difference and we need to actually measure it. So think about goodwill IP patents. We're starting to have conscious investors wanting to calculate and measure what is that impact footprint. How am I actually really making a difference? And that is actually a key component that sits side by side with financial returns. And I can say from looking at our fund, we do not compromise on financial returns because we want to invest with impact returns as well. They actually is sitting side by side. So there's no, you know, sacrifice, if you like, of financial returns because we're applying a certain methodology, this another. [00:35:47][67.3]
Jeremy Liddle: [00:35:48] There's actually a really simple, I think, way of just looking at that one metric. Like if we look at a company like Spin Drive or Sakina that that want to get to half a gigaton per year within 10 years of carbon emissions reductions. And then you work the numbers on how many companies do an aide to sell to. What does the annual sales volume need to be to be generating that impact their deck acorns multiple times over when they get to that point? So why would you not want to use something like that as a Northstar for a company, it's you'd be crazy not to. So there's no there's there's no trade off at all. [00:36:29][41.4]
Felicity: [00:36:29] That's fantastic. And I guess that's what everyone wants to hear now on that. Can you tell us the way your fund is actually unique from an angle of innovative finance and blended finance model, the approach that you guys are applying? [00:36:41][11.3]
Zarmeen Pavri: [00:36:42] So if you think about VC as an asset class VCs typically help not only with capital but mentoring capital relationship capital. We help scale them up with our particular structure. We also have another side car if you like, and we have got a muse signed up with an international development agency called D.T. Global, and they are going to be our technical assistance facility. And what that means is that we may have start-ups that require help to get into another country and scale up. And we have a global sitting in 90 different countries that have had exposure into helping those companies improve their impact, do community engagement on the ground and really provide an additional non-financial capacity build for those for those companies sitting in our portfolio. So it not only risks the actual companies that are sitting in that portfolio, but it's also de-risking our the VC asset class. So it's called a technical assistance facility, which is a one type of blended finance solution where philanthropic money and donor money can come into that facility. And from their perspective, globally, what we're seeing is they want to help start-ups and innovation and address real world problems. So. They are happy to use grant money to help those companies, so it sits in that facility, they take global implements and works with us to say, what did those companies need in terms of support for global tech transfer and entering countries and improving their impact? So that's that's how we've created a de-risking mechanism on that asset class as well as underlying companies. [00:38:36][114.3]
Felicity: [00:38:36] That's it. And I guess just for our audience, in my view, is a memorandum of understanding. So just a formal agreement between two parties. Just to clarify that. [00:38:45][8.6]
Jeremy Liddle: [00:38:46] I guess want one thing I'd guess I'd add to that is that it's a super uncommon structure in Australia. It's something that's developed that's borrowed from the developing or the developed world and development organisations. So you see it more in UN agreements and or with the UN on investment vehicles where there has to be genuine impact. You don't get to have philanthropists giving you money to donate to companies if you don't have that bona fide impact fund sitting alongside it. So no, no normal V.C. would be able to set up a facility like that. And so what we are getting challenged on and will continue to be challenged on is making sure that that impact framework is applied robustly and that these companies are having an impact in places where it's important, like Southeast Asia is one of the reasons that we have such a focus on taking these European and Australian technologies and applying them to areas like South East Asia, where they can have a big impact in less wealthy countries. [00:39:49][62.6]
Candice: [00:39:50] And it's no doubt your VC fund is very unique and stands out in its own right. And I guess one thing that we noticed was that SGX has recently written a paper on the partnerships and collaborations this year, which was released together with the UN AA. So could you share with our audience a little on why that's so important in your opinion and how your VC fund has really adopted this in your investment process and framework? [00:40:11][20.7]
Jeremy Liddle: [00:40:12] I, yes, I can probably give the context around that the white paper. It's not often that VC funds partner with UN agencies, and I guess that the the inspiration around that was originally started by one of our co-founders, David Gallop, poses by staff in Bangkok, who's had been in the tech industry and headaches its back before the dot com boom. But then it's been about 15 years building innovation portfolios and then the last five years before joining, working or establishing a UN agency that for the first time got UN lawyers comfortable with saying that the UN can partner with for profit vehicles and fund managers. And so he went and structured funds all around South East Asia on behalf of UNDP, where they were the the investment partner, and he would sit on the investment committees being the sort of the impact overlay or the impact measurement person for for the UN. And so that that was part of the reason that we started as branded as SDG X. And the reason that we continue to work with UN agencies and like you and I was that we did that research because they were doing this brilliant summit around all the ways that. Different sectors need to partner in order to solve these problems, and we thought it was a great way to put the message out to the market that this kind of investment can be done a different way through a different lens. [00:41:41][88.8]
Zarmeen Pavri: [00:41:41] And I think further to that, the way we're walking, our talk is we have built partnerships with various universities, you know, to help with deal flow and assessing technical didi. So we've got partnerships there. We've got, as we said earlier, the Memorandum of Understanding with DTI Global, another partnership with the International Development Agency. And what we're seeing with addressing the Sustainable Development Goals and in particular, say climate we recognise in the globe actually recognises that no one company can do this by themselves, and a collective collaboration effort is required. And so that partnership paper was, you know, a statement to say that we will do our bit, but we will partner with the others to really solve for these problems. And I think that our business model, if you had to look at it from a funds management business model or even a company business model, we've moved away from a silo approach. We see now vertical integration companies. We now moving to the the next generation of circular business models will, as is an ecosystem business model, which requires partnerships and collaborations. And that's the the next gen. The fourth, the fourth industrial revolution, requires the transformation of business processes and finance and everything else to a line up because we certainly can't do the same things over and over and over again, expecting a different result because I think I sense that that's the definition of insanity. So where we're trying to ensure that we also create new business models for how investment in the future can be done? [00:43:26][104.6]
Felicity: [00:43:27] Yeah, that's fantastic ecosystem. And we do see that a lot on your website, which is really interesting. So now let's get to the really, really juicy stuff. So I guess another aspect of SDG X and your fund, which really stood out to Candace in AI is actually that you're investing your own capital. Now we know you're actually both invested your own money into this fund, which we love. You know, skin in the game is such an important factor as an advisor to look out for, you know, as you can actually take some comfort knowing that your money's invested alongside the decision makers. Now you've mentioned a lot of companies today, but could you both pick out one company, which you think is smashing their SDG and climate change targets in your opinion? [00:44:06][39.4]
Jeremy Liddle: [00:44:07] We've looked at a few companies that, like some mentioned before, that are electrifying the last mile in communities that do not have any electricity. And it's it's not a revolutionary concept, but the way that this company is doing it is quite revolutionary, mostly by virtue of the fact that they're actually succeeding. You know, a lot of companies have tried and not got to a level of scale where they'll actually solve the problem. This, by their numbers, 100 million people in the world that have no electricity or that are relying on diesel generators and that are paying like three hundred dollars a year for diesel, when they may be earning five hundred to a sorry, $300 a month for diesel, when they might be earning less than 500 to a thousand. So it's a huge portion of their income and they're polluting at the same time because they don't have any other solutions. So this company goes and through the energy distributors or the utility companies, sells hardware kits, a plug and play kit of a smart made of solar panels, battery installations to create a microgrid and a software platform that gives the energy company complete transparency on the use of that energy and even to the degree of controlling the energy going on and off if people aren't paying the bills. And it works out, I believe, to be significantly cheaper than their previous solution at a consumer level, but also significantly better for for the utility. So we love a solution like that because the impact is huge. The carbon emissions that are immediately traceable, we know on a per head basis how that company can get to half gigaton per year within 10 years. And it's exceptionally lucrative as a business model. So they charge a subscription service charge to the utility as well as an upfront installation fee. And they've got the World Bank and other development finance institutions subsidising the installations and providing facilities for the utilities side to help scale it up. So it just ticks every box for us, that kind of solution. [00:46:23][136.6]
Zarmeen Pavri: [00:46:24] And I think further to add when we were talking about the impact. You know, we mentioned previously about the environment, environmental front, but this one's also good when we're looking at the last energy mile in developing countries. The most impact is actually two women. And so there is a climate and gender multiplier happening on that front, and that's very specifically a really important additionality factor and an impact multiplier for us on several levels because not only for women's economic empowerment, when they, you know, in the health outcomes and it just goes on and on and on that impact, multiply just tackling that market. And and this group, you know, they're in Nigeria, Philippines, going into Cambodia in really hard, hard spots. But the the fabulous part that Jeremy, you know, did also mention they've executed. They've got great execution skills. They've done it. And if they can do it in those countries, they can kill it in Australia, in remote regional Australia or any other country. So that's what we mean about transforming countries at the country level, which is super exciting for us. That's our favourite [00:47:50][85.9]
Felicity: [00:47:51] one. So exciting. And that's fantastic. And I guess just for our audience, the reason that we can't actually say I can actually say the company is they're just finalising their investment in Daday. I'm going to guess what disclosure reasons that can't mention it. But don't worry because we're going to be following the story and we'll update you on the impressive business once we can. And once it's released now, we've got one more question, and it's very, very, very important. Coffee, tea or tequila? What's your preference? [00:48:18][27.4]
Zarmeen Pavri: [00:48:21] Right now, it's bloody tequila to solve for the world's problems. It's it's very heavily on my shoulders. And, you know, all of us in our team have made some significant sacrifices to to follow this dream and to really align hit hand in heart. So yeah, there's times for the tequila and we will be celebrating after we close one of these these deals, which that's for sure, the teas for, you know, keeping myself calm when I have to speak to fund managers, when I'm advising on impact and when I see impact wash happening. And it's it's quite a painful process. So I have to calm myself down and I think coffee to keep me awake at night because I'm running global hours. So I think all three. How about that [00:49:18][56.4]
Jeremy Liddle: [00:49:18] one? I just café patron, but I think I took it off the market thing, which is devastating the market. [00:49:24][5.6]
Felicity: [00:49:24] Yeah, that's not good enough to stock up or it'll go on already. [00:49:29][4.5]
Jeremy Liddle: [00:49:29] I don't know. Yeah, but probably coffee otherwise most of the time. [00:49:34][4.2]
Felicity: [00:49:34] Yeah, no. I definitely need your morning coffee. All right. Well, thank you so much for joining us. We, you know, that was such a great episode, and our listeners are going to absolutely love it. Now, if you'd like to get in contact with the Candace or I or to find out more about this TJX event, your climate change tech fund or deep tech fund, you know we should our listeners reach out to you. [00:49:53][18.5]
Jeremy Liddle: [00:49:54] So Io is the website that we're pretty accessible on. LinkedIn, I think is probably the easiest way for me anyway. So I'm going in my ear. Yes. [00:50:03][9.0]
Felicity: [00:50:04] Yeah. Fantastic. [00:50:04][0.6]
Jeremy Liddle: [00:50:05] Reconfirming little with these, which you've probably seen the night. [00:50:07][2.4]
Felicity: [00:50:08] That was such a fantastic episode. I mean, that was I'm just a bit, I guess, mind blown right now about how much we just learnt. You know, it'd be really, really great if you could tell us what you thought was interesting. I mean, send us a message or you can slide into our dams like Candace said and last episode [00:50:26][17.4]
Candice: [00:50:27] and remember guys to follow our Instagram for daily market updates. Also, any stock updates for our order pad stocks that we're talking about and I'll handle just to remind you all is at Talk Money to Me podcast or, like you said, slide into the DM. [00:50:42][14.2]
Felicity: [00:50:42] That's it. And every day we will post it before the open to let you know what happened last night in the US. And we're also told Lateline, which will get a little bit of an overview of kind of what happened that day. And we will definitely keep you updated, whether it's on a new episode or whether it's on our Instagram about through this company is that SGX is investing in because it sounds fantastic and we need to get in. [00:51:05][22.4]
Candice: [00:51:05] All right, stay tuned on that. [00:51:06][1.0]
Felicity: [00:51:07] Until next time, [00:51:07][0.6]
Candice: [00:51:08] see you and remember, invest your money with an impact. [00:51:08][0.0]